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wonderpup

Is Our Economic System Incompatible With The Free Market?

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Given that one of the reasons often cited in favor of technological advance is that it will lead to lower prices for goods and services as production becomes more efficient,

and given that the very idea of deflation seems to horrify those in charge of running the economy- how does it make sense to have an economic system that seems unable to operate with the very productivity gains it is supposed to value and facilitate?

If deflation is deadly to our system, then this suggests that the free market driven price deflation that is created by competitive innovation is not a good thing but a bad thing?

On the face of it we seem to have evolved a system that is incompatible with free market driven innovations- the more successful the market is in driving down prices the more of a deflationary threat this represents.

any thoughts?

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Given that one of the reasons often cited in favor of technological advance is that it will lead to lower prices for goods and services as production becomes more efficient,

and given that the very idea of deflation seems to horrify those in charge of running the economy- how does it make sense to have an economic system that seems unable to operate with the very productivity gains it is supposed to value and facilitate?

If deflation is deadly to our system, then this suggests that the free market driven price deflation that is created by competitive innovation is not a good thing but a bad thing?

On the face of it we seem to have evolved a system that is incompatible with free market driven innovations- the more successful the market is in driving down prices the more of a deflationary threat this represents.

any thoughts?

What this means is that the government has a nice assortment of goods to base CPI upon. As we all know a flat screen TV is far more important of a purchase than food, gas or a house.

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Given that one of the reasons often cited in favor of technological advance is that it will lead to lower prices for goods and services as production becomes more efficient,

and given that the very idea of deflation seems to horrify those in charge of running the economy- how does it make sense to have an economic system that seems unable to operate with the very productivity gains it is supposed to value and facilitate?

If deflation is deadly to our system, then this suggests that the free market driven price deflation that is created by competitive innovation is not a good thing but a bad thing?

On the face of it we seem to have evolved a system that is incompatible with free market driven innovations- the more successful the market is in driving down prices the more of a deflationary threat this represents.

any thoughts?

Won't work with crony capitalism.

There is no free market, just like Executive Sadman so eloquently put it.

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If deflation is deadly to our system, then this suggests that the free market driven price deflation that is created by competitive innovation is not a good thing but a bad thing?

On the face of it we seem to have evolved a system that is incompatible with free market driven innovations- the more successful the market is in driving down prices the more of a deflationary threat this represents.

Deflation is only a "bad" thing for the current financial infrastructure since it relies on ever increasing money supply to cream off profits. Its entirely compatible with a non-debt money based free market.

I continue to be impressed with your imagination when it comes to constructing arguments based on conflating unrelated concepts.

Edited by goldbug9999

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A system with 2% built in target inflation is actually a system with an inbuilt self destruct...exponentially speaking.

Politics abhors deflation...they cant expect to be voted in promising less.

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You cannot have a free market or capitalism when the means of exchange (money) is controlled by a minority (private banks) who are not accountable to the public.

That is why no country has had anything close to capitalism since WW1.

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Given that one of the reasons often cited in favor of technological advance is that it will lead to lower prices for goods and services as production becomes more efficient,

and given that the very idea of deflation seems to horrify those in charge of running the economy- how does it make sense to have an economic system that seems unable to operate with the very productivity gains it is supposed to value and facilitate?

If deflation is deadly to our system, then this suggests that the free market driven price deflation that is created by competitive innovation is not a good thing but a bad thing?

On the face of it we seem to have evolved a system that is incompatible with free market driven innovations- the more successful the market is in driving down prices the more of a deflationary threat this represents.

any thoughts?

Deflation is only bad for people with a lot of debt. As our state backed monetary system is predominantly debt based, clearly deflation is like kryptonite to superman.

I wouldn't say 'we' have evolved this system though. I would assert that it has been pushed on to us, through threats of violence by the state, encouraged their banking buddies.

In a deflationary environment, it's likely that there would be less debt and more saving. This would be far more compatible with technological progress leading to cheaper goods.

