The Angry Economist

I've written about deflation twice before: Deflation and Deflation 2. Third time's the charm?

The common wisdom is that deflation of the currency is bad. When money deflates, it becomes more valuable, even when you do nothing. So the theory is that people won't spend their money, because it will become ever-more valuable.

That theory cannot be true.

Look at the PC market over the last 30 years. In each one of those years, the PC became more reliable, faster, came with more memory and storage. The original MDA display was one color and text only. The CGA had 16 colors and 640x200 bits. The price -- of the computer you really want to have -- has stayed constant, at about $5000.

If the story told about deflation was true, then you would always be better off delaying your purchase of a PC by 6 months. You could be confident that the PC you would buy would be a more valuable PC.

Except ... that people did that very rarely, if ever. The standard advice was always "don't wait to buy a computer, because there will always be a better computer on the horizon."

So, in a situation where people can predict a constant stream of increase in value, people STILL made the trade. Thus, I think it's safe to predict that in a similar situation, where people could predict a constant increase in the value of their money, they would spend their money as needed.

I'm using QR code permalinks now. If you're looking at one of my blog entries, and you want to load it onto your smartphone, just read the QR code and follow the link and you'll have the story on your cellphone.

Free markets are the most efficient solutions for all problems in the future. The trouble is that people are looking at the past and can easily see where free markets evolved into failure, and can easily see where political solutions created success. Thus, otherwise intelligent designing people want to give up on freedom and start telling others what to do, usually with a gun.

I don't believe in economic creationism.

When a government spends money, there are only three places that money could have come from:

1. Taxation -- by taking the money away from someone.
2. Borrowing -- by temporarily taking the money away from someone, with a promise of returning it at a higher value.
3. Inflating -- by printing money, which reduces the value of all the other money that people hold.

Of these, the last is the most regressive and pernicious. Not only does it reduce the savings of the middle class, but it also causes people to think they have more money than they really have.

Which one, do you suppose, do politicians choose most often? Right: inflating and borrowing. That's because taxpayers feel the pain of taxation most directly.

Seems like every handful of years, somebody starts yammering about how much money candidates spend to get elected. About how that spending is going up and up and up. And they claim that that's a sure sign of corruption.

Not likely. Look instead at the ratio of federal spending versus spending by presidential candidates over several decades:

See how the ratio varies between 1 and 20.5 and 2.5? That's because candidates spend in proportion to the power they'll have. If you want them to spend less, expect them to do less and spend less of your own money.

UPDATE 2/8/2010: Sam Nelson of clevernamehere.com fame (which would let you guess his email address) noticed that I was plotting the wrong column from the DebtArticle.csv dataset. I've re-generated the plot, and included 2008 spending (which is for a partial year, so in your head, move the rightmost point lower). The graph is a little more noisy, but still serves to make my point.

Data sources: Federal spending and Presidential campaign spending.

On a cloudy day, the macroeconomist, on being asked where the sun is, will point up, and think he has been helpful.

Well, I listened to Larry talking about how Obama failed to change anything. And I heard about Larry's plan to change this: Citizen Funded Elections. It's astounding how someone so smart can miss the mark by so much. The problem is not that special interests are buying congressmen. The problem is that congressmen have power to sell to them. As long as they have the power, they will be able to demand a price.

So, first things first: If we want to be able to trust Congress again, first we have to take away their power. How do we do that? Well, for one, people could vote Libertarian, but I don't think that's likely. More likely would be to demand that state legislators take back the power that rightfully belongs to them, according to the design of our country.

I've been rude to a friend of mine (Simon Phipps) on Twitter. On the one hand, why should I be rude to a friend of mine? On the other hand, if I don't call him out for quoting stupid things (as if he agrees with them), then how much of a friend do I consider him? If I'm not willing to be harsh with him, then I can't value his friendship much. If I'm not able to be harsh with him, then he doesn't value my friendship much.

In particular, I feel very strongly that the wealthy should be responsible for the poor. "Responsible" means several things. First, it means only lending aid appropriately. "Give a man a fish and you have fed him for a day. Teach a man to fish and you have fed him for a lifetime." It also means charity should only be for the deserving. "Give an ailing man a crutch and you have gotten him back on his feet. Give a healthy man a crutch and you have taken away his ability to walk."

Responsible also means not using the power of wealth against him. This is a tough one. It's very easy to look at someone who is not as wealthy as you, and decide how they need to be helped. Everyone who has more than someone else can fall into this trap. Certainly my country does it all the time, sending food aid to countries that can't use that food, or to countries where their competitive advantage is that food.

And responsible means consistently advocating for free markets (not using the power of wealth) and private property. When my friends harm that cause, I get very upset. I can understand my enemies, and the people that hate me advocating for coercion. But my friends? That cuts me to the quick.

All evil starts with one person threatening to hurt another person. The purpose of government is to threaten to hurt people (that's what makes it different from any other organization). Thus, the only way that government can not be evil is if it only threatens to hurt people who threaten to hurt other people. When government undertakes any other activity, it becomes a source of evil.

A society of libertarians is not an oxymoron. Libertarians aren't loners; in fact we're usually even more socially oriented than socialists. What we are is individualists; meaning that all relations between individuals should be voluntary. Socialists think that it's acceptable for some relations to happen at the point of a gun. Note that someone may hold individualist and socialist ideas; while they may think of themselves as pragmatic, compromising towards a worthy goal; instead they're just confused. You can't compromise on a principle, otherwise you lose it entirely. For example, it's wrong to kill; thus it's wrong for a group to kill; thus it's wrong for a government to kill; thus capital punishment is wrong. At best it's a cheaper method of life imprisonment -- but when you compromise your principles to save money, you are not principled at all.