The case for deflation

[mjdgreg]

OK, here's what you've all been waiting for. You'll be pleased to know that I am going to outline why you need to prepare for the consequences of deflation. I'm going to start the ball rolling today and will continue to flesh out my argument over the next few weeks.

I'm sure by the time I'm finished you will all be convinced that deflation is going to be a reality for all of us in the not too distant future and will be with us for many years.

Right, what seems to be going unnoticed by mainstream economists is that we have more pensioners than ever before. As things stand we now have more people aged over 65 than under 16. The consequences of this are massive as these pensioners will require more spending, for a longer period than ever before due to rising life expectancy. The bad news is that this will have to be paid for by fewer people than ever before.

GDP per head will also decrease as a consequence of having less people working supporting a growing number of pensioners.  The only way this can be stopped is if those in work become more productive to be able to pay the increased bills. Unfortunately our economy is going the other way. There are more jobs than ever before and productivity is getting lower.

This is going to hugely increase the tax burden on those in work. At the moment each pensioner is paid for by four people in work. It is predicted that by 2049, each pensioner will be paid for by only two people in work. As time goes on this situation will get worse as people continue to live longer.

Currently for every £5 the Government has in revenue or borrowings, £1 is spent on pensions. This amount is roughly the same as what is spent on the NHS whose biggest customer base is, you've guessed it - pensioners. It doesn't take a genius to work out that government spending on pensioners is only going to carry on increasing over time.

Deflation will mean stagnant growth and living standards will fall. This is because negative equity will increase and the unemployment figures will go higher.
 
Also we need to consider how spending patterns change as we get older. Harry Dent outlines his thoughts for the American economy in the following link. The UK follows a very similar profile to what he says about America.

http://www.mauldineconomics.com/outsidethebox/a-decade-of-volatility-demographics-debt-and-deflation

What he's basically saying is that as a population gets older, they spend less. This lack of spending of such a large part of the population is a key ingredient of deflation.

We need look no further than Japan for an excellent example. They have the highest average age of any country which currently stands at 45. By 2049 this will have risen to 52. Their stock exchange has fallen as the population has aged. It is still nowhere near its peak in the 1980s.

That's enough enlightenment for one evening. Luckily for all of you, I will be fleshing out the case for deflation even more over the coming weeks.
                                                                   

[BillyStubbsTears]

Mick.

Just a quick thought. Female involvement in the workforce in Japan. Your thoughts?

After you've explained what that "astonishing evidence" was, of course.

[mjdgreg]

Just a quick thought. Female involvement in the workforce in Japan. Your thoughts?

It needs to be increased as much as possible to lessen the effects of their demographic time-bomb.

[BillyStubbsTears]

No shit Sherlock? I bet the Japanese Govt are preparing a special award for you in recognition of your nation-saving insight.

Let me phrase the question more specifically, since the subtleties appear to have by-passed you once again.

You say that demigraphics is the over-riding reason why Japan has had 2 decades of economic stagnation. That argument means that there are too few people in the potential workforce pool compared to thise too young or too old to work.

So, in that case, how come Japan has the lowest female workforce participation in the developed world?

If Japanese women were as involved in the workforce as British women, there would be an extra 10-15 million productive members of the workforce able to contribute to the economy.

The demographic argument is predicated in the idea that there are too few people to do the jobs that the economy could provide if it were operating at its potential. But that is patently false. The extra workers are there. What is lacking, what has been lacking for two decades, is the demand for those jobs. Because a spiral of nervous expectation and deflation set in 20 years ago after the disastrous response to the 1990 recession.

Demographics in Japan exacerbates  the problem, but no one (barring a few cranks on the right who are desperate to find any reason possible to blame the economic stagnation on anything bar the failure to apply a fiscal stimulus) serious thinks it is the key underlying cause of 20 years of stagnation.

And in any case, WE have nothing like the same demographic problem. So to claim that we are going to experience a deflationary collapse because if demigraphics is puerile nonsense.

If we have a deflationary, stagnationary collapse, it will be because of appalling economic policy. Full stop.

Now. That "astonishing evidence" Mick?

[mjdgreg]

What a load of leftie nonsense. Get the women into the workforce and everything will be OK. pmsl. You are so simplistic with your solutions I'm really struggling to take you seriously. Whatever I say and however much I back it up, your response is always the same. They should spend more money.