Edited by Traktion

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Deflation is only a "bad" thing for the current financial infrastructure since it relies on ever increasing money supply to cream off profits. Its entirely compatible with a non-debt money based free market.

I continue to be impressed with your imagination when it comes to constructing arguments based on conflating unrelated concepts.

I assume you are being sarcastic when you say you are impressed- yet you seem to agree that our current system does indeed have a problem with the deflationary effects of increased productivity, due to it's debt based nature- so you are agreeing with me while dismissing my point?

Maybe making connections between seemingly unrelated concepts is actually a worthwhile exercise? At the very least it forces us to reconsider the things we think we 'know'.

Given that increased productivity is almost by definition deflationary in terms of prices one might expect that deflation were something our system would set up to deal with- but apparently it is not.

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I assume you are being sarcastic when you say you are impressed- yet you seem to agree that our current system does indeed have a problem with the deflationary effects of increased productivity, due to it's debt based nature- so you are agreeing with me while dismissing my point?

Maybe making connections between seemingly unrelated concepts is actually a worthwhile exercise? At the very least it forces us to reconsider the things we think we 'know'.

Given that increased productivity is almost by definition deflationary in terms of prices one might expect that deflation were something our system would set up to deal with- but apparently it is not.

I think the title could be cause for misunderstandings. I guess if the title was Is our monetary system (rather than 'economic system') incompatible with the free market' then yes...but I guess a monopoly of a single monetary system is in of itself anti-free market. By definition we cannot have a free market if the monetary system is forcefully imposed by government.

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Deflation is only bad for people with a lot of debt. As our state backed monetary system is predominantly debt based, clearly deflation is like kryptonite to superman.

Exactly- our system seems allergic to the very progress it constantly strives to facilitate. The system places a high value on the constant increases in productivity that then create the deflationary forces which are apparently toxic to it's own survival.

So is our economic system in it's present form incompatible with the free market? The answer seems to be yes it is. It's debt based nature means that the falling prices engendered by increasing productivity are inimical to it's well being.

So the more productive we become, the more we create the deflationary forces that will implode the system.

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Hi Wonderpup.

I'm a little sceptical that it is the advance of new technology within one's country that is to blame. I think it more to do with cheap labour overseas

.

I would argue that the ability to outsource the way we now do is itself a product of advancing technology- the internet being a good example of how the two trends reinforce each other.

But for the purposes of this argument it's makes no difference- what's interesting is the fact that we have a system that promotes any and all means to increase it's productivity- while at the same time being unable to process the resulting deflationary consequences of this increased productivity.

Outsourcing and automation are both deflationary in terms of the price of goods and services- and this a good thing- yet we are also told that deflation is a bad thing-

So it seems to me that our current debt based system is inherently threatened by the very free market forces it claims to support.

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I think the title could be cause for misunderstandings. I guess if the title was Is our monetary system (rather than 'economic system') incompatible with the free market' then yes...but I guess a monopoly of a single monetary system is in of itself anti-free market. By definition we cannot have a free market if the monetary system is forcefully imposed by government

The problem is not that the system is imposed by the government-which it absolutely is- the problem is that the system is based on debt.

The issue is not so much who administers the system- it's more about the way that system works.

What I am saying is the entire panoply of modern finance is exactly the opposite of what it claims to be- it claims to be a system that is designed to create deflation in the form of ever cheaper goods and services- but in practice it's a cult of inflation because those in control have much to lose in a deflationary scenario.

All around the world we see the elites feverishly trying to forestall the very deflationary forces they claim their system is configured to create.

They have been telling pork pies. They don't want lower prices- they want inflation- because only inflation can preserve the debt that constitutes their 'wealth'.

So by extension they don't really want free markets either- because a free market would drive the competitive innovation that creates the deflation in prices they are trying to prevent.

