[bahadden]

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages).

It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

[TimGebhardt]

More specifically, it punishes the savers who have their saved wealth in cash. Those that store their wealth in productive assets, like ownership in a company or real estate, are free to raise prices to keep track with or even exceed the rate of inflation.

Then you can take it one step further: If you indebted in cash or cash equivalents to buy productive assets you get to double-dip: your debt gets reduced by inflation and your productive assets aren't any less productive and their income/growth will adjust. Your overall buying power will greatly increase.

[roc]

The problem with that story is that it completely ignores what has actually happened since Glass-Steagal was repealed and the bubble burst. This isn't a simple case of ants and grasshoppers.

The current economic problem is a lack of aggregate demand. Too many people are cutting their spending to pay down their debts, which cuts economic activity, which puts more people out of work contributing to the lack of demand, dragging on the economy more, etc.

This means that many careful savers are finding themselves in the same boat as the profligate simply because the drop in demand cost them their jobs. We might judge individuals for not doing more to get new jobs, but market-wide, they can't all try harder and win the few remaining jobs. There simply do not exist enough jobs and some careful savers will unavoidably find themselves in the same boat as careless spenders.

Consider an allegorical ant who worked just as diligently as any other, rudely ejected from the ant hill on the onset of winter because the others decided the hill simply didn't need to be as big as it was the day before. This now-homeless ant would suddenly need to dig his own shelter, preventing them from gathering further food, costing them food to the elements and ultimately leaving them in much the same boat as any grasshopper who played the summer away and never stored a thing. Is it truly fair to judge such an ant no differently than a grasshopper?

Also, the cause of this economic problem is largely one of a supposedly-regulated and free-from-fraud industry enjoying regulatory-capture and left to run amok. Many careful savers are finding themselves in the same boat as the profligate, because they were defrauded by lenders and/or brokers. Lenders and brokers who are facing no punishment for their crimes. No return to effective regulation to prevent it from happening again. No dissolution to prevent "too big to fail" institutions from holding the economy hostage. [1]

Consider another allegorical ant who worked all spring summer and fall, as hard as any other, who wakes up one day to find that the food he'd saved has mysteriously disappeared, despite him taking no less precautions than any other, perhaps simply because his pile happened to be protected by an incompetent or possibly corrupt guard who let or helped others steal it away. And this ant now finds himself being ejected for not having anything to contribute to the hill. Should we also judge this ant no differently than a grasshopper?

You are certainly free to cast judgment and aspersions on these formerly-careful-savers for not having years and years worth of living expenses set aside. And/or for trusting that a protected-from-fraud industry actually was.

But it seems to me that they were punished for these things largely by chance -- not everyone who saved as much/little as they, or stored their money in the same ways, or researched as much/little on their investments, woke up to find themselves cast out by society and treated no differently than a degenerate check-to-check gambler.

And as such, your moral judgment strikes me as terribly myopic, hollow and false.

[1] It's debatable that these fraudsters were even directly rewarded from the bailouts on a far more massive scale than the profligate would be by a few years of modest inflation.

If you're concerned about sending a message that people who follow the rules are an idiot, your complaining about modest inflation rather than the bailouts is akin to complaining that a burglar tracked mud through your house while taking your valuables and your insurance policy leaves it up to you to pay for a carpet cleaning. Sure, that's also unfortunate, but it pales in comparison to having been burgled in the first place.

[prodigal_erik]

> The current economic problem is a lack of aggregate demand.

This just half-gelled a different viewpoint for me. There's nothing inherently noble about saving, because the demand doesn't vanish—that money still represents a claim on some fraction of society's resources, only they plan to consume in the future rather than now. Well, we have to align both present and future supply and demand. We can't have everyone expecting to consume all their resources in the future, because then we're wasting our capacity to produce resources in the present.

[roc]

> "We can't have everyone expecting to consume all their resources in the future, because then we're wasting our capacity to produce resources in the present."

Very true.

That said, there is something inherently noble about saving. Life is unpredictable and retaining your ability to weather some reasonable fraction of bad times on your own is the most base expression of a person's ability to contribute positively to a cooperative society.

If someone can't save to a reasonable degree, they simply can't be trusted to engage society in good faith. To vote responsibly, to participate without causing undue costs on everyone else, etc.

