File talk:US Historical Inflation Ancient.svg

Great image. Would be fantastic to see it updated to 2014, since there has been so much interesting change in the US economy since 2004, notably, of course, the recession of 2008 and subsequent partial recovery. This chart highlights how different the inflationary regime has been post mid-20th Century. Openlander (talk) 15:56, 26 December 2013 (UTC)Link is broken as of July 2008. --137.201.242.130 (talk) 18:44, 17 July 2008 (UTC)

Link repaired. Lalala666 (talk) 01:31, 20 July 2008 (UTC)

Blue/red:

Is it possible to use a more neutral color scheme? "Red" implies danger and "Blue" implies "safety"; largely reflecting Keynesian value judgements on inflation vs. deflation.

I chose the colors because they're standard. Red always means negative. The blue was a little arbitrary, and I can change it if it bothers anyone. I wasn't aware there was a debate on "inflation vs. deflation", who is arguing that deflation is a good thing? Lalala666 (talk) 21:47, 14 December 2008 (UTC)

Austrian economists. A brief excerpt from something I wrote about how inflation discourages conservation and environmentalism (I am not an austrian economist)

There are two major effects of secular inflation that concern me. First, is a systematic redistribution of wealth from the poor to the rich. Economists sitting in the ivory tower of academia love to argue that money is all relative so having a inflation doesn't matter. However, most people making less than 100k who are not pulling a cushy, tenured, endowed chair knows that wages do not catch up with inflation. I make $27k a year and last year I got a $750 raise on the year, which is less than five percent and far less than inflation (which is anywhere from 6 to 8 percent, depending on who you believe). The poor are generally hit harder than the rich. That's because the poor are spending more money on day to day expenses, and less expendable money -- money to pay off debt, save, or invest. Hypothetically, If you're spending 90% of your income on rent, fuel, and food, and 10% inflation hits, then you go from 10% expendable to 1% expendable - which is a 10-fold change. Conversely if you're rich and spending 20% on day-to-day, then you go from 80% expendable to 78% expendable which is hardly a change. This is why those who say that inflation is good for those who are in debt (because the value of the debt will decrease) are making a fallacious argument. Inflation is good for those who are in debt and wealthy; because a 10% decrease in debt value does not match up to a 10-fold loss in ability to pay off the debt.

The redistibution to the wealthy part is more complicated and has to do with the way in which the money printed by the government is injected into the system of global capital, and is not easy to explain, so I will hold off on that. Suffice it to say, I believe the increasing divide between the rich and the poor is largely due to the fact that we live in a economy exihibiting secular inflation. You don't have to agree with me but at least you have to admit it doesn't help.

The second effect is in investment -- and this is where environmentalism is affected. A system of constant inflation encourages individuals to make risky, short-term investments. That's because saving is discouraged because the savings value is eroded by inflation. You're virtually forced to run the rat race of the economy just to stay afloat; since money no longer tracks with improvement in the economy; people are shepherded into the stock market, which is one of the few indices which tracks or exceeds real economic growth, allowing you to at least maintain your wealth.

Deflation, by contrast, encourages long-tem thinking. When making investments, you're alway comparing it against the cost of *not saving*. Saving your money will net a small yield through interest (admittedly smaller than in an inflationary system; because lending would be generally discouraged) and a non-numerical, real yield through simple increased monetary valuation.

How does this encourage sustainability? Let's give an example. Say you are interested in investing some money in energy production. You have $100 million dollars in capital ready to go. You can choose to buy a oil-burning power plant or a series of wind power plants. We know the oil-burning plant will net a greater profit margin at the moment, because the capital expenditure is lower, the land footprint is smaller, and the distribution networks are in place, and it will net a larger kilowatt-hour yield, offsetting the cost of purchasing a fossil fuel to sustain activity. With secular inflation, the choice is obvious, because long before the oil plant becomes unprofitable, you will have cashed out, and moved on to the next investment and passed the buck on to the next person who will probably still make a marginally less yield on investment, until the last person hits unprofitability, and liquidates the power plant (or asks for a government subsidy to keep it running).

On the other hand, in a deflationary regime, you're going to ask yourself: Does this investment hold up in the long term? Instead of putting my money into the plant, I can just leave it in the bank, where it will accrue value just standing around. You will ask yourself, well, the oil burning plant will suffer from increased oil prices (as we transition through peak oil), will there be extended maintenance costs, will geopolitical instability threaten the viability? And then you look at the wind power plant, which requires perhaps more maintenance but a nearly unlimited supply, which will continue to exist and possibly improve (with technological advancements).