Only this time, when confronted with the demographics time-bomb, you solve this by saying they should get more women into the workforce. You obviously know nothing about Japan's problems and what caused them. When I've got a bit of time I will further enlighten you and expose your last post for the absolute load of twaddle that it is.

[BillyStubbsTears]

Eeh Mick. It's like arguing with a random number generator. When you are shown to be spouting infantile bullshit, you have four responses - the only mild interest is in finding out which one you will use each time.

1) Accuse your interlocutor of being a Leftie (because that seals the argument doesn't it?)
2) Accuse your interlocutor of trying to get the thread shut down by changing the subject, allowinyou to graciously refuse to take part in any further discussion
3) Claim that you are going to stop posting in order to save your opponent any further embarrassment.
4) When you are REALLY backed into a corner and shown categorically to be lying through your teeth, simply refuse to answer at all.

Skilful Mick. Really skilful. Skilful at avoiding facing up to being proved wrong. Not much use in terms of establishing the rights and wrongs of a debate, but really skilful as a dissembling tactic. You must be well practiced.

Since you have clearly decided to stick to tactic 4 on the "astonishing evidence" issue, allow me to give you my interpretation of your lying and bullshit on that topic.

In July, you said that inflation was the biggest threat to the world. By October, you had performed a complete volte face and said that deflation was the biggest threat to the world.

You explained this by saying that you had uncovered "astonishing evidence" that had led you to re-appraise your views. This evidence appears to be that a) prolonged deflationary pressures always follow a credit crash and b) demographic pressure will lead to deflation.

But. You then went on to say tht you hd "always" know about demographics. So, there are only two logical outcomes here.

1) You previously hadn't come across the demographics argument. This makes you a bare-faced liar.

2) You previously WERE aware of demographics. This means that the demographic argument wasn't part of your astonishing evidence.

I'll be kind to you and assume that 2 is the case.

So Mick. There is only one logical conclusion that avoids us concluding that you are a bare faced liar. That is that you were previously unaware that deflation is always a threat after a credit crash.

Agreed?

Now we are getting somewhere. Now we have established the depths of your ignorance in your earlier rantings. Because this is PRECISELY what Keynes was talking about  80 years ago. Remember Mick? That's the Keynes that you called a leftie crank.

We have known about the danger of deflation from a permanently depressed economy since the Great Depression Mick. It might have been "astonishing evidence" for you, but the rest of us were well aware of it. That was the underpinning premise to the debate.

So, there we go. Back in July, you were vehemently arguing on a topic where you were deeply ignorant of the fundamentals.

Either that or you were lying through your teeth in October.

Remind me why anyone should ever listen to a word you say in future?


Off you go Mick. Go find some astonishing evidence on Google.

[Filo]

Destroyed! 

[mjdgreg]

Billy, you're making yourself look very silly. Just a few points from your last ramble.
1) Are you saying you're not a leftie? I'm quite happy for you to call me right-wing.
2) The mods have made it plain that if a thread goes off topic they will close it down. Not a lot I can do about that.
3) I don't think I've ever claimed I am going to stop posting to save my opponent from further embarrassment. I did stop posting once to allow you time to calm down but it appears your blood pressure is once again on the rise.
4) I've not told any lies and have never been backed into a corner by you. I've taken you apart in every debate I've ever had with you. You've accused me of being a liar so many times that it is now just water off a duck's back.

You keep on asking me for the 'astonishing evidence' as though I've changed my mind and not backed up my point of view. You then (as usual) contradict yourself and say that I've already given the 'astonishing evidence' as, a) prolonged deflationary pressures always follow a credit crash and b) demographic pressure will lead to deflation.

There is obviously more to it than that (which you conveniently ignore)  but I am at a loss as I suspect are the readers to understand why you keep on asking for this 'astonishing evidence' when you yourself have already decided what it is. What do you think this thread is about? I'm elucidating on my deflationary view in case you hadn't noticed.

It is correct that I have always known about demographics but your two logical outcomes are farcical to say the least. There are many more logical outcomes than the ones you have come up with.

How about this one. I was aware of demographics, and the more I investigated this subject, the more I became aware of the greater impact this had on economies than I previously thought. There, that wasn't too hard was it?

