Lower prices are a moral good
The measure of a civilization is the flourishing of its citizens: their health, happiness, and ability to live a full life. In practice this means they have access to good food, quality housing, clothing, healthcare, community, etc.
Human flourishing requires deflation
When productivity goes up (through technological improvements and automation) then there’s more stuff available to humanity. More stuff = cheaper stuff (lower prices) => no more homelessness nor starvation.
A society with an over abundance of food, water, shelter, clothing, healthcare, etc will be better than one with a shortage of these things.
Therefore a society where we drive prices down by increasing supply is better for human flourishing.
I thought prices going down (deflation) was bad?
The knee jerk reaction by most economists is that deflation is bad. They cite examples like The Great Depression or Japan's lost decade, but these deflationary spirals caused by a recession:
The Great Depression
The Depression was triggered by a decrease in demand for goods and services (attributed to the new tariffs at the time). This caused businesses to lower prices to move inventory, but many went under because they couldn’t turn a profit at the new lower prices.
This destroyed many engines of productivity in our the nation, which takes a lot fo time to recover.
Japan's lost decade
Japan’s lost decade was caused by a high debt burden paired with a recession. The recession meant the economy stopped growing, and the debt's relative burden increased.
The nominal value of the debt stayed the same but GDP went down, which meant tax revenues went down which meant the debt got harder to pay off over time.
It was very difficult for Japan to recover from this, but lower prices weren't driven by productivity.
Deflation is good: “The Great Sag”
In the US, in the latter half of the 1800s there was a long period where the price of everything went down on a consistent basis. Economists call this “The Great Sag.” Most economists think of this as an anomalous time where prices going down was good for people.
The Industrial Revolution hit the US like a freight train (which were new at the time) and elevated most Americans from subsistence farming to the newly possible "middle class".
People in this time often remarked how things got cheaper over their lifetimes and they were able to afford a lot more later in life than when they were children. This happened for multiple generations.
This was deflation due to productivity increases from widespread adoption of technologies like trains, looms, electricity, etc.
Lower prices are self-reinforcing
Lower prices meant that people could afford more and better food, they could afford more and better healthcare.
New technologies brought increased productivity. In turn, people were able to make more money from the same amount of labor, which elevated their standard of living. That created more disposable income, which could be used to invest in further productivity (Capitalism) or spent on what was formerly considered luxuries (Consumerism).
The former fed the cycle of productivity growth, the latter created new markets for new kinds of products that weren't feasible before (e.g. travel vacations, having several changes of clothes, etc).
This is a virtuous cycle. Not just a positive feedback loop, but one of virtue. It is good that people's standard of living improved.
This was done without any redistribution of wealth, nor welfare.
Deflation is terrible for banks
The Great Sag was a terrible time for banks. What economists remember about this time is that it was a “cycle of booms and busts” which were “marked by many bank runs and banking system collapses.”
This is natural; deflation means that existing debt is harder to pay off. Debt value stays nominally the same, but prices go down so profits go down. Even if people can afford more stuff with the same amount of labor, the nominal value of the debt doesn't change.
At the end of the day banks are the ones on the hook for unpaid debts, so they took drastic action.
The Great Mistake: the Federal Reserve
Banks and the wealthy folks who own and manage them have always been powerful forces in politics. Governments are run by wealthy folks, and it depends on banks for the loans that keep them able to operate and wage wars.
Around the turn of the 20th century, the banks in the US were able to convince the US to collaborate with the Federal Reserve and allow the Federal Reserve to become "the lender of last resort." What that effectively meant was the Federal Reserve was allowed to:
- Create US currency
- Dictate who was allowed to be a bank that operated using US currency
- Backstop banking crises using currency they could create (by various instruments to obfuscate that they were creating currency)
They introduced the (wrong) assumption to academia that a “low level of inflation is good for the economy.” Low levels of inflation (as the arguments go) incentivize people to invest or spend their savings, which stimulates the economy.
That's actually just good for banks because it protects them from deflationary risk on debt, while also forcing people to put their savings into the market to keep up with the ever decreasing value of their savings.
Since the Fed was formed, prices have only gone up, even as productivity have continued to explode.
If productivity has increased 5 to 6 times since 1950 then prices should be down...by a lot. Our standard of living today may be better than 1950 but it would have been significantly better if the Fed hadn't continuously debased our currency.
Prices going up by 32X in 110 years is understating things, because CPI (how the Fed measures changes in pricing) is well known to be manipulated to make the current president look good, so it's usually quite understated.
Gold has been a better proxy for measuring price changes over time. As evidenced by the fact that it cost the same ounces of gold to buy the average house today as it did 100 years ago.
To illustrate how much wealth has been stolen from the average person. The minimum wage in 1970 was $1.45 per hour. That was 0.037 ounces of gold. In today's gold prices that would mean minimum wage would be $120 per hour (currently it's $7.25).
That wealth was confiscated via money printing to bail out reckless government spending and bad behavior by the banks at everyone else's expense
Rediscovering the joys of deflation
As automation (and therefore productivity) explodes, we will see downward pressure on prices for everything (food, clothing, cars, phones, homes, etc). For all people to share in the prosperity that comes from such a miracle, we must allow deflation to take place.
The best way to guarantee this is to end the Fed and adopt a hard money standard (backing the US dollar with gold and/or Bitcoin). That prevents the Fed from devaluing the currency, which will allow prices to decline naturally.
At the very least we need the Fed and US government to stop increasing the money supply.
Deflation will hurt the government and those with ill-begotten wealth. That is perfectly fine with me. It will also hurt people whose net worth is primarily in their homes as home prices will decline just as with everything else.
Deflation isn’t without victims, but on the whole it is a much, much better deal.
Inflation has many more victims, and undeserving ones, because inflation benefits the elite at the expense of the people.
Chose to do good
The current prevailing sentiment is that wealth is “blood money,” gained at the expense of everyday, hardworking people.
For some wealthy people that’s the case. There are many who are using regulatory capture to increase health care costs, or poisoning our food with chemicals and hormones, hooking kids on nicotine, etc just to line their own pockets.
Those people can go fuck themselves.
But if you’re an actual industrialist, whose work actually increases productivity, God bless you.
Your work helps the starving, your work elevates the poor, your work promotes the well being of children.
If you’re choosing where to spend your time, work on things that will increase the supply of goods and services in one small part of the world, and you will be part of a great movement for abundance and human flourishing.