Russ Nelson

I've written about deflation twice before: Deflation and Deflation 2. Third time's the charm?

The common wisdom is that deflation of the currency is bad. When money deflates, it becomes more valuable, even when you do nothing. So the theory is that people won't spend their money, because it will become ever-more valuable.

That theory cannot be true.

Look at the PC market over the last 30 years. In each one of those years, the PC became more reliable, faster, came with more memory and storage. The original MDA display was one color and text only. The CGA had 16 colors and 640x200 bits. The price -- of the computer you really want to have -- has stayed constant, at about $5000.

If the story told about deflation was true, then you would always be better off delaying your purchase of a PC by 6 months. You could be confident that the PC you would buy would be a more valuable PC.

Except ... that people did that very rarely, if ever. The standard advice was always "don't wait to buy a computer, because there will always be a better computer on the horizon."

So, in a situation where people can predict a constant stream of increase in value, people STILL made the trade. Thus, I think it's safe to predict that in a similar situation, where people could predict a constant increase in the value of their money, they would spend their money as needed.

I'm using QR code permalinks now. If you're looking at one of my blog entries, and you want to load it onto your smartphone, just read the QR code and follow the link and you'll have the story on your cellphone.

16.18 km 53094.15 feet 10.06 mi 4310.00 seconds 71.83 minutes 1.20 hours 8.40 mi/hr

First tandem ride with Heather, post diabetes diagnosis. She went ten miles without seeming to get tired at all. This is good; very good!

26.46 km 86809.89 feet 16.44 mi 5573.00 seconds 92.88 minutes 1.55 hours 10.62 mi/hr

Went past Norwood, to cross the Racquette on the next bridge north. It's an old bowstring bridge, currently limited to 3 tons and 7 feet height.

Free markets are the most efficient solutions for all problems in the future. The trouble is that people are looking at the past and can easily see where free markets evolved into failure, and can easily see where political solutions created success. Thus, otherwise intelligent designing people want to give up on freedom and start telling others what to do, usually with a gun.

I don't believe in economic creationism.

Without comment, I present to you this realistic image of Mohammed as a dog.

22.30 km 73149.04 feet 13.85 mi 4446.00 seconds 74.10 minutes 1.24 hours 11.22 mi/hr

Just a little ride into town. Temperature got over 40 degrees, so in spite of the sand lining the shoulders of the road, and the snowbanks everywhere, I had to go for a ride.

The most interesting parts of economics are the coordination problems. They come up whenever a problem can only be solved by coordinating with other people. To a very large extent, coordination problems can be solved by the combination of private property and price signals. Unfortunately, some problems don't get solved using only those two mechanisms.

We need a dictator. A constitutional dictatorship. One in which the dictator is strictly in power. One whose power can be taken away by a vote of a super-majority of the people. While I don't actually want to be a dictator, I want to get the coordination problems solved. From serious problems like the over-extension of copyright law, to the War on Drugs, to defending our national borders, all the way down to why we don't have any standard sizes for Li-Ion batteries? There are AAA, AA, C, and D sized cells for carbon-manganese (remember them?), alkaline, Ni-Cad, Ni-MH, and Lithium. Why not Li-Ion or Li-FePo? It's a coordination problem; nobody wants to make their device dependent on somebody else's batteries.

So, Vote Nelson for Dictator! I promise not to do anything for you that you can do for yourself!

Further topics in this category will list the things that I promise, as your dictator, not to do.

When a government spends money, there are only three places that money could have come from:

1. Taxation -- by taking the money away from someone.
2. Borrowing -- by temporarily taking the money away from someone, with a promise of returning it at a higher value.
3. Inflating -- by printing money, which reduces the value of all the other money that people hold.

Of these, the last is the most regressive and pernicious. Not only does it reduce the savings of the middle class, but it also causes people to think they have more money than they really have.

Which one, do you suppose, do politicians choose most often? Right: inflating and borrowing. That's because taxpayers feel the pain of taxation most directly.

Seems like every handful of years, somebody starts yammering about how much money candidates spend to get elected. About how that spending is going up and up and up. And they claim that that's a sure sign of corruption.

Not likely. Look instead at the ratio of federal spending versus spending by presidential candidates over several decades:

See how the ratio varies between 1 and 20.5 and 2.5? That's because candidates spend in proportion to the power they'll have. If you want them to spend less, expect them to do less and spend less of your own money.

UPDATE 2/8/2010: Sam Nelson of clevernamehere.com fame (which would let you guess his email address) noticed that I was plotting the wrong column from the DebtArticle.csv dataset. I've re-generated the plot, and included 2008 spending (which is for a partial year, so in your head, move the rightmost point lower). The graph is a little more noisy, but still serves to make my point.

Data sources: Federal spending and Presidential campaign spending.