There are other factors that have led me to change my mind but the one I've just given you about demographics is more than a logical outcome. I really fear for any scientologists going through university at the moment if they are trained to think as you do. They may become good scientologists but they will have no grasp of the real world.

To then say that the only way I cannot be perceived as a bare faced liar is to admit that I didn't know that deflation is always a threat after a credit crash has made me piss my pants laughing. Do you seriously think that someone with the brilliant intellect that I possess would be unaware of that basic fact? Unbelievable.

So to conclude, your previous post is way off the mark (as usual). Take a chill pill and calm down and hopefully you will then have something rational to contribute to the debate.

[mjdgreg]

Destroyed!

I agree. I've totally taken him apart again!

I must say I do prefer it when your posts are short. There is much less waffle to wade through. If only Billy could take a leaf out of your book.

[The L J Monk]

As things stand we now have more people aged over 65 than under 16.

Mick - just to be clear, when you say "we", what geographic area are you referring to?

[BillyStubbsTears]

Right Mick.
Let me get this straight.

1) You ALWAYS knew that demographic pressure could lead to deflation

2) You ALWAYS knew that historically, credit crashes are followed by severe deflationary pressures?

Right?

[wilts rover]

To then say that the only way I cannot be perceived as a bare faced liar is to admit that I didn't know that deflation is always a threat after a credit crash has made me piss my pants laughing. Do you seriously think that someone with the brilliant intellect that I possess would be unaware of that basic fact? Unbelievable.

Interesting discussion as to how the changing demographic of an aging population will affect economic performance. I see that you have thoroughly researched the topic and looked at past examples, say when Atlee decided to create the Welfare State in 1945, at the same time facing a huge debt burden and a totally shattered industrial base - with everyone telling him that he woud deflate the economy. And what was the result of this economic madness, errr the economic boom of the 1950's. If only he had someone of your intellectual capabilities to stop him and thus maintain the divided society of rich capitalist bosses and an impoverished underclass of the 1930's - that Cameron is attempting to recreate.

As to the aging population and pension provision, surely the government wont be daft enough to raise the retirement age and make people work longer as a way out this - oh hang on....

[mjdgreg]

Right mjdgreg.
Let me get this straight.

1) You ALWAYS knew that demographic pressure could lead to deflation

2) You ALWAYS knew that historically, credit crashes are followed by severe deflationary pressures?

Right?

Wrong.

[BillyStubbsTears]

Well then. Enlighten us.

[mjdgreg]

Well then. Enlighten us

.

How many times do you need to be enlightened? Read my previous posts more carefully in future. Are scientologists taught to skim read and only take in what suits their own pre-conceived ideas? God help the country if future scientologists use the same thought processes as you.

[mjdgreg]

mjdgreg - just to be clear, when you say "we", what geographic area are you referring to?

I'd have thought that was obvious. Why do you insistent on pedantry? No doubt you think you've found some data that contradicts what I've said. If so then why not publish it and be damned. Just bear in mind my data is bang up to date. I suspect your's is at least a year out of date.

If that is the only hole you think you have found in my argument then you need to try much harder and stop leaving it all to Billy to make a fool of himself.

[BillyStubbsTears]

Mick.

So, since you insist on being obfuscatory again, I'll ask again.

Were you aware of the deflationary effects of demographics and credit crash recessions back in July? When you were posting THIS.

http://www.drfc-vsc.co.uk/index.php?topic=233453.msg251475#msg251475

See, back then, just four months ago, you didn't raise the issue of deflation at all. Not once. Not even as a minor, hypothetical possibility. Even You were telling us that it was imperative that interest rates should be raised to combat inflation. What was it that you called inflation? Oh aye:

the biggest risk to all our futures

You also said

Raising interest rates is needed to get inflation under control. A sustained recovery will not happen until this happens. It is the first step that needs to be taken before other measures can be effective. It's that important.

Now. If you have since found some astonishing evidence that has led you to conclude that inflation is NOT the biggest threat to all our futures, but that deflation is coming instead, tell us where it is.  You've made quite an intellectual leap since then, and that requires some justification over and above "I've read summat". The evidence is clearly so overwhelming that we all need to be aware of it. We all need to read it and take it in. Point us to where that evidence is that you didn't know in July, but that you have found since.

