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Aug. 17, 2009 - Freedomain Radio - Stefan Molyneux
13:45
1439 True News 49 Deflation Panic!

Deflation - good for you, bad for the state.

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Hi everybody, it's Stefan Molyneux from Freedom Aid Radio.
This is True News.
Current events clarified number 48.
5th August 2009.
Deflation. Good for you.
Bad for the state.
So what is the pattern around deflation?
Well, inflation, which is the different side of the same coin of inflation, is just brutal theft.
Basically, the government gets to type whatever it wants into its bank accounts.
They get to spend the money first and then you get it rather rudely in the shorts later on when the loss in value spreads through the economy from the initial think of it as like a money bomb that falls into a pool, splashes everybody who wants the water and then the ripple spread out devaluing everybody else's currency down the road.
There's been a 95% decline in the value of the US dollar in 90 years.
Um, Basically, inflation and manipulations of the money supply, which can be inflation and sometimes deflation, generally arise from printing of money and resulted from the destruction of the gold standard, which occurred in various forms throughout the 1930s and then in the 1970s in the United States.
Those who get the money first make a fortune.
So if you can just type whatever you want into your bank account, you can go out and spend that money.
And it takes the economy a while to notice there's all this extra funny money in the system.
And then everybody down the road, those who have the least access to these kind of financial shenanigans, end up getting in the shorts, generally the middle class and the poor.
I destroyed ancient Rome, medieval Spain, when they sent the conquistadors over to the New World and they found, you know, tons and tons of gold among the Incas and the Mayans.
They brought all of this back to Spain and the Spanish economy was wrecked!
For about 400 years as a result of this.
Inflation hit. The good artisans were being paid in bad gold, so they left Spain to go elsewhere.
And the economy just took it in the nads for about 400 years.
And so it can be a very, very, very bad thing.
Inflation is considered to be a primary cause of the rise of Hitler.
So playing around with money is really playing around with the lifeblood of people's existences.
Here's some quick charts.
Declining value of the British currency from 1450 down to 2000.
For those who can't see, it's not good, let's just say.
Declining value of the US dollar from 1776 through to 2000 and change.
Fed comes in, I think, 1913, and as you can see, it just gets worse and worse after that.
And so we could end up like this German woman from the 1920s, burning...
Currency because it burns longer and is cheaper than the firewood that it could buy Ah, the alarm toadies.
So this is from the Maclean's magazine, which is an interesting sort of Canada's version of Time, or Time Cold, Time North, Time Light, whatever you want to call it.
So this is a quote from this article.
Deflation is the word that strikes fear into the hearts of economists more than any other, and this week it was the one on everybody's lips.
Both Canada and the United States reported that consumer prices slipped into reverse in June, the 0.3% decline.
In Canada's consumers prices was the biggest since the 1950s and the first time the cost of living has dropped from a year earlier since 1994.
Now, just in case you were mistakenly thinking that a drop in the cost of living might be good during a time when people are hard up for money, oh, you're just so wrong, don't you know?
Deflation, this fellow writes, is the granddaddy of all vicious cycles, and once it gets loose, it's extremely difficult to control.
It always starts with a slowing economy and mounting job losses.
Not true.
It can start with a contraction in the money supply.
People drastically reduce their spending and companies are forced to cut prices in order to move inventories.
This happens on such a massive scale that throughout the economy, businesses see their pricing power disappear.
Consumers see prices dropping and rather than stoking demand, it snuffs it.
Even people with steady jobs and disposable income avoid buying because in a deflationary environment, they know that they can buy that TV even cheaper if they wait a few months.
Companies are forced to scale back production, putting more people out of work and cutting wages, which only adds more fuel to the deflationary fire.
Japan suffered under this scenario for much of the 1990s, a self-perpetuating downward spiral of falling prices, falling profits and rampant fear.
Scary stuff, boys and girls.
But this is just a state-sucking-ass clown toady who hasn't got the first goddamn clue about economics.
Thanks.
Falling prices. Are falling prices bad?
