
Will old-fashioned scrip make a comeback? - robg
http://www.economist.com/finance/displaystory.cfm?story_id=12998254
======
pragmatic
How quickly we forget the negative savings rate in the US. If we had in fact
been saving (as a nation, I myself have been saving for quite some time) then
this plan might make a little more sense. As it is, the US is broke.

Passing around funny money doesn't seem like a good idea, but hey, not much of
what the gov't has done or is trying to do seems like a good idea.

------
Tichy
I don't quite understand it: doesn't money decay usually anyway (since most of
the time there is inflation)? And what does one really want? I don't think
circulating money is the goal of an economy, the well-being of it's
participants is the goal. I doubt a decaying currency would help with that.

Money is just a tool - if somehow it does not do the job people want it to do,
they will switch to alternative schemes anyway. If money decays, maybe they
will trade in "stuff" instead. I don't see how artificially lowering a tools
effectiveness could help, in general.

It would be easy to create jobs for everyone by just outlawing all machines,
so everybody would have to work on the potato farms to pick potatoes.
Everybody would have a job, but overall the economy would be worse off...

~~~
robotrout
It's a very interesting time we're going through. We begin to see that, even
though we have long railed against the evils of inflation, there are worse
things.

You have to guarantee inflation>=0 for an economy to work. Gold bugs would opt
for inflation=0, and that's very good. But if you don't happen to have a gold
backed currency, than inflation>0 needs to be your goal, since targeting
inflation=0 is too easy to screw-up and go negative.

Why do you need inflation>=0? So people are willing to spend. Otherwise,
they'll shut down and wait till tomorrow to buy. Tomorrow, they'll do the same
thing. Nobody buys anything, and the whole thing just dies.

Sure, people will trade in "stuff", as you put it, but the efficiencies of
that are very low, which is why money was invented in the first place.

So, in theory, it is good to somehow devalue a currency based on time. We just
have to be really careful we don't hurt too many generations in the process.

~~~
Tichy
But if there is deflation, supposedly there is a reason for it? Seems to me
like introducing artificial inflation is just messing with the symptoms, not
removing the cause.

I also don't think people wouldn't spend anymore. They need things, so they
have to spend. If they don't need things, they shouldn't spend. I don't think
making people buy stuff they don't need is really helpful in the long run.

~~~
robotrout
It's more to do with investment, I think. Sure, you'll always buy food and
clothes and soap and gasoline. But will you buy a house that will be cheaper
tomorrow? Will you buy a computer that will be cheaper tomorrow? Will you hire
somebody for $70K per year, when you can hire them for $50K per year in six
months?

You say that if somebody doesn't need something, they shouldn't buy it. Well,
they don't buy it, in a deflationary environment. But, we really don't NEED
all that much. As more and more people decide they don't need new cars, new
houses, new clothes, clean water, electricity, etc., the society spirals back
in time to the caveman days. That's an exaggeration, obviously, but you get my
point.

~~~
mindslight
> Will you buy a computer that will be cheaper tomorrow?

This is how consumer electronics works, and yes, people buy plenty.

> As more and more people decide they don't need new cars, new houses, new
> clothes

New cars and clothes? Well, they probably _don't_ need these things.
Overproduction is not a good thing - excess clothes sit unused in a closet,
and a frivolous new car means an old car goes to the junkyard (circuitously).

> clean water, electricity, etc

One can do without these just as easily _regardless_ of inflation (especially
since you can't really store them), and yet people still buy them. Demand
comes from widespread wealth, when the benefits of these things outweigh the
relative cost. This independent wealth (and thus true progress) are encouraged
by a monetary policy which rewards savings, not by one which induces spending
for the illusion of temporary wealth.

~~~
robotrout
Granted people buy deflationary items. Consumer electronics, stock options,
and perhaps one or two other things. That fact is proving that deflationary
spirals are not something to be concerned about?

I'm only responding at all, because I have a cool analogy that I want to use.

Positive feedback. If you're not aware of what that is, since this is a
digitally oriented site, it's not a good thing. It means that the more
something happens, the more something happens. The less something happens, the
less something happens.

Economies tend to have this quality because of people's emotions. There's also
negative feedback, which is capitalism, where supply and demand form a
beautiful analog computer that is almost magical in it's ability to allow
goods to appear where they're needed most, when they're needed most. But, on
top of this wonderful capitalist negative feedback system, we have the evil
positive feedback system of human greed and fear.

With positive feedback caused by our greed and fear, in this case, fear, we
end up in a deflationary spiral, where everything just shuts down, and the
more it shuts down, the more people lose their jobs, and the more they hoard
money and goods, and things shut down even tighter.

This is not an especially difficult or non-intuitive point, and I only make
it, since you didn't seem to grasp it, and I wanted to talk about feedback.

Now, it's very nice to talk about savings. I quit my job two years ago to
spend time on my start-up, and I could do it because I was a good saver. That
said, what is good for a person, is not good for a people. A society that
hoards, will soon be hoarding crumbs and dirt.

~~~
Tichy
"With positive feedback caused by our greed and fear, in this case, fear, we
end up in a deflationary spiral, where everything just shuts down, and the
more it shuts down, the more people lose their jobs, and the more they hoard
money and goods, and things shut down even tighter."

Are there real world examples of such deflationary spirals getting out of
control? Would be interested to read about them.

I am still not really buying it, to be honest. People can't ignore their needs
forever. And what if the deflation is just the correction of the previous
inflation? I suppose the housing bubble is an example, while the prices for
houses where rising it was inflation, and now it is deflation?

------
andr
While this sounds very interesting, it only makes sense on a regional level.
On a national level, a tax on savings and deposit accounts could very well to
the same at a lower cost. The logistics of doing scrips nationwide would be
very complex.

The article also omits the fact that the value of a scrip would change as it
gets closer to its expiry date. Simply put, you wouldn't want to accept scrip
that expires tomorrow as payment. This would call for some funky mathematics
at the checkout counter.

~~~
robotrout
Yes, "a tax on savings and deposit accounts", also known as a wealth tax, as
opposed to an income tax, would, indeed, encourage spending.

It's also one of the most frightening ideas I've heard proposed, and you're
not the first to propose it, it's been proposed by congressmen.

Just as there was a strong backlash against the patriot act, with many feeling
that extra security was not worth losing rights for, so too, must you
seriously examine whether you really think it's worth sacrificing your
children's ability to save, to end this business cycle's downturn six months
early.

These times disturb me greatly, and it's not the problems that scare me, it's
the solutions that are proposed to them.

~~~
Raphael
A wealth tax makes more sense. If you hold on to money longer, you are
preventing someone else from spending it.

------
Hoff
This scrip is already in circulation in some areas of the US.

What are known as BerkShares <http://www.berkshares.org/> are available in the
Berkshire region of Massachusetts.

------
tristian
I don't understand how this would work. If you had a form of currency that was
continuously losing value, wouldn't you simply exchange it for something
equally liquid that wouldn't lose its value? Such as gold or silver?

~~~
eru
Then somebody else has to get rid of that currency. That's the whole plan.

------
ars
Very similar to this: <http://news.ycombinator.com/item?id=442059>

------
sriram_sun
Deflation

