Sorrry for the long reply folks.
you aren't going to part with .00001 of them to get your holographic phone
Touché! Like I said though, I'd weigh things up - how bad is the deflation, how necessary is the object. I hate mobile phones (didn't get one until 2002), but they have become, there you go, a necessity of modern western life. I guess I'm just not a good consumer - I don't have a tv, I prefer small cars, I eat at home, I sew my clothes up instead of buying new, and I only buy a new mobile phone when the old one dies... etc. But here's what I think would happen in a deflationary scenario - there's less money so many people can afford only necessities, those that can afford luxuries see their money appreciating and hoard. Nobody buys new mobile phones, so the mobile phone manufacturers stop investing in R&D. Existing mobile phones, therefore, don't get any easier to manufacture (though their monetary price might still decrease due to deflation), AND your lovely holographic phone won't ever get invented. (But I really need to read up at mises.org). All the phone employees are laid off and then have no money, so even though prices are decreasing they can't buy necessities, let alone luxuries. That's fine is when only a few hoard, and most people still have jobs. But when this cascades throughout all sectors of the economy, it's a disaster. Correct me if I'm wrong, but wasn't that the Great Depression? Plenty of money there, but it wasn't circulating and there weren't any jobs.
Why are you holding them if you are never going to spend a single tiny bit of one?!
I'm saving them. When I need to, or want something enough, then I will spend them. Do you ever save? The modern economy is based on debt not credit, and the libertarians of this very forum deplore that fact.
I can't answer your question about the economy, maybe you can answer this: Is it better to care for your garden and hope this improves your plants or to care for your plants and hope this improves your garden?
I'd say best care for the garden. Do I understand you'd say the opposite? All you need are a few snails, or mold, or greenfly, or whatever, undetected in one corner and in the space of a season, they'll destroy all your plants. Instead of plants and a garden, I'd ask the same question about the economy and the environment. What d'ya think?
@ribuck: The masses confuse deflation with reductions in cost. Deflation is when your money buys more because the money has become more valuable, NOT because you buying things that have a fundamentally lower value. Let's try to use the correct terminology instead of making the same mistake as Joe Public. (p.s. cheaper holidays, I gather, are largely due to government subsidies for the airlines - can anyone verify?). Imagine if someone discovered a process of making bread from thin air. Bread becomes virtually free. Is that deflation? Assuredly not.
@hugolp:
traffic: if everyone drove more reasonably, there would be less traffic jams and, on average, all trips would be quicker. However, such a situation is open to abuse by people who drive agressively who can, at everyone else's expense, shorten their own trip. Individual benefit, system wide harm.
environment: clear example: farmers in Bangladesh can choose to remove trees and increase their crop. This reduces soil quality and increases the probability of flood for everyone. Or Brazil chops trees for its own benefit, amazon dies, world suffers.
queues: you can join the end of the queue, or skip to the front. The confusion at the front causes, on average, longer delays for everyone, except you.
taxes: you can pay taxes with money you don't "need" - no loss to you, benefit to society (let's ignore govt corruption and inefficiencies).
Government spending might end the recession, but at the moment the spending is not finding it's way into the economy. It's staying in the banks' and their bankers' coffers. But you're right, the govt spending distorts the market.
Central banks printing more money when people hoard is risky. If the bank prints too much, inflation occurs, all those hoarders stop hoarding, and suddenly the market is awash with liquidity and you've the opposite problem.
Oh crap, there are loads more replies (I started this yesterday).
@grondilu:
brave new world: just as a mobile phone is a modern necessity, in that book, many other luxuries had become (let's say frivolous) necessities, and the point of existence was simply to spend. there were no police, because they weren't necessary - social engineering had obtained the desired result.
cooperation: depends on how big you make the state - a village chief, a town council, city state, nation state, international union, intergalactic federation...
My point is that people suffer *exactly* because some seek personal gain at the expense of others, like the twat who uses the turn-right lane to turn left, and so causes a delay for everyone who wanted to turn left. We all do that in one way or another, and we all suffer because of all the others that do it. We're all selfish, 'cos that's how we're 'programmed'. Really, check out the prisoner's dilemma - when there are only two they can easily cooperate, but when there are 7 billion, cooperation becomes extraordinarily unlikely. If I hoard (under deflation), then people who *need* money to buy bread will suffer - the fact that the price is decreasing means nothing because they have no money. I gain, they lose.
cut off arm: some people have done this and more. They're called martyrs. I'm not a martyr. Look at the riots in Egypt and Tunisia - people confronting police and suffering brutality, because they want a better society for everyone.
police: me too (being ironic).
@caveden:
savings/investment: debt can create investment. no savings necessary. But you're right, investments through savings would be much better; of course it involves risk for the investor, and this has been centralised in the present system of fractional reserve banking.
inherent value: someone said "energy is the only real currency". You could use that as an estimate of intrinsic value, and then modify it according to individuals' requirements and expectations. I'll bet if you look at the energy required to produce a 80386 in 1990 and a CoreII x4 today, the coreII requires MUCH less energy per FLOPS/MIPS. That's technological progress in a nutshell - doing the same or better with less energy. But maybe you're right too - even energy is too abstract an estimate, so let's talk of *relative* inherent value - bread made with flour and water becomes inherently less valuable after the discovery of air-made bread.
price decreases: see ptd's post.
economy an entity: I didn't explain myself properly. I mean that some members can profit at the expense of others in such a way that *the average* is a loss, i.e. the "economy" suffers. But there is nothing can can produce an *average loss* and yet be good for the economy, or vice-versa.
electronics: are certainly NOT superfluous. How could any business or individual survive in the modern economy without electronics? Unless you're willing to abandon all and live as a peasant scratching a living from the earth without even so much as a clock on the wall.
folks, I have to stop now, this post is *way* too big.
Some people kill themselves too. It's not because some people do silly or desperate things that I should copy them.
