> because the events of 100 years ago showed us what deflationary shocks look like (even worse than the inflationary shocks)

This comes up a lot, but it seems to be a just-so story. People seem not to have a justification for why deflation is the major factor instead of any other economic lever and every time one of these terrible deflationary events happen the country involved tends to end up a really nice place to live. The big example of the US in the 1930s led to an economy that conquered most of the known world in short order and reigned pre-eminent for 60 years. It doesn't appear to have held them back.

The inflationary shocks have a bad track record and be associated [0] with impoverished backwaters and collapsed states. Even then it isn't as obvious that the inflation is the cause as much as that the government of the time didn't have any better ideas than printing money to try and solve their problems, which obviously isn't going to work.

> Challenge: propose something better.

This seems easy to do; the money could be handed out per-capital instead of disappearing into asset markets.

[0] https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...

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klrefg 15 hours ago | parent | next [-]

Deflationary currencies don’t lead to price stability in non static economies. Just look at the 1800s with the constant violent price swings and western economies being stuck in a permanent boom and bust cycle that culminated in the Great Depression (or more accurately the Great Depression II)

> People seem not to have a justification for why deflation

They obviously do. Because it disproportionately disadvantages debtors, makes investment much riskier and rewards rentiers, therefore reducing the economic productivity.

> one of these terrible deflationary events happen the country involved tends to end up a really nice place to live

Yeah, I think you need some additional arguments and data to establish that there is a causal link between these two. Same could be said about the economic booms in the US after WW1 and WW2 (to an extent the Civil War as well).

	▲	smallmancontrov 13 hours ago \| parent [-]
		Yep, and with China installing gold vaults everywhere it seems likely that the course of events will be an inflationary episode in the West followed by a dive back into Kindleberger Problems as they try to eat their cake and have it too.

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smallmancontrov 14 hours ago | parent | prev [-]

> The big example of the US in the 1930s led to an economy that conquered most of the known world in short order

...by confiscating the gold, devaluing the USD from $20/oz to $35/oz, and taking on a lot of debt. Hoover's policy and FDR's policy lie in stark contrast. As do their results. This example points in the opposite direction that you think it does.

Germany is another common go-to example, the Weimar inflation of the early 20s proceeded under almost full employment and settled down once the root causes were addressed with people a little worse for the wear. The deflationary shock of the late 20s, on the other hand, propelled the Nazis into power, and the secret debt that they used to rev the economy was structured in a way that could only be repaid with a war of conquest, which they started, killed a lot of people, and lost.

The root problem is too much debt. Inflation and deflation are just how to deal with it. They both suck, but an inflating economy has jobs while a deflating economy doesn't. In both cases, many innocents will be unfairly liquidated, but in the inflating economy you can get a job, scramble, and make do, while in a deflating economy there are no jobs, so you watch your bank account count down to 0. Of course, the people who get there first don't curl up and die in a corner, they choose to fight like cornered animals and things get nasty.

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roenxi 14 hours ago | parent [-]

> ...by confiscating the gold, devaluing the USD from $20/oz to $35/oz, and taking on a lot of debt.

These things are only useful if interacting with a strong industrial economy. If the economy is in a bad place then it won't help - there are a lot of countries that have confiscated, devalued, taken on lots of debt then sunk because their economy isn't any good. Pretty much any country that runs in to economic trouble tries some combination of them at some point.

What actually matters is formation of new businesses and capital. Monetary inflation doesn't help with that in any meaningful way; it's basically just another tax because it reallocates resources from the productive economy to whoever is getting first dibs on the free money.

> The deflationary shock of the late 20s, on the other hand, propelled the Nazis into power...

Yeah, that's unconvincing. It's well established that the people with power in the German economy couldn't bring about general prosperity (arguably because they'd lost a war, arguably because they just weren't very competent). They let a hyperinflation happen, that's quite compelling to show they failed to inspire any confidence. Decades of pain and mismanagement and then the clear lesson we can learn from all that is if they'd printed even more money they'd get a good result? The evidence is too thin to support the conclusion, and contrary to the fact that they tried exactly that tactic with terrible results.

> The root problem is too much debt. Inflation and deflation are just how to deal with it. They both suck, but an inflating economy has jobs while a deflating economy doesn't.

So don't do either? Just forgive the debts directly.

Inflation and deflation don't theoretically have any effect on debt, the people lending the money can charge a real interest rate and account for inflation. Unless the government intervenes which makes the argument for the indirect inflation solution a bit moot because the regulators directly controlling the debts anyway. And if it's supposed to be an overly complex debt forgiveness scheme it doesn't work. The US has the largest debts in history under an inflationary monetary scheme.

	▲	smallmancontrov 13 hours ago \| parent [-]
		I'm glad you've abandoned "FDR was deflationary." That was silly, but maybe if it convinced you that you need a history review it wasn't for nought. I'm disappointed to see that you aren't engaging with the core observation that Germany's inflationary and deflationary episodes were separated by the better part of a decade. That's why they are ripe for compare+contrast. You can't learn anything by bungling them together. You could do with a review here too. > What actually matters is formation of new businesses and capital. Monetary inflation doesn't help Except by funding those businesses, which wouldn't happen in a deflating economy. Or a recently defaulted economy. Obviously, this isn't sufficient for success -- but it is necessary for success. > Just forgive the debts directly. History is no stranger to hard default. There's a reason why nobody who can choose soft default (inflation) chooses hard default. We've been operating under an inflationary monetary regime for a century, it is very easy for recency bias to convince you that the grass is greener on the other side. So easy that it happens by default, unless you counteract the default by intentionally seeking out century+ old accounts of deflation both on the ground and on the macro level.