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Non-Tech : Deflation -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (245)	1/23/2004 7:24:47 AM
From: Maurice Winn	Read Replies (1) \| Respond to of 621

CB, don't be overawed by maths. Of course a lot can only be done with maths, but out there in the infinitely variable world with an infinite array of variables and affected by whacked out humans with all sorts of weird ideas, maths is unnecessary. A pretty good guess is accurate enough. For example I've never bothered trying to accurately calculate Globalstar or QUALCOMM profits over the next decade because I know that lots of things can happen to make attempts at precision silly. Globalstar had 3 computers disagree and crashed 12 satellites then they had management madness in minute pricing. Who'd of thunk it? Maths can't deal with that, even if WAG on long, involved, probabilities are attempted. One of my favourite stupid mathematics claims was that there was a one in 10,000 years chance of a nuclear reactor meltdown. I suppose that didn't apply to Chernobyl, Three Mile Island and Force Majeure was ignored [though I don't recall that qualification]. What gets targeted in a war? Of course, power stations. How often do wars happen? Once every 100,000 years? No. In my day I've done maths of a pretty cool standard, albeit somewhat patchy = patches of elegant solutions but areas of neglect. So I've got the luxury of not being unduly impressed by a few equations. Most important is the conceptual framework surrounding an issue before the number crunching begins. Words do a pretty good job of that. The main economic problem is state monopoly. Governments are run by people whose main qualification is an intense desire to be the boss. Innate megalomania is obviously a characteristic because it's insane to have the arrogance to think that one can run much of a whole country. Even the universe runs on a few simple forces which add up in a free market to do what they do in any given space. Governments should have just a few simple forces: Law, border defence, property right protection [internal border defence around individuals and other legal entities] and protection of the commons [electromagnetic spectrum, oceans, rivers, air, noise] is about all that's needed. By attempting to dabble and control all and sundry, governments invariably mess up because things are too impossibly complex to control and they can't manage motivation. Self-interest always intervenes in their decisions. Costs are diffuse and benefits concentrated, which distorts decisions [special interests get the benefits and the small cost spread over everyone else is too little to worry about]. Which is not to say that there wouldn't be recessions if governments pulled their heads in and didn't try to run everything. There would still be irrational exuberance and sad outcomes as reality brings people back to earth. I suspect that they'd be a lot less though. The mathematical explanation is that Churchill and other politicians thought gold, interest rates, exports, tariffs, duties and wars should be conducted in certain ways, which when combined caused great economic dislocation and horrific conflicts. The scientific fact is that their dopey brains couldn't figure out what the consequences would be of their ignorant decisions, but being arrogant megalomaniacs they were happy enough to make decisions for everyone anyway, whether they liked it or not. Such as what to wear to school. What price should be charged for some item. Who should be allowed to produce what. Who is allowed to say what. As you point out, the megalomaniacs accept that those at the bottom of the heap might suffer great privation and believe that is the natural state of affairs. It is not. That's my theory anyway. I bet you can describe in words what happened. If you can't then there probably isn't maths which can describe your ideas either. Think causal relationships. Something exists and exerts influence on other things, which causes influence on other things which affects what happens elsewhere and the outcome is such and such. The quantification is less important than the concepts. For example, measuring fear and greed is tricky, but fear is an important economic variable. Scared people avoid risk, unless they are really scared in which case they'll take impossible risk and go down fighting. It's hard to apply maths to that. Mqurice

To: Ilaine who wrote (245)	1/23/2004 11:29:41 PM
From: JF Quinnelly	Respond to of 621

Britain's decision to "return to Parity", the pre-War Pound-dollar exchange rate, caused a serious deflation for England in the 20s as it contracted its money supply to raise the value of the Pound back to pre-War levels. But America was doing quite the opposite, expanding its money supply at a rapid clip. This went unremarked because the Fed was looking at the price level, and not the growth of credit. The growth of credit masked an underlying deflation- but in Austrian theory it set up the problem that attends large credit expansions, and that is the recession that follows as the credit expansion reverses itself. It's the credit expansion and artificially low interest rates that Mises and other Austrians see as the problem. Keynes' rather boring "The Economic Consequences of the Peace" pointed out that Germany couldn't pay reparations on the scale that was being demanded of it, and he warned that attempting to make them do so would further wreck Europe. Apart from other aspects of the transaction, I believe that the campaign for securing out of Germany the general costs of the war was one of the most serious acts of political unwisdom for which our statesmen have ever been responsible. To what a different future Europe might have looked forward if either Mr Lloyd George or Mr Wilson had apprehended that the most serious of the problems which claimed their attention were not political or territorial but financial and economic, and that the perils of the future lay not in frontiers or sovereignties but in food, coal, and transport. Neither of them paid adequate attention to these problems at any stage of the conference... It is, in my judgment, as certain as anything can be, for reasons which I will elaborate in a moment, that Germany cannot pay anything approaching this sum. Until the treaty is altered, therefore, Germany has in effect engaged herself to hand over to the Allies the whole of her surplus production in perpetuity.... The net result of these various measures was to reduce the gold reserve of the Reichsbank by more than half, the figures falling from £3115 million to £355 million in September 1919. It would be possible under the treaty to take the whole of this latter sum for reparation purposes. It amounts, however, as it is, to less than 4 % of the Reichsbank's note issue, and the psychological effect of its total confiscation might be expected (having regard to the very large volume of mark-notes held abroad) to destroy the exchange value of the mark almost entirely.