Is Inflation Better Than Deflation?

MayCaesar

Many economists approach this question from the macroeconomical perspective: they look at abstract metrics such as GDP per capita and, seeing their correlation with inflation, assume that inflation is beneficial to the economy. It is the "correlation implies causation" fallacy. It is like seeing someone becoming richer and being able to afford more alcohol, and attributing their richness to their alcohol consumption. You would think these well educated people would spot the fallacy easily, but collective confusion combined with peer pressure can be a powerful stopping mechanism indeed.

It only takes a very superficial analysis to understand that inflation decreases everyone's wealth. Inflation simply means a decrease in purchasing power of the currency: whatever amount of currency you owned a year ago today has a smaller value, causing you a loss of wealth. If a year ago loaf of bread costed $1 and now it costs $2, then your saved currency allows you to buy half as much bresd as before. Sure, your income may increase along with the salary - but the wealth you have kept decreases regardless.

Some economists see this as a positive effect: it encourages spending, they say, energizing the economy and incentivizing production. But that is the broken window fallacy: if someone did not want to spend their money in the absence if this incentive, then they wanted to do something else that was expected to provide them with a higher gain - and now they have been deprived of this option and forced to resort to the second, third or whichever best option. And the idea that in the long run they are somehow better off by not choosing what they see as the best option for themselves is shaky at best, and highly authoritarian in addition.

The question then becomes: if across the world people are becoming better and better off, if the continuous surplus of production combined with the technological progress causes an exponential growth of wealth, then how come there is inflation rather than deflation? How come the same loaf of bread costs more today than it did 5 years ago, despite its demand dropping and the costs of its production decreasing?

To answer this question, we need only to look at the monetary policy of virtually any government on the globe. Governments continuously print out banknotes, openly stealing everyone's wealth by devaluing the currency and putting the gap value into their pockets or, at best, inefficient governmental endeavors. The fact that modern economies are based around currencies printed by central banks, with murderous regulations of alternative (private) currencies, is a major problem making consistent creation of wealth impossible.

Deflation is a natural state of things: as we become more efficient economically across the board, each individual unchanged item must drop on price over time. The reason we see not 1 cent loafs of bread in grocery stores, but $5 loafs of bread, is that the unit of measure of value is tampered with by economical tyrants. The "stolen value" socialists talk about so much does not come from some mythical gap between the value of one's labor and their salary, but from a very real gap between the value of the product produced and the value of the currency supposed to measure it. And as long as central banks dominate the currency market, the growth of real wealth in the world will be significally impaired.

jack

JulesKorngold said:

Yes, most economists believe that inflation is better than deflation, although it is important to note that both inflation and deflation can have negative effects on an economy if they are too high or too low.

Hello J:

You shouldn't invest so that the economy does well..  You should invest so that you do well..  If you do it right, you'll make money whether the economy is booming, or is in free fall. 

Towards that end, what's better for you depends on whether inflation is going down or up..  If it's going up, you wanna hold hard assets like gold, real estate, art, diamonds and the like..  But, if inflation is going down, you wanna have dollar denominated paper assets such as stocks and bonds, and bank accounts. 

excon

John_C_87

@MayCaesar
To answer this question, we need only to look at the monetary policy of virtually any government on the globe. Governments continuously print out banknotes, openly stealing everyone's wealth by devaluing the currency and putting the gap value into their pockets or, at best, inefficient governmental endeavors. The fact that modern economies are based around currencies printed by central banks, with murderous regulations of alternative (private) currencies, is a major problem making consistent creation of wealth impossible.

The issue is that all notes are not currency as fact they are a registered receipt on organized debt, and this is there power used or ignored. This economic argument is a fallacy as credit is debt, and very few forms of token act as a receipt on organized debt leave large holes in the idea of contained value. Printing more money as a Note does not lower the value unless the connection to the dept its repentance has questions waiting legal action. The fact here is some nations hold an axiom which gives them advantages over large volumes of debt and less advantage economically over larger volumes of debt.

Also, price increases are not a sign of inflation they can simple be a sign of inflation. Even more so as occupants in a nation with a poor axiom are driven by taxation to attempt to pay off their nations debt even when like in America the cost of the debt is stacked against them in ways outside government regulation.

John_C_87

@JulesKorngold

Yes, most economists believe that inflation is better than deflation, although it is important to note that both inflation and deflation can have negative effects on an economy if they are too high or too low.

This is an interesting debate as America has been all about deflation as a means of governing. One which may not be a whole truth but explains a basic principle to establish representation in law by the location of areas of taxation. Town, City, County, State, and Federal jurisdictions. It can also be argued that America's economic issue is about the speed of corporations inside the economy and not the overall size of the economy itself. (Question)

Pepsiguy

Argument Topic: No

Imagine working your butt off to make at least a few hundred bucks(or whatever currency you use) but suddenly prices skyrocket and now your money is worthless. Now compare that to if instead of prices skyrocketing, they plummet - now your money is more valuable and you can spend it on more stuff than before with the same money!