Why deflationary currencies are ok

Q: Didn't the gold standard fail because it was deflationary?

No. England was forced off of the gold standard in 1931 because they ran out of gold. In the first half of the 20th century, countries on the gold standard usually only had 40% of the gold needed to back the currency they issued. When there was a run on the reserves after WWI, they ran out of gold and were forced off gold standard.

More info on this: Various societies have had and left the gold standard over the years. But when most people think 'exist from the gold standard' they're referring to the European powers and America in the 1930s. On this topic, I recommend The Lords Of Finance which outlines in detail what happened around 1900-1940 with central banks and This Time Is Different which outlines historical metal-standards and monetary policy.

Q: But didn't countries leave the gold standard because it caused unemployment?

Yes. According to John Maynard Keynes, a leading economist at the time and widely revered today, workers don't leave their jobs if the *value* of the money they get goes down. They leave their jobs if the *amount* of that money goes down. So when the value of the dollar goes up (deflation) workers quit rather than take a pay cut. In this way, deflation can lead to unemployment. By contrast, if the dollar is worth less (inflation) workers who were not working will start working when they perceive they're getting paid more, even if that money has less value now.

In modern times, this is supported by various incarnations of the Phillips Curve which is essentially a correlation between unemployment and inflation.

More info on this: I recommend reading Keynes himself on this one. His seminal work The General Theory of Employment, Interest, and Money explains his position well and most of modern money policy is based on it.

Q: So isn't it bad that workers will be unemployed?

Yes. But solving it is not impossible; workers will have to learn to look at the *value* of their money instead of the number of currency units they're getting.

Q: If there's deflation, what's the incentive to invest? Couldn't people just keep their money instead of putting that money to work?

Only projects that yield a rate of return higher than the rate of deflation will get investments. In practice, this will be any project expected to yield returns greater than the average rate of return for all investments. Which is reasonable because investments that are expected to be worse than average are by definition a poor choice. Instead of being forced to pick any investment, people will have an easy asset (the currency itself) save in until a good investment comes along. By contrast, our current system encourages almost *any* investment with low interest rates and inflation.

Q: Currencies work best when they're value-stable over time. Deflationary currencies are by definition not value-stable. Isn't this bad?

Yes. But there is no known way to create a value stable currency and having a lightly deflating currency is better than having a potentially highly inflating currency. Fiat currencies we use today have central banks that are in charge of keeping the value stable, but none of them succeed at this job forever. Historically, people who can print money always end up printing more of it and destroying the currency. This is why gold is an long-used deflationary currency; people tolerate the minor level of deflation rather than risk abusive inflation.

More info on this: I recommend reading When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. It's an excellent account of the risks of currency abuse. In almost all cases it doesn't get that bad, but it's worth remembering why the Germans are so hesitant to print more Euros just to get out of what their forefathers would see as a minor recession.

"Don't be a hero"

Lots of people use the phrase "don't be a hero"; "Don't be a hero when you get robbed, just give them your money." Why not? Exactly when am I supposed to be a hero? Isn't it a good thing to be a hero?

In this case, a 'hero' is someone who would put themselves at risk for the betterment of others. If the hero stops the robber, they can't rob more or worse. Why shouldn't someone do that? Shouldn't we really say "please be a hero, but don't sweat it if the odds just look too impossible to win"?

Being a hero doesn't stop with common criminals. That guy who burnt himself alive and started the Arab spring, I would argue that guy was a hero. He took bodily harm for the betterment of others.

Just the other day, I was talking to a friend who grew up in communist eastern Europe. I asked her if the majority supported what the communists were doing; killing and stealing. She said they didn't, but that no one stood up to that aggressive minority. Her country needed heroes and didn't have enough of them.

I actually think we'd be better off with more heroes. If someone tried to steal everyone's stuff in a communist takeover, I'd hope to see some heroes. If someone tried to stop on women's rights like they did in the Iranian revolution, I'd like to see some heroes step up. Heroes fight against negative social situations all the time.

I would argue that our founders were just that sort of hero. Paying higher taxes without representation isn't a big slight but they put themselves in peril to stop it for the sake of others and future generations.

That's why I own guns. It's why the founders gave us the 2nd amendment; so we could be heroes if we ever had to. Not every bad guy is going to feel so much sympathy for protesters that they'll peacefully stand down. Some of them will have to be defeated. It's happened all throughout history and in other parts of the world.

Most in my generation have never needed to use violence to be heroes. But I don't delude myself in thinking there will never again be a fight for freedom on my continent. So I go to the rifle range every once in a while.