That's all I'm asking Mick. It's all I've been asking for about a month now. Can't be so hard to show us, can it?

And presumably, you now accept that any Government that in had done what you were suggesting in July was the pre-requisite for recovery would have been guilty of a monumental economic blunder, given that we're actually facing deflationary pressures, not inflationary pressures?

[mjdgreg]

Interesting discussion as to how the changing demographic of an aging population will affect economic performance. I see that you have thoroughly researched the topic and looked at past examples, say when Atlee decided to create the Welfare State in 1945, at the same time facing a huge debt burden and a totally shattered industrial base - with everyone telling him that he woud deflate the economy. And what was the result of this economic madness, errr the economic boom of the 1950's. If only he had someone of your intellectual capabilities to stop him and thus maintain the divided society of rich capitalist bosses and an impoverished underclass of the 1930's - that Cameron is attempting to recreate.

As to the aging population and pension provision, surely the government wont be daft enough to raise the retirement age and make people work longer as a way out this - oh hang on....

Another one who spends his time with his head stuck in history books instead of in the real world. Another one that comes up with simplistic solutions off the top of his head to complex problems. Another class warrior that blames everything on the tories.

Do you really think that the majority of people over pension age will have the health to carry on working for long enough to solve the problem? Many jobs are only suitable for younger people and 66 is already too old for a lot of workers to be retiring.

What about construction workers for example (a large part of the economy). A life on building sites takes a heavy toll on the body and you won't find many workers even in their sixties never mind in their seventies and eighties.

[Filo]

Mick.

So, since you insist on being obfuscatory again, I'll ask again.

Were you aware of the deflationary effects of demographics and credit crash recessions back in July? When you were posting THIS.

http://www.drfc-vsc.co.uk/index.php?topic=233453.msg251475#msg251475

See, back then, just four months ago, you didn't raise the issue of deflation at all. Not once. Not even as a minor, hypothetical possibility. Even You were telling us that it was imperative that interest rates should be raised to combat inflation. What was it that you called inflation? Oh aye:

the biggest risk to all our futures

You also said

Raising interest rates is needed to get inflation under control. A sustained recovery will not happen until this happens. It is the first step that needs to be taken before other measures can be effective. It's that important.

Now. If you have since found some astonishing evidence that has led you to conclude that inflation is NOT the biggest threat to all our futures, but that deflation is coming instead, tell us where it is.  You've made quite an intellectual leap since then, and that requires some justification over and above "I've read summat". The evidence is clearly so overwhelming that we all need to be aware of it. We all need to read it and take it in. Point us to where that evidence is that you didn't know in July, but that you have found since.

That's all I'm asking Mick. It's all I've been asking for about a month now. Can't be so hard to show us, can it?

So, as a read that link BST, my socialist leftie friend, on 8th July you told the economic genius Mick, that deflation was the biggest and scariest threat, while he was saying that inflation was the biggest threat, I`m right up to this point are n`t I?

Now 4 months later, Mick is now saying what you said in July, I`d say that`s a 180 degree u turn in any ones language, so Mick actually agree`s with your leftie opinion now!

[BillyStubbsTears]

That's kind of my reading of it Filo.

I'm chomping at the bit to fit this evidence that he has read about since then to  change his mind. Must be devastating, and something that is known to very few people. Otherwise, Mick, being the intellect that he is, would surely have been aware of it back in July.

Of course, one of the reasons that Mick gives now is that credit collapse recessions are invariably followed by deflation. Which is actually, 100% bang on the money. And is something that I'm been prattling on about to anyone who will listen for the past 4 years.

But Mick knew all about this in July, when he was insisting that I was a leftie lunatic, and that Keynes, who had originally laid out the link between credit crunch recessions and deflation 80 years back was a crank.

Come to think of it, back then, Mick was insisting that lessons from history were pointless because everything is different now.  But here we are, four months later and Mick's thesis is now built on.
a) The historical precedents that show that deflation is a major threat. Note that the most recent of those historical lessons in this country dates back to 1930-onwards.
b) The demographic timebomb, which he illustrates with a call to Japan's experience starting 20-odd years ago.

Once again, we find ourselves in Mick-land,  where a fact or an argument can only be used if Mick decides it can be used.