This isn't to say that more savings is equivalent to more nobility. Nor anything like that. But there is a reasonable level of saving that, when the drive isn't present, is of very real social concern and should not be allowed to pass as a neutral behavior.

To clarify: this isn't to say that low net savings at some given point is a fault. Again, life is unpredictable and a bad hand may have been dealt early in the game, or a string of bad hands beyond any reasonable expectation. It's the desire and effort and discipline expended toward (re)building that reasonable level of savings that society should incent and recognize as noble and good.

[eli_gottlieb]

The traditional adage for proper saving was to have six months of living expenses in liquid savings as a "rainy day fund". After that, tradition holds you can safely indulge yourself, or save for long-term expenses like cars, houses, college educations, or entrepreneurship.

Back before this Depression, the notion that a responsible person could or should hold two or three years of living expenses as liquid savings was absurd. Saving that much was hoarding, and prevented you from building up savings for your long-term goals or capital for your ventures.

Now every 6-month ant is suddenly being lectured on their grasshopper-hood by 3-year ants? Bullshit.

[eli_gottlieb]

And even this lengthier story has failed to mention 40 years of stagnant and even falling real wages, the decapitalization of domestic industry in Western countries, the resulting deskilling of much of the population in Western countries, and the resultant loss of incomes for both families and governments.

An ant wakes up one morning to find that the queen of his anthill has outsourced food production to another hill of smaller ants who eat less. He is now told that he can eat as little as them, and keep receiving food, or he can be cast out and go hungry entirely. He knows winter is coming, but no longer has enough food to feed himself and save.

Winter comes, he is cast out, and the other ants in the hill laugh at the idiot who didn't save anything for winter.

[parasubvert]

You're absolutely right, but the typical retort to the above is: "macroeconomics isn't a morality play".

We're seeing the consequences of morality-driven economics today in Europe. Are we really worried that people that save and live in their means are going to start snorting cocaine off strippers' bellies because of devaluation?

[wazoox]

> it is basically a transfer of value from those with savings/creditors to those in debt

So it's a transfer from the rich to the poor. It looks just right.

[crusso]

You say that as though it's a moral argument independent of other factors.

Do you really believe that to be the case? If so, why should you disregard other factors like why people got into debt in the first place or how much savers had to sacrifice in their own lives to achieve their savings?

[wazoox]

> You say that as though it's a moral argument independent of other factors.

No, actually it's the fruit of some thinking the structure of our ageing western societies, and the fact that the most egalitarian societies are the happiest.

> Do you really believe that to be the case?

More than ever.

> If so, why should you disregard other factors like why people got into debt in the first place or how much savers had to sacrifice in their own lives to achieve their savings?

You know, I'm part of the 0.1% richest people on this planet (and you too, I suppose). However, I don't like to comfort myself thinking that I worked hard and deserved it, because I'm perfectly conscious that I never did work that hard (like digging shit in some hole) and I didn't really deserve it because my parents, and their parents before were doing pretty well already. I was lifted with the flow and not much else.

It's pretty easy to be under the illusion that as you didn't need that much effort to be what you are, whoever is below you must be a lazy ass, or stupid as a brick. Most of the time, however, they were just less lucky (OK they may be less gifted, or less intelligent, but that shouldn't make anyone deserving a lesser part of it all).

I've heard this song before of "lazy poor" and "hard working risk taking rich", about 1 billion times, and it always comes from people who had it easy. I don't really feel like beating this old horse more.

[crusso]

I'm not interested in the same old argument either. If you don't consider that hard work or decision-making abilities at least factor into the subsequent states of existence in which people find themselves, what good would data points or arguments be? You have a set of experiences or mental filters completely contrary to my own experiences and understanding of how this society works. Go figure.

It's like when I used to discuss religion with my mother-in-law. When she first declared "There isn't a single error in the Lord's Bible", I really should have just smiled and walked away. Anyone who had lived 55 years on the planet and not absorbed the fact that the earth is demonstrably and astoundingly older than 6,000 years wasn't going to be listening to the rest of my so-called "logic".

I'm still curious when I see people express opinions like yours, though.

