I agree. That is why people have such trouble accepting what I am saying. The problem is that one more data point means chaos and disaster. One more data point will be a worldwide disaster.
Mansoor
Even still history disagree’s with Mansoor’s conclusion. The GD occured due to cash induced deviations in the money supply.
Please carefully review the movie theater example described in this thread. Its all there. It gets harder and harder to part with ones money to take business risks in a deflationary environment. And to top it off. Deflationary environment usually have a lots of excess capacity. Which means even less real investing.
And how did we get out of GD. WWII (the greatest stimulus since sliced bread).
Go ahead. I’ll give you a bit more time to mull this over. I was insinuating something here, trying to get you to infer on your own. I think you’re a very brilliant person, no lie, and you can figure these questions out on your own.
any questions please feel free to ask
What? How is that what you took away from it?
You have yet to prove that fewer entrepreneurs take risks in a deflationary environment.
Edit: Alright, that comment about WWII sealed the deal. /exeunt
Interesting then why the economy did not recover until AFTER WWII, not during. Again history disagrees with you.
Read what you wrote. You just said that an increase in overall purchasing power would deflect investment. So you think a deterioration of purchasing power somehow increase’s investment?
Do you not see the conflict in your argument my friend?
Increase’s in purchasing power will bring increased investment incentive. It’s a very simple concept. Most people who see it at it’s face would not dispute anything so silly. A many who owns more purchasing power is more likely to invest then a man who has less purchasing power.
Personally, I think that is a monstrous assumption. Yes the Broken Window Fallacy always flies over the types of theoreticians such as yourself. Let’s just all start killing everybody and job growth will go up because workers can be waged to pick up the blood and guts. How awful of you sir to suggest such a thing!
If anything there would be more. An increase in purchasing power plus a stock pile of savings. It’s basic supply and demand, cheap investment costs with high savings surplus’s. Your going to have more entrepreneurship under these conditions, not less. People will be more liberal with their savings, not less.
Why is this so hard for him to understand? If I have more money in my bank account I am more likely to invest, than if I had little or no savings.
Again, real world analysis of the Great Depression does not yield your conclusion as for its cause. PLEASE ACTUALLY STUDY ACTUAL ECONOMISTS AND WHAT THEY HAVE SAID AND ARE SAYING ON THE ISSUE.
By the way…how is there so much saving at the same time people are buried in debt? And is there “not enough saving” in your keynesian world? Is any saving “too much saving”?
For Mansoor
This thread just got 1000x better!
I dont get this at all. It’s not like a meteor came down and blew a hole into Wall Street. It was the usual events that happen all the time, buying, selling, taxes, whatever. So of course it is important and significant to grasp what combination caused this unique event, what was going on.
We’re not talking about statistics here at all.
Say a couple of guys in a gym are lifting wieghts. One of them takes a hevay dumbell and whacks himself on the head with it. He dies. Everyone is very curious why. X rays are taken and show how his skull is crushed etc etc.
“I guess we can conclude it’s bad news to whack oneself on the head with a heavy dumb bell.”
“Ha! It’s only one data point. No statistical significance.”
Nothing more stimulating than millions of people working hard to kill millions of people, rite?
Man, go read some Bastiat, or Economic in One Lesson.
What kinds of things might be used, besides metal?
Any money that exists has to be possessed by someone. When I acquire some gold (or other similar money), I can either spend it, lend it (e.g., by depositing it in an interest-paying bank account), or hoard it (i.e., keep it without doing anything with it). If I don’t hoard it, then the next person who receives the money is faced with the same decision, and so on. So every unit of cash is being “hoarded” by somebody; the only question is, how much spending and lending occurs before it ends up in somebody’s hoard (which is related to the velocity of money).
Mansoor - is this an accurate characterization of your position?:
Lending/investing money (e.g., by depositing it in an interest-paying bank account) decreases the lender’s level of consumption, while immediately signaling to the receiver of the money that there has been a corresponding increase in the amount of resources available for long-term investment. However, hoarding money decreases the hoarder’s level of consumption, but does not directly signal to anyone else that resources have now been freed up. This signal is only transmitted through deflation, which takes time. Therefore, during that time, the resources in the economy are being underutilized. Thus, anything which causes an increase in hoarding (i.e., a decrease in the velocity of money) can cause a “bust.”
This thread has gotten quite long so I will just respond briefly to some points brought up here by the OP.
When discussing deflation it appears you are neglecting a few things. First of all, not all prices fall, and not all prices that do fall will fall to the same degree nor simultaneously. So if most prices are all declining but several continue to rise, it may be called “deflation” (in the mainstream definition of a falling price level) but it does not mean all prices are going down. All this would mean is that some arbitrarily determined goods basket has fallen in price. Secondly, if prices are rising profit margins are eaten away by inflation in real terms. In deflation, even if the prices of finished goods were falling for instance, the profit margin in monetary amounts may be representative of greater purchasing power. Third, you are assuming that only prices of finished goods fall but the costs of inputs can also fall as well. One of these such costs may be the “price” of loan capital; as more people expect prices to fall further and savings increase, there will be downward pressure on interest rates.
With regards to your Great Depression remarks, WWII did not end the depression, it actually ended after WWII. If you think the economy was out of the Depression during WWII, I should post some pictures of my late grandmother’s food rationing stamps; boy, that sounds like a real healthy economy! In reality, the few years proceeding the war benefited from taxes being cut by 1/3 and US government expenditures being decreased by 2/3; the US was actively and substantially paying down its debt accumulated in the war. Paul Samuelson, obviously a fellow Keynesian friend of yours, predicted the US would slide back into Depression. He was just a tad bit off.
Best regards,
Chris
As Kazu said, it can be shown empirically that actual hoarding large sums of cash is not a common occurence. Instead people find investment models, or in todays case they would rather consume now.
There is also nothing wrong with hoarding money by itself. Chapter 15, the Miser.
The market is very responsive in these cases. If someone is hoarding, under consuming, then we may find a surplus of goods. In such a case prices will start to reflect that immediately, especially in the case if the the person or party hoarding controlled a significant amount of purchasing power.
Prices reflect such things almost immediately. If there is a surplus of goods it must be moved, prices will drop.
Even if WW2 got us out of the depression (and you definitely won’t find anyone here who believes that except maybe me) it doesn’t matter. We can’t just go around fighting wars. It’s not an acceptable trade off imo.