Psychiatrists have a term for that sort of behaviour...

[mjdgreg]

I'm really beginning to worry for Billy's sanity. To keep asking the same question over and over again when he feels he has already answered it is barmy.

Regarding interest rates. Let me enlighten you further. I still think they need to be raised as we are nowhere near the bottom of the burst housing bubble. We need to get house prices back to where they belong sooner rather than later.

Yes, some people that have overstretched themselves will lose their houses and some banks will go bust but this is the price you are supposed to pay if things go wrong when you have gambled on house prices rising continually.

Until the economy has this shake-out all people will continue to do for years to come is to pay off their debts and not spend. Better to get it over and done with quickly so the strongest can survive and prosper  for the greater good of us all.

[mjdgreg]

So, as a read that link BST, my socialist leftie friend, on 8th July you told the economic genius Mick, that deflation was the biggest and scariest threat, while he was saying that inflation was the biggest threat, I`m right up to this point are n`t I?

Now 4 months later, Mick is now saying what you said in July, I`d say that`s a 180 degree u turn in any ones language, so Mick actually agree`s with your leftie opinion now!

It is even more galling that when Billy thinks deflation is the biggest threat he is not pleased that I have changed my mind and now agree with him! What more does he want?

The only problem is that I now see deflation as inevitable but Billy still thinks you can spend your way out of the problem. A subtle but very important point. We may have reached similar conclusions on deflation but Billy's logic in arriving at that view and his solution to the problem is seriously flawed.

[BillyStubbsTears]

Mick.

But we HAVEN'T got the answer. Isn't that obvious.

We have got an assertion from you that you have found "astonishing evidence" But we haven't SEEN the evidence.

Where is it Mick? Point us to it. This is important Mick. Surely, you can't have found the evidence that is going to seal the world's thinking on this subject, then lost it down the back of the sofa? Where is it man?

[mjdgreg]

mjdgreg.

But we HAVEN'T got the answer. Isn't that obvious.

We have got an assertion from you that you have found "astonishing evidence" But we haven't SEEN the evidence.

Where is it Mick? Point us to it. This is important Mick. Surely, you can't have found the evidence that is going to seal the world's thinking on this subject, then lost it down the back of the sofa? Where is it man?

Pmsl. I think it's time to call in the men in white coats. I apologise if I have in any way contributed to your mental break-down. I thought you were made of sterner stuff. On reflection you did take some serious punishment and I should not really be surprised that you have ended up as a bumbling fool.

[BillyStubbsTears]

So you HAVE lost it down the back of the sofa? f***ing Hell Mick! What is the world going to do?

PS: We are facing massive deflationary pressures. We have a very big debt problem. (All of which I agree with 100% by the way).

And you think that we should raise interest rates! And you fear for MY sanity...

Welcome to Mick's one-stop-shop recipe for how to tip the world's economy back into the 19th century.

[The L J Monk]

mjdgreg - just to be clear, when you say "we", what geographic area are you referring to?

I'd have thought that was obvious.

So obvious you weren't able to tell me?

Who is "we"? England, Great Britain, United Kingdom, Europe....

[Glyn_Wigley]

I think we ought to compile a list of these unanswered questions.

[wilts rover]

Interesting discussion as to how the changing demographic of an aging population will affect economic performance. I see that you have thoroughly researched the topic and looked at past examples, say when Atlee decided to create the Welfare State in 1945, at the same time facing a huge debt burden and a totally shattered industrial base - with everyone telling him that he woud deflate the economy. And what was the result of this economic madness, errr the economic boom of the 1950's. If only he had someone of your intellectual capabilities to stop him and thus maintain the divided society of rich capitalist bosses and an impoverished underclass of the 1930's - that Cameron is attempting to recreate.

As to the aging population and pension provision, surely the government wont be daft enough to raise the retirement age and make people work longer as a way out this - oh hang on....

Another one who spends his time with his head stuck in history books instead of in the real world. Another one that comes up with simplistic solutions off the top of his head to complex problems. Another class warrior that blames everything on the tories.

Do you really think that the majority of people over pension age will have the health to carry on working for long enough to solve the problem? Many jobs are only suitable for younger people and 66 is already too old for a lot of workers to be retiring.