And when I walk unsafe streets, I carry pepper spray. A hero would never give up their street to people who would steal other's freedom. I don't hope to be robbed, but if I walk those streets without showing fear, others won't be afraid to either. It makes the whole neighbourhood better. Being ready/willing to be a hero is different than hoping to be one.

The consumer driven economy is for people who don't naturally automate things

Consumption doesn't improve economy or humanity in general. Neither does production. If you want to help, start automating things.

Imagine that the entirety of human society ate ice cream sandwiches and that there were only two jobs in society: people who make churn ice cream and people who bake cookies. A society focused on consumption would ask everyone to eat more ice cream sandwiches. When an ice cream churner eats more sandwiches he'll have to buy more cookies. And in order to buy more cookies he'll have to spend more time churning ice cream. The cookie baker is getting the same message about consuming more; he spends more time baking cookies to trade for his ice cream. At this point, both of them are getting fat from their excessive consumption and working harder pay for it all.

Is the world better off? Both already had enough ice cream sandwiches before they were urged to consume more. Both are now working harder for things they don't need. When they grow old and die, the world is pretty much the way it started.

Of course, if they were intelligent people they'd try to improve the production of cookies and ice cream. With increased automation they'll get more product for their effort instead of just working more. And unlike working harder, the process improvements can be passed on to the next generation.

Did they need increased consumption to drive that improvement? Would they not have automated the process just for the sake of having to work less? Is it true that we will only automate the processes we're working on once we're working long hours for things we don't need?

We all know working long hours to buy the Nike's that commercial sold you is foolish. Fewer are willing to admit the culturally-exploratory, finding-yourself vacation experience we read about on a travel blog has pretty much the same level of benefit to society. If we want to break the cycle of working long hours just to get fat, let's stop working those long hours, stop spending that money, and use that time to automate something. It's the automation that frees us from the consumption/production cycle.

Unlike contracts, reputation is an effective system

I have contracts for certain things. Mostly things I hate. For example, the cable company, credit cards, and the licensed geotechnical engineer that the city made me hire in building my house. I don’t know if the cable company or the credit card issuers have violated their end of the agreement we have because I don’t remember what the fine print is and it would take a lawyer to know every loophole possible. It probably has a clause in there saying they can change it at any time anyways. As for the geotechnical engineer, he did a poor job the first time around and we had to redesign, which I had to pay him and others for. But I can’t sue for breach of contract because I need his buyoff with the city to finish the design and construction. I also know plenty of people who were owed money in a contract and didn't get paid because the other party went bankrupt, which especially common for corporations. These contracts are useless to me.

Even if I wanted to use contracts more often they’re too cumbersome. To make agreements I’d have to pay a lawyer to write them. Also, only a court could pass a judgment if they breach their contract, which I gather is usually months or years backlogged and isn't worth it for minor breaches. Even then, I’d probably have to pay another 3rd party to actually physically enforce it since that's not what cops seem to do unless they have some other personal interest. It just doesn't work very well.

Now reputation, that’s something I use every day for both little and big things. I read reviews of products before I buy them and write reviews after I do. I ask my friends for referrals on who will build my house and that's turned out excellently. I make deals with people at work about dates when I'll deliver things and I deliver them even when I know I could weasel my way out of having to do so, because I want to maintain a good reputation. Even the corporations don't often take people to court on their contracts, they just dock non-payers reputation in the credit-scores they have. All of these things rest on reputation.

At this point, it seems like a contract is only valuable in enumerating the position of two parties that are being honest already. It doesn't protect me from crooks. It doesn't protect me from the unexpected. If I could just have a reputation system on everyone and everything I’d stop using contracts entirely.

Privacy is for criminals like us

The bank called me to ask about some wire transfers on my account. They claimed to do so because of account monitoring for the USA Patriot act.

Why wouldn't I answer their questions? I'm not a terrorist, after all, so I have nothing to hide. Or wait, I do have things to hide, they're just not terrorism. Maybe I do drugs they don't think you should be allowed to do. Maybe I have a sex life my neighbors wouldn't approve of. Maybe I eat stuff they wouldn't eat, I give to charities they wouldn't give to, I think ideas and worship gods that they do not. Privacy is how I can protect myself from their judgement and demands.

Privacy isn't about "I'm doing nothing wrong so I have nothing to hide." Privacy is about doing something most people think is wrong but isn't because it doesn't affect anyone else.

A lot of things used to be illegal. Alcohol, inter-racial marriage, being gay, Christianity, astronomy, American Independence. But privacy protects these things, it protects victim-less 'crimes' from an oppressive majority. It protects criminals like us.