Topic: Were the Keynesians wrong? - page 2. (Read 5582 times)

This is what I said.  The price deflation of phones has to do with scale and manufacturing.  Still doesn't make this macro.  It just makes his original example impotent


No it doesn't because inflation still occurred under gold standard.


Congratulations, you just described a deflationary spiral.  In recession all prices are falling including income.  Macro 101

Great wording.

http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2008/11/cj28n3-1.pdf

"The second type of deflation, however, is the result of positive
aggregate supply shocks that are not accommodated by an easing of
monetary policy. Such aggregate supply shocks are the result of pos-
itive innovations to productivity or factor input growth that lower per
unit costs of production and, in conjunction with competitive market
forces, create downward pressure on output prices. Unlike a collapse
in aggregate demand, positive aggregate supply shocks that are not
monetarily accommodated generate a benign form of deflation
where nominal spending is stable, because the decline in the price
level is accompanied by an increase in the actual and “natural” level
of output."


That article's point is that the gold standard isn't a good idea because it can be abolished or adjusted. Like fiat being "money created out of thin air" a gold-standard is a "promise out of thin air". It basically argues that you can trust neither government nor private central bank with control over your monetary system.

Anyway, I wasn't arguing for a gold-standard.

Nope.  Try to pay attention.  I wasn't trying to prove anything except how utterly ridiculous it is to cite a micro example to illustrate a macro principle.

My evidence is a hundred years of economic data and the entire economics profession having consensus on this point.  Since you take a fringe and controversial position its your burden to prove not me.

https://www.stlouisfed.org/On-The-Economy/2014/August/The-Gold-Standard-and-Price-Inflation

Even Hayek conceded this point.  Only the fringe like Mises and Rothbard thinks otherwise

You haven't given any argument why it's different in macro. Your iPhone example would mean that iPhones wouldn't sell well because people defer their purchase because new models constantly come out. Yet iPhones sell extremely well.

The argument is that if something can be gotten cheaper a year later than right now, people tend to defer their purchase. This ignores the fact that having something right now is more useful than having something at a later date. Having a roof over your head tonight is more valuable than having a roof over your head next week. Having a new phone right now is apparently more valuable than having to deal with an older phone for another year to get the new phone at a lower price, or an even better one at the same price.

It may be true that some people might defer because of lowering prices, but this doesn't make it a spiral, because things that have practical utility are more valuable in the now than in the future. The cost of postponing must be lower than the profits of postponing.


What makes deflation dangerous in our current monetary fiat system has to do with the reason behind the deflation. That reason is usually an excess of debts causing liquidity problems, effectively a reduction of the money supply. Those in monetary debt are more likely to default in times of deflation, because their debts increase in value. If they default, their creditor (like a bank) has to write off that debt. If the collateral didn't cover the value of the debt, and if the creditor (bank) also has debts to others it might default itself, which may bring it's creditors in trouble as well. It can become a chain-reaction.

So deflation in a debt-based monetary system like we have right now is lethal to governments and banks due to all the debt, and thus lethal to the fiat currency. A reduction of prices in a fixed money supply system due to economic growth is a completely different thing, and is actually benign. The "deflation is bad because of hoarding" argument is bullshit. It only distracts from the real problem, the ever-increasing debt due to higher interest rates on debit than on credit.

LOL no. Only if you don't understand macro principles.  Deflation is falling prices in aggregate not because of one sector.  You have to use CPI

Also I just made an example he he percieved the price is falling, yet in actuality they are not.

It's also easy to refute that notion.  If you are looking to buy an iPhone 5s and you know the price gets marked down in 6 months when iPhone 6 is released you might defer your purchase.  However this isn't the point

If your proposition is that lower prices defer buying, he needs only one counterexample to negate it, and he has given it.

That has to do with scale and manufacturing within one industry as it goes from infancy to maturity not macro issues. 

Also your analysis is flawed.  Take Samsung for example.  Their top of the line model keeps increasing in price after each generation at the onset of release.  S5 at release costs more than S4, costs more than S3, etc.  It's just that they discount the previous generation after the initial R&D are recouped.  They depreciate the capex over the life cycle of product

Actually we do have seen this.  Computers !  Computers have been getting cheaper and cheaper the last 15 years.  According to Keynesian logic, nobody is going to buy computers, because next year you get not only a cheaper one, but also a more powerful one !

Turns out that the computer market is one in which the turn-over has been one of the highest.

We observe a similar behavior in cellular phones.  They get cheaper and cheaper (except for i-phones, which are transiting to a luxury item).  And the market explodes.

So no, lower prices in the future do not stop people from spending.

Except we've never seen this case.  You are ignoring market psychology as determinant factor.  Things like sticky wages

Mild deflation causes people to put off SOME spending, in the same way as mild inflation causes people to put off SOME saving.

If mild deflation causes a deflationary spiral, then mild inflation causes hyperinflation.  They are each others' dual.

But this won't happen for decades. If it turns out the Bitcoin can't handle deflation (the two terms are mixed in your post), by the time it would start inflating, it will already by dead.

Why is it absurd?  Taken your logic it should be less buying vs more buying for the buyer.  Less buying means less selling vs more buying equal more selling; for the seller.

Your logic is broken

Thats absurd, as I just explained. You have to think. You can not just listen to a bunch of people who talk each other up.

It's macro.  Has nothing to do with trading.

Deflationary prices cause people to put off spending.  Both consumers and business, so there is danger of deflationary spiral.  Rampant inflation is also not good but mild inflation provides enough incentive for spending which stimulate economic activity

Well he is smart, but he is not smart enough to grok that a trade always have two sides, and if the deflationary trait of the money means less buying, then the inflationary money would mean less selling. Why sell now when you can get more money for the same thing next year?

Right.

Same fool.  Indeed, is better.

But those Wikipedia drawings are so awesome...

Your title does not flow naturally from the nomenclature. "Greater" is a reference to the degree whereto the market participant if "foolish" not their position in exchange relative to another. (They always follow immediately after.) Therefore, "same" is more appropriate, as is illustrated by the following hypothetical: "John balances otherwise nonequivalent exchanges of 'value' with a money when trading with Jane because he suspects she would do the same with him."

It does.  Fool A, next fool B, next next fool A, next next next fool B....

I accept your token (money) because I think you will accept it back, and you accept it back because you think that after that, I will still accept it again from you because I think that after that, you will accept it back and so on.

That's why it is sustainable.  Greater fool doesn't work (or stops after 1 cycle if you're only 2):

Fool A -> greater fool B -> A is not greater greater fool, crash.

I am willing to get something because I think you are going to be willing to pay more for it because you will think that I will pay even more for it.... not !