What about construction workers for example (a large part of the economy). A life on building sites takes a heavy toll on the body and you won't find many workers even in their sixties never mind in their seventies and eighties.

Yes and I get quite well paid for it thank you very much. And they are not my solutions at all, they are what are known as 'historical precedent', ie examples that have already happened at some point in the past and can be evidenced - unlike your fairy stories.

Construction is something like 3% of the economy, the service sector, leisure, retail, light factory production - something like 60-70%. And these construction workers who are unable to work beyond 60 - what did they do for the thousand years before the old age pension was created (taking the beginnings of the construction industry in this country from the construction of Norman castles and cathederals)? Ever read the book The Ragged Trousered Philanthropists? Ever heard of it?

[BillyStubbsTears]

The only problem is that I now see deflation as inevitable but Billy still thinks you can spend your way out of the problem. A subtle but very important point.

See, that is very nearly a well thought out comment. But there's something missing in the logic - something commonly missing in your logic.

The issue is that you base all your prognostications on what YOU think.

You consider the IMF to be nutters until they say something that you agree with, then you think they are correct.

You consider inflation to be a horrific problem until YOU change your mind, without presenting the evidence to explain why you change your mind.

It's all and always about what YOU think Mick.

Now YOU tell us that, in your opinion, the combination of a huge debt burden and the demographic trends means that deflation is hard-wired and we can't escape it. That's fine. As an opinion.

But what we do in grown-up land is to see how our ideas and opinions fare when they are tested against the facts. I realise that every nerve in your egotistical body is now screaming "NO!!!!", but that's what the rest of the world does Mick.

Now, I know that you don't do history (except when you do), but we're going to take a little walk down a historical avenue. You come along if you wish. I don't really give a shit, because I have no interest in convincing you; I merely want to make sure that no-one else takes your witterings seriously.

Let's go back to 1950.

Back then, we had a horrendous debt burden from the War. We were still suffering from the overhang of the Great Depression. Govt debt was about 200% of GDP - more than twice as bad as it is now.

And, we had a demographic nightmare. The birth rate had collapsed in the 1920s as a result of the economic bad times after WWI. And the birth rate stayed low due to the Great Depression. By 1932, the birth rate was about 40% down on what it had been 20 years before, and it stayed low for a decade. And to make matters worse, them pesky Socialists had just started the unbelievably costly and inefficient NHS, which was resulting in a huge increase in life expectancy (when any sane person knows that what we really should be doing is killing off unproductive old folk, eh kids?)

Now, if THAT isn't a recipe for no growth and deflation, I really don;t know what is.

Guess what happened over the next 20 years? Average GDP growth after inflation was 2.1%. Average inflation was about 3%. Not a single year, not a single month when anything remotely resembling deflation was even on the horizon.

I wonder - could that have been anything to do with the UK and the other Western economies fully implementing the policies that Keynes had been working out in the 30s, to ensure that never again would we have to face the horrors of a deflationary depression?

Of course, we could simply chuck all that knowledge and experience away. We could say that deflation is absolutely inevitable. We could accept the inevitable decline in living standards and the concomitant increase in international tensions as nations scrap over what is left. We could say that one solution to our demographically-induced economic woes is to stop trying to extend the lives of economically worthless people. We could even suggest that we terminate those worthless lives.

We could say that...

But there's the difference between you and me Mick.  I don't buy into any of that argument. Because I know that that outcome was not inevitable the last time we faced a similar scenario.

I think that it's possible to have an outcome that is based on a risky, but on balance, preferable, increase in Govt spending to get the economy moving again. and then we sort out the debt problem over the next 30 years, by reducing Govt spending once the private sector is back to health. It worked during our grandfathers' time. It would work again today.

I know which world I'd prefer my kids to grow up in.

[big fat yorkshire pudding]

Ah but the Western economies missed out one key part of Keynes studies - build a surplus when times are good, what happened to that?  You seem a little obsessed with one study, the guy was revolutionary for his time, we're in a different world now, there's not one approach in my view that takes into account all the current pressures economically because we're in a situation never seen before and that seems to be a crucial thing you've both missed.

Neither economies who have stimulated or cut have seen massive boosts or disasters this time round, as the world is no longer balanced in the favour of countries like ours.  Far more important than any of the theories is this key point, there is too much technology and globalisation to meet the demands of the workforce....