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What I am saying is the entire panoply of modern finance is exactly the opposite of what it claims to be- it claims to be a system that is designed to create deflation in the form of ever cheaper goods and services- but in practice it's a cult of inflation because those in control have much to lose in a deflationary scenario.

You only just noticed?

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There has been commodity deflation, due to technology innovation, exploration and so on, for the last 200 years.

That long period of deflation appears to have ended around a decade ago, whether due to increased global population (with China coming into the WTO) or resources starting to become more difficult to discover, extract etc.

If that's the case then we may be transitioning into a new phase of modern era human existence which we haven't experienced before.

Let's hope for some big new tech developments and substitution commodities else things could get a bit tricky over the coming decades, especially for the global poorest.

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A bit of deflation or a bit of inflation doesn't seem to be that problematical for any economy even if the changes happen over long periods provided there is adequate communication about what is happening along with reasonable levels of cooperation.

Sudden large deflationary or inflationary movements seem damaging especially when communication is lacking but it's unlikely that large deflationary movements are any more damaging to the general economy than the current large inflationary movements in essentials.

What the UK has at the moment is the worst situation with relatively sudden (inflationary most of the time) changes in house prices and other essentials combined with the amount of misleading information and lies continually being broadcast by UK politicians and the media with the BoE involved as well.

Add in a hefty touch of incompetence as exemplified by NuLabour as well as the current lot along with the BoE and it's not difficult to see how the UK has arrived at its current disastrous position.

Edited by billybong

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You only just noticed?

It just now struck me that the long term benefits claimed for the market in terms of price deflation seem to conflict with the stated objective of central banks which is to avoid deflation at all cost.

Which is why I suggested that our current system might not really be compatible with a free market- after all falling prices should be a universal good- but apparently they are not.

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How about Japan? They have deflation from about 1990 and it does not seem like a tragedy? Any insight view?

Japan is drowning in an ocean of debt- the tragedy is baked in.

If deflation is not a serious threat to the current status quo why are the worlds central banks terrified of it?

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The argument used is that relative wages adjust more quickly if there is some inflation.

I don't really get this faith that wage rises occur as an inevitable consequence of inflation. If that were true why did anyone ever need a union?

Globalisation+ technology is a deflation machine- and one that the Central Banks cannot control.

I just came across this from Japan;

In September, Japan’s consumer price index rose 0.7 percent from the same month last year to log its fourth consecutive rise, hinting at inflation. The uptick, however, was misleading. It was largely caused by the costly rise in energy imports, exacerbated by a weaker yen.

This, of course, is not a sign of economic recovery, both Noguchi and Ikeo said.

Workers’ real wages fell 2 percent in August compared with the same month the previous year, logging two drops in a row. Inflation without wage hikes will only erode people’s living standards.

“It is wages that matter. If prices go up without a rise in wages, the real income of the people just goes down,” Noguchi said.

Abe apparently is well aware of this risk and has repeatedly urged top business leaders in Keidanren, the nation’s largest business lobby, to push for wage hikes to generate “a virtuous cycle” of raises and economic expansion.

Noguchi calls Abe’s approach “sheer nonsense” because Japan is not a planned economy and the government thus cannot force businesses to raise wages against their will.

http://www.japantimes.co.jp/news/2013/11/17/national/bojs-money-mountain-growing-but-debt-may-explode/#.UoqftMSGrze

Edited by wonderpup

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I don't really get this faith that wage rises occur as an inevitable consequence of inflation. If that were true why did anyone ever need a union?

Globalisation+ technology is a deflation machine- and one that the Central Banks cannot control.

I just came across this from Japan;

http://www.japantime...e/#.UoqftMSGrze

The massive income inequality between labour and capital that Thatcherism restored is also a contributing factor. The productivity rewards of three decades of innovation have been disproportionately enjoyed by those at the top.

article-0-1AC2F974000005DC-35_634x362.jpg

gini-index-uk.jpg

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