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Culture War Roundup for the week of December 25, 2023

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Price deflation is still pretty bad because it shifts gains towards capital and away from workers. Actual contraction of the money supply is even worse, partly because it necessarily causes price deflation.

Price deflation is still pretty bad because it shifts gains towards capital and away from workers.

While economists seem pretty convinced that modest inflation is preferable to modest deflation, I'm personally unconvinced that for modest, predictable rates (which plausibly excludes Gold or Bitcoin) it matters much either direction. There are examples of specific commodities deflating (specifically, "for the same price in dollars next year I can get more/better product": computers, flat-panel TVs, cell phones, even cars) and none of the promised miserly spending habits have really appeared that I can tell. Apple didn't become a trillion dollar company because everyone is patiently waiting to get a better iPhone next year rather than this year.

Modest deflation means that you can earn a low-risk positive real return by hodling currency. Hodled currency doesn't circulate, reducing the effective money supply and causing further deflation, making it even more attractive to hodl. This makes the whole system unstable.

Wealth accumulation by hodling fixed-supply currency makes workers and entrepreneurs poorer. (It makes other hodlers richer, which is why Bitcoin culture is the way it is). Wealth accumulation by investing in new productive assets makes the entrepreneurs whose business you invest in and the workers they employ richer.

I don't buy that. Workers are the last to see their salaries increase in an inflationary environment, while capital tends to be the first that has it's value increased, so I think it's the opposite of what you're saying.

Also contraction of the monetary supply is way worse than anything that come out of it's effects on prices.