No, of course they're not.
Falling prices stimulate demand.
This guy's saying, well, you see, but if I know my TV or my computer is going to be cheaper or better down the road, I'm just not going to buy it now.
Of course, if that was true, if people always put off future advantageous purchases, there would be no IT industry.
I don't know if you're like me. I bought a notebook a year and a half ago for $799.00.
And now, just out of curiosity, if I'm flipping through a Best Buy catalog, I'll just see what $799 can buy me now in terms of a notebook.
But of course, I didn't put off the purchase.
I mean, of course.
Let's say that you desperately need a kidney.
I mean, to take a silly example, you desperately need a kidney, and the kidney is $10,000.
But you know that in a year, it might be $9,000.
So it's likely to be $9,000.
Are you going to sit there and go through dialysis for a year to save $1,000?
Of course not. People have immediate needs.
So, this is just ridiculously bad.
Now, if there is a barrier to lowering prices, then you get big economic problems.
In other words, if the government has regulations or minimum wages or union contracts or whatever it is that puts a bottom on the prices, well, then, of course, things are going to get bad.
But that's not because of the free market.
That's because the government is refusing to allow prices to go to their natural bottom.
In the Great Depression, and I remember this as a kid, I had this book, like, 20 Disasters of the 20th Century or something.
You know, it had the Hindenburg and it had the Titanic and so on.
And it had the Great Depression.
And all these people, oh, unemployment was like 25% and blah, blah, blah.
I remember thinking, even as I was a kid, I was like, well, that doesn't make any sense.
Why didn't they just work for cheap?
Why didn't they just accept less money?
And it wasn't until many years later, of course, that I found out that they would have been shot for accepting less money or the employers would have been shot because there was a minimum wage, there were price controls put on wages, artificial demands put upon employers, which meant that they were unemployed.
It had nothing to do with the fact that their wages were falling because the wages fall, which means that the price of everything goes down, which means demand is stimulated.
And when wages fall, people just accept less money, but it doesn't really matter because things are cheaper anyway.
And so anyway, this is all just nonsense, and it's everybody's desperate desire to avoid what I call the girt, the gun in the room, the fact that there is a gun in the room pointed at people who might otherwise have a free transaction by the brutal fists of the state, right?
The free market is the invisible hand.
The government is the visible fist.
So it's really, really important to look at the violence involved in these kinds of things.
There's nothing wrong with deflation whatsoever.
Ideally, you want stable currency, right?
And I don't think the gold standard can provide that.
I think that would be something that a free market currency system would do very nicely.
If you're curious about more, I've got sections on this in my free book.
Practical Anarchy at freedomainradio.com forward slash free.
Go check it out if you like. But there's nothing intrinsically wrong with deflation at all.
It's like saying, well, if the house...
To take a silly and fantastical example, would you really care if your house was shrinking by 5% a year if the whole world was also shrinking by 5% a year?
No, because you wouldn't even notice it, whether it was expanding or shrinking.
It's only when there's a mismatch between, say, wages and prices that we get a problem, and that's only when the government is intervening.
Well, why is it perceived to be bad?
Why are these state-toady-ass clowns running around crying about the deadliness of inflation?
Well, inflation is your dollar now is worth less in the future, right?
So when I first came to Canada in the 70s, a candy bar cost a dime, and I think it was then by the, like within 10 or 15 years, it cost a dollar, which meant that a dime could buy a candy bar, and then 10 or 15 years later, it could not buy a candy, it could only buy a tenth of a candy bar.
So inflation is your future dollar is worth less.
And inflation doesn't just mean prices and everything going up, because if prices and wages are going up, but inflation is when your future dollar is worth less.
Deflation is when your future dollar is worth more, right?
So it's kind of the reverse, right?
So under deflation, a candy bar costs a dollar now, but in the future, it'll cost a dime.
But that's all it means.
So inflation is really good for debtors, right?
So it takes some 10% and, you know, whatever, right?