With all those preconceptions, what kind of affinity would you have with a site like Hacker News that glorifies the success of the entrepreneur? Are you just observing us in preparation for an invasion? :)

[wazoox]

> If you don't consider that hard work or decision-making abilities at least factor into the subsequent states of existence in which people find themselves, what good would data points or arguments be?

Hard work and good decisions are important of course. But there are good "data points" showing that people struggling with difficulties can't make good decisions. And to do hard work, you need to have an environment that allows it; for instance think about these American travellers of the 19th century shocked by Japanese laziness: we quite well know now that Japanese are hardly lazy, but in the 1840 there was simply nothing effective to do. At the individual level, hard work and good decisions matter; at the society level, not that much.

> I'm still curious when I see people express opinions like yours, though.

I find less surprising that people express such opinion as yours, because they usually attribute their own feelings a bit too literally onto others.

> With all those preconceptions, what kind of affinity would you have with a site like Hacker News that glorifies the success of the entrepreneur?

I'm a successful enough entrepreneur (depends upon your metrics of course). And I'll keep my misconceptions rather than John Galt's, if you don't mind.

[eli_gottlieb]

If you don't consider that hard work or decision-making abilities at least factor into the subsequent states of existence in which people find themselves, what good would data points or arguments be?

A single individual's hard work and good decisions don't contribute that much to their individual well-being. Our thriving is largely predicated on millions of people making good decisions and working hard over hundreds of years.

[raverbashing]

And that's exactly why I disagree devaluation is good

It's the coward solution, and if you're not gonna pay 100% of the owed value, just do that instead of making old money worth more than new money.

[marvin]

    It's the coward solution

What would be a better solution? At least _someone_ is not going to get their money back. You could take as much as you could by force, but I don't see that that would solve anything...

[Symmetry]

Erm, they already did that. Well, they refused to pay the balance of all the foreign deposits when their banking system collapsed. The problem is that the country of Iceland no longer has this previously large sector in their economy, so the total economic pie was actually smaller, so they had to find some way to fairly apportion the pain from people's standard of living shrinking. And more importantly do it in a way that didn't cause a lot of unemployment that would shrink the economy even more.

[bornhuetter]

Are you arguing that it's actually ineffective, or just that it's not gentlemanly toward foreign investors?

[planetguy]

Well, it's not gentlemanly towards anyone, particularly savers in your own country.

Suppose I'm a retired gentleman in Ruritania with one million Ruritanian rurs in the bank. The King of Ruritania has got himself into some deep debt problems with foreign creditors due to his addiction to racing and eating greyhounds. He can either say:

a) "Guess what? I'm only going to pay back 10% of my debts! Suck it, creditors!", or

b) "Ohhhh, suuure, I'll pay back all my debts. Oh, did I mention that a Ruritanian rur henceforth has one tenth the value it used to? Heh, cool."

In the latter case my savings are completely wiped out, as are the savings of everyone else in Ruritania [while mortgageholders suddenly become very rich]. In the former case, while there'll probably be some damage to the currency my savings aren't affected so badly.

[bornhuetter]

I think you're confusing price inflation with currency devaluation.

If everything in Ruritania is "worth" 10% of what it was, then nothing has changed. It's only foreign goods that have become more expensive, and your exports have become cheaper.

[bornhuetter]

Are you talking about currency devaluation, or price inflation?

EDIT: also, are you referring to people who have their savings in cash, or investments?

[bahadden]

Good point. I'm actually talking about inflation. I'd assume devaluation usually leads to inflation, especially if we buy a lot of imported goods (we do), but it ain't necessarily the case.

[bornhuetter]

Foreign goods would become more expensive, and local goods would remain relatively unaffected (at least in theory).

People would be less likely to take their money out of the country. Foreigners would be more likely to invest.

If as a saver you invest in local businesses and property, you should do well for yourself.

[ams6110]

Almost all our goods except food are foreign or made of foreign-made components, or are commodities traded on the world market.

[bornhuetter]

Which country are you talking about?

[eli_gottlieb]

Well, when 40 years of falling/stagnant real wages have made "living high on credit" the only way to maintain decent, humane lifestyles and created a debt-deflation crisis, at some point you have to halt the pseudo-morality play. You can either accept mass default, a debt-jubilee, currency inflation, or put whole continents into debt-peonage for their mostly-unwilling participation in leverage-driven asset bubbles.