Deflation also encourages philanthropy, which in turn, encourages environmentally sound innovation and ecological protection. Since secular inflation encourages constant reinvestment, there's no time or wherewithal to give money back to society. Organisations like the Nature Conservancy, and ecologically-driven private research funds stand to benefit in two ways from deflation. First - as a larger proportion of individuals in society have increasing margins of expendable income, philanthropic contributions will increase. This will also increase the diversity of individuals seeking to make contributions and therefore will engender competition and accountability in these organizations, making them more responsive and effective in what they do. Secondly - because many of these organizations operate using endowments, their stockpile of saved money will experience an increase in value as well as in numerical increase through interest. Begging for money by pestering their donorbase will be less pressing (and they will spend less money and paper on those leaflets you get in the mail all the time).

This is a fringe viewpoint. Deflation is bad because people horde cash and they don't invest (as you noted). As prices go down, companies make less, so they fire people. People hold off on buying things, since it only gets cheaper if they wait (as you noted). Interest rates collapse, so banks don't make loans. With no interest from loans, people don't put their savings in banks, who would invest it. No modern economy in the world has adopted a model of deflation, and throughout history, deflation has rarely or never resulted in growth. There are a few good sides, just as there are a few good sides to a collapsing stock market, but they don't outweigh the catastrophe. Can you link to someone with someone at a prestigious institution (journalism, education, government) who agrees with you? Lalala666 (talk) 01:27, 18 December 2008 (UTC)

Lalala, you clearly misunderstand me. People do invest in deflationary regimes, they just invest *less* and *more wisely*, because they have to consider the cost of *not saving*. Deflationary regimes probably are ultimately more sustainable. Secondly, Interest rates don't collapse, they just get lower. In a deflationary regime, the demand for loans decreases (dramatically) but does not disappear. By contrast, inflationary regimes create a market distortion wherein excessive loaning is encouraged, this creates extreme levels of counterparty risk, which is compounded by the fact that malinvestment occurs more due to the intense pressure to invest. That eventually leads to collapse... To be sure, a deflationary regime is not immune to local or transient economic problems, but they are likely to be contained and short-lived, because savings-based wealth when lost is essentially a sunk cost, whereas destruction of debt-based wealth propagates to affect wider and wider rings of people by a domino effect caused by chains of defaults.

Finally, I would never advocate a deflationary regime "by design" through the controlled destruction of the currency in an inverse fashion of Keynesian economics, just that a fixed-base monetary system across secular economic growth - which is assuming is the case - would naturally be deflationary. So, when I say, deflationary, that's actually assuming economic growth.

"No modern economy in the world has adopted a model of deflation, and throughout history, deflation has rarely or never resulted in growth." This is clearly false. While it is true that no economy has ever explicitly *adopted* a model of deflation, look at your own graph. The US economy spends more "area" in the red than in the blue between 1865 (end of civil war) and 1914. I think you would be hard-pressed to argue that there was no growth during this period. In fact, prior to 1914 every major "blue region" is connected to a war, wherein there was, arguably social destruction as a simple result of war losses, and the recovery eras are correlated with deflation.

http://www.qjae.org/journals/qjae/pdf/qjae6_4_2.pdf

I don't think it's appropriate to call Austrian Economics a "fringe viewpoint" because it's not prevalent in academia; this would be like calling the monetarist economics school a "fringe viewpoint" because the only professors who espouse their models are at the University of Chicago. In fact, Austrian Economics was a very well regarded economic model during the early 20th century, and proponents of this school were among the most vociferous in warning about both the Great Depression and the current housing bubble. Furthermore, as is often the case, consensus in academic sciences is often governed by other factors such as internecine politics, and is not necessarily reflective of what one might consider a more objective scientific standard of truth.

This is a real problem in economics... argument by authority seems to dominate the field now. Instead of debating the merits of these models, things like Austrian Economics are simply labeled "fringe viewpoints." Even on the Austrian Economics page, it begins by describing it as a "heterodox" school, (basically saying it's a fringe viewpoint). From a scientific point of view, the empirical data certainly doesn't support Keynesian economics, and yet this is a more "mainstream" model? Economics is dysfunctional. Ed Sanville (talk) 17:15, 25 February 2010 (UTC)