If I borrow $100 from you and there's inflation, I get to pay—and let's say you don't charge any interest just for the sake of the example—I pay you back $100 in a year.
$100 is only worth $90.
So I just got $10, in a sense, for free over the course of the year amortized.
Deflation is good for creditors because then if you have to pay back $100 a year and the value of the dollar has gone up 10%, then you're paying back $110, right?
And inflation, I know, always tries to take this into account, but just talking about it in general.
So inflation is good for debtors because they get to pay back the money with stuff that's less valuable.
Deflation is good for creditors because they get paid back with money that is more valuable.
And governments are all in debt!
They don't want to pay back with money that's worth more in the future.
That's why they get all of their ass clowns in the media to talk about how bad deflation is and make you all scared of deflation, because Lord knows we wouldn't want the price of things to be going down.
Imagine how terrible that would be.
We really have to be lectured about how that's such a bad thing.
Deflation is also great for people on a fixed income, right?
If you've got some annuity that pays you five grand a month and your money's getting more valuable every year, it's good for you.
Same amount of money buys more in the future, same dollar, same value, like sorry, same number of dollars.
And of course, everybody associated with the government, the workers, pensioners, welfare recipients, the people represented by unions, they're all on fixed incomes.
They've got multi-year contracts with raises and so on going on into the future.
And the government doesn't want to pay more during deflation, right?
So if you've got a 5% raise next year and the currency has deflated by 5%, you're actually getting a 10% raise.
The government doesn't want to pay more in the future, right?
So that's why they're also saying deflation is a bad thing.
Bad for the government, which almost always means good for you.
And taxes, when the price of goods drops, so does government income.
I don't know, here it's like 15% on everything you buy.
Many places have a sales tax, so if the price of stuff goes down, you're paying less of that.
Now, you could say, well, but the government, the money is worth more and so on, but that's all sucked up by the unions and all that kind of other stuff, people who have these kind of fixed contracts.
When wages no longer increase or they even fall, government income tax drops because you're not getting bracket creep, you know, where you're going into higher income tax brackets just because of inflation.
Deflation leads to unemployment.
If you have minimum wages, if you have ironclad contracts which can't be renegotiated in the face of increasing dollar value, then you end up with massive unemployment.
It's inevitable. If wages can't respond to the market environment, you get dislocations, which is overemployment or unemployment.
Greater unemployment leads to lower government revenue.
People aren't paying taxes. Instead, they're collecting unemployment insurance or resources or whatever, right?
So it's less money for the government when there is deflation going on.
And of course, deflation stagnates or lowers wages.
And because, you know, people then feel poorer.
You know, it's like, what do you mean I don't get a raise this year?
What do you mean you're going to pay me 5% next, next year?
Despite the increase in there, you may be able to buy the same or even more with that money, but you just don't think of it that way.
You look at the dollar value, right?
Because people don't think, well, hey, I got a 5% raise and say, what was inflation?
5%. I didn't get a raise at all.
Then the next year, the inflation is zero and they don't get a raise and they think they're being ripped off even though it was exactly the same as before just because the government has no interest in teaching you about economics.
They don't want you to actually know how to pick the locks on the cages to get out.
So when people don't get raises, they vote other politicians because they feel poorer, you know, all that kind of stuff.
So politicians are concerned about deflation from that standpoint as well.
I mean, it's really not that complicated.
If some person walks up to you and says deflation is bad, ask them if they always bid the maximum price on eBay.
If they don't, ask them why they're contributing something that they call really bad.
I mean, you may have a tough time with the conversation because they'll be kind of muffled because their head will be so far up their ass that it'll be tough to hear them.
You might want to put your head to their chest or something like that.
The moral, of course, as always, this is the reality.
This is the red pill, right?
This is the reality. If I print currency without any backing, I'm called a counterfeiter.
If I use systemic violence, institutional organized violence, to prevent competition, I'm called organized crime.
Welcome to your government.
Thank you so much for watching.
Trying to keep him short, babies. For more on the philosophy of personal and political liberty, please visit freedomainradio.com.
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