Post
Topic
Board Economics
Topic OP
Deflationary national currency, pros and cons
by
Hyena
on 03/08/2014, 13:47:16 UTC
Just watched this: http://www.youtube.com/watch?v=yjWNhUVaJts

The guy keeps saying that big governments fear deflation because it makes taxing a lot harder.

Is this really a problem and a main reason why we have inflationary currencies instead of deflationary? In my opinion this fear of deflation is bullshit because what they really are afraid of is hyper-deflation. I'd say hyper-deflation cannot last for decades anyway as it's rather a one time event. Thus a deflationary currency would work pretty well as long as the deflation is small enough to make it pretty much useless to hold back spending in hopes of better prices tomorrow.

Coming back to the video --- how is it possible that taxing gets harder if a currency is a bit deflationary?

Why shouldn't people get richer with the money they hold? Why is this bad thing anyway? If the government holds the very same deflationary currency then all taxes it ever gathered will also gain value, thus there is no reason to tax the additional wealth people get thanks to deflation.

offtopic:
I think we no longer have taxes by the original meaning of the word because tax should be a one-time event. Instead, we have wealth-transfer friction and "tax" collectors are the source of that friction. That is because same money gets taxed multiple times as it changes hands. If I give 1 000 000 euros as a gift to someone, the government takes 20% and the receiver will get 800 000 EUR. Now if the receiver gives away that money to a third person as a gift, that third person also gets income taxed, so the government takes away another 20%. The third person ends up holding 640 000 EUR. Repeating the procedure a couple of times, the government ends up getting all the money. How is this logical?