Thought you might find this info from wikipedia interesting:
1998
GDP growth: -6.03
Inflation growth: 2.83
1999
GDP: 2.56
Inflation: -3.96
2000
GDP: 7.95
Inflation: -3.76
2001
GDP: 0.50
Inflation: -1.58
2002
GDP: 1.84
Inflation: -3.12
2003
GDP: 3.01
Inflation: -2.54
2004
GDP: 8.46
Inflation: -0.40
2005
GDP: 7.12
Inflation: 0.93
http://en.wikipedia.org/wiki/Economy_of_Hong_Kong#Inflation.2C_GDP:_1962-2007
I included 98 and 05 so you can compare the deflation to inflation. What I find interesting is that even though they had deflationary policies during the 2001 recesssion, they still experienced some economic growth. It flies right in the face of Keynesian and monetarist prescriptions for fighting recessions.
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Thanks for sharing this. I'm going to have to rethink my beliefs about deflation during recession.
"I cannot prove, but am prepared to affirm, that if you take care of clarity in reasoning, most good causes will take care of themselves, while some bad ones are taken care of as a matter of course." -Anthony de Jasay
Solid_Choke: Thanks for sharing this. I'm going to have to rethink my beliefs about deflation during recession.
Hey, aren't you the self-professed Austro-Keynesian? We need to talk.
krazy kaju: Solid_Choke: Thanks for sharing this. I'm going to have to rethink my beliefs about deflation during recession. Hey, aren't you the self-professed Austro-Keynesian? We need to talk.
I once called myself an Austro-New-Keynesian.
To me that means that:
(a) most of neoclassical micro-economic theory is valid
(b) much of the macro-economic theory, of all schools of thought, is bunk
(c) some prices have a high degree of stickiness that prevents markets from clearing
(d) psychological explanations are incorporated into economic models less than they should be
(e) Keynes ideas about uncertainty and irrationality should be emphasized more than they are in understanding of business cycles
(f) Hayek's ideas about information, and emergent behavior get less respect than they should
(g) transaction costs matter
(h) institutions matter
(i) externalities REALLY matter
In other words, I don't fit neatly into ANY school of economic thought.
So you hold that prices won't fall when demand falls, that people won't sue for property damage, and that humans are inherently irrational and thus will suddenly hoard their money based on mood swings?
Actually, I do not see much contradiction in deflation and economic growth. Because with deflation, everything becomes cheaper so there is more money available for investment, which will eventually lead to growth. We are talking about an Asian society which emphasizes investment over consumption.
If we had talked about a consumer-oriented western economy, deflation would probably lead to recession rather than growth because people would have no incentive to consume today as tomorrow's consumption will be cheaper.
Art transcends ideology.
http://mises.org/Community/blogs/ruben
krazy kaju: So you hold that prices won't fall when demand falls, that people won't sue for property damage, and that humans are inherently irrational and thus will suddenly hoard their money based on mood swings?
I believe many people have a herd mentality, legal processes have large transaction and opportunity costs, and that people are irrational when the cost of doing so is minimal or when someone else will pay the costs.
Solid_Choke:I believe many people have a herd mentality, legal processes have large transaction and opportunity costs, and that people are irrational when the cost of doing so is minimal or when someone else will pay the costs.
So...
Does that mean you want an economic system that does away with 'irrational' market behavior or just that it isn't taken into account enough to do something good with?
Because it seems, to me at least, that most of the economic systems out there are inherently geared towards 'fixing' some aspect of the market, usually through gov't intervention, and aren't really interested in investigating How Things Are like the Austrian School.
Just from your example, it could be argued that some theoretical action would be perfectly rational according to the market actor's point of view if they didn't have to pay the costs associated with it but if they did have to bear the full costs of their actions then it would indeed be irrational.
Or you could even go for the miminal fraud strawman where the high transaction and opportiunity costs actually encourage petty fraud since the victim isn't very likely to prosecute outside of a gov't monopoly legal system where everyone collectively pays the costs. Which is the irrational behavior, spending thousands of dollars of other people's money to prosecute a petty theft or just having the individual victim bear either the loss or whatever they felt it was worth to seek justice?
Anonymous Coward: Solid_Choke:I believe many people have a herd mentality, legal processes have large transaction and opportunity costs, and that people are irrational when the cost of doing so is minimal or when someone else will pay the costs. So... Does that mean you want an economic system that does away with 'irrational' market behavior or just that it isn't taken into account enough to do something good with? Because it seems, to me at least, that most of the economic systems out there are inherently geared towards 'fixing' some aspect of the market, usually through gov't intervention, and aren't really interested in investigating How Things Are like the Austrian School. Just from your example, it could be argued that some theoretical action would be perfectly rational according to the market actor's point of view if they didn't have to pay the costs associated with it but if they did have to bear the full costs of their actions then it would indeed be irrational. Or you could even go for the miminal fraud strawman where the high transaction and opportiunity costs actually encourage petty fraud since the victim isn't very likely to prosecute outside of a gov't monopoly legal system where everyone collectively pays the costs. Which is the irrational behavior, spending thousands of dollars of other people's money to prosecute a petty theft or just having the individual victim bear either the loss or whatever they felt it was worth to seek justice?
I will try to answer the main question posed in each of the paragraphs of your post.
1.) Without taking irrational behavior into account we cannot understand how markets work.
2.) I see economics as a framework for understanding how people use scarce resources that have alternative uses, not as an engineering discipline that seeks to achieve some "goal of society".
3.) In short, I was saying that people spend other people's money less well then they spend their own. I hold that my belief that people should spend more of their own money and less of other people's money on things follows from the prior belief.
4.) I have no idea what you are getting at in this paragraph. If it helps, I don't believe that victims should have to pay to support a criminal while he hangs out with his buddies and doesn't have to work to support himself. This is simply a case of harming the victim a second time.
Solid_Choke:1.) Without taking irrational behavior into account we cannot understand how markets work.
Are you using the Misesian definition of the term rational or the more mainstream one? I ask because because unless you are using the Misesian definition of rational, i do not think many people around here would disagree with you on this. Mises defined the term rational to mean "using means to achieve ends", so this might just be a semantic difference here if you are using the term rational in another way.
Would the answer lie in the fact that deflation by most people standards is considered to be the fall in prices instead of a contraction in the money supply?
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