Free Trade means deflation

[III.Selim]

Since free trade vs mercantism dp is a little bit not balanced. Each Free trade shifting should cause -.05 deflation every year (for example)

Free trade increases import to your country. More products cause low demand. And that cause deflation

 

[unmerged(3236)]

hmm i generaly think free trade is better then mercantilism as it gives more colonists

 

[unmerged(2456)]

Only if you're playing a heavily colonial nation. Not everyone does.

 

[Lurken]

Free trade gives also merchants, which is highly important.

 

[Biges]

From macroekonomics point of view, deflation is a serious threat to the economy

 

[Testy]

Still, back in those days, they had little idea of what caused inflation/deflation, so it makes sense to abstract deflation as something good, at least until they introduce little burgher pops making long-term investments. As it is, since the cost becomes negligible after a few decades, I always end up going for Free Trade for the extra merchants, so I think it might already be a bit unbalanced in favor of FT.

 

[EUnderhill]

Since free trade vs mercantism dp is a little bit not balanced. Each Free trade shifting should cause -.05 deflation every year (for example)

Free trade increases import to your country. More products cause low demand. And that cause deflation

Deflation causes low demand. Why buy today when tomorrow it will be cheaper?

 

[daedalus]

I always when to free trade in EU2. I think it is balanced enough since other people seem to prefer mercantilism.

 

[Brownbeard]

From macroekonomics point of view, deflation is a serious threat to the economy

They did not have macroeconomics back then. Recession was fought by reading the intestines of a chicken or throwing runes to see how they rolled out.

Edit: Where does the original info come from? If it had been in one of the dev diaries, then I missed it.

 

[EUnderhill]

They did not have macroeconomics back then. Recession was fought by reading the intestines of a chicken or throwing runes to see how they rolled out.

Edit: Where does the original info come from? If it had been in one of the dev diaries, then I missed it.

They did have macroeconomics, but they did not know it. Gravity existed long before Newton.

 

[Yakman]

More products cause low demand.

Adam SMith was wrong!

 

[Jolt]

Meh, even Einstein was wrong in some things he said (Or he's being proved wrong, just...noone has managed it yet. ) then how can Adam Smith not be? I never understood greatly economics but on my simple-minded mind I see deflation as a good thing. It strengthens the national currency and allows to buy more with less. I can actually see a problem, but that will make the currency inflate. So, if it's a strong currency, why not use it to buy from the outside? Enlight me!

 

[George LeS]

Meh, even Einstein was wrong in some things he said (Or he's being proved wrong, just...noone has managed it yet. ) then how can Adam Smith not be? I never understood greatly economics but on my simple-minded mind I see deflation as a good thing. It strengthens the national currency and allows to buy more with less. I can actually see a problem, but that will make the currency inflate. So, if it's a strong currency, why not use it to buy from the outside? Enlight me!

The problem is that, under deflation, you actually make a profit by stuffing $ in your mattress. The incentive is NOT to make any transactions today, as they'll always be cheaper tomorrow. At the extreme, this can bring an economy to a halt.

Plus, of course, any sudden change in the $ supply, either way, will seriously disrupt any economy.

 

[Testy]

According to my luckily-yet-unsold macroecon text, the most dangerous effect of deflation is that it mucks up investments by making entities unable to pay off their loans. So maybe they should adjust in-game loans for the inflation rate.

 

[III.Selim]

deflation causes banks and companies to get bankrupt. In long run, it might hurt your trade income, production income. And banks won't give you anymore loans.

 

[crazy canuck]

Meh, even Einstein was wrong in some things he said (Or he's being proved wrong, just...noone has managed it yet. ) then how can Adam Smith not be? I never understood greatly economics but on my simple-minded mind I see deflation as a good thing. It strengthens the national currency and allows to buy more with less. I can actually see a problem, but that will make the currency inflate. So, if it's a strong currency, why not use it to buy from the outside? Enlight me!

Look at Japan over the last 20 years or so and you will get some idea of what deflation might be like.

 

[reddingstacey]

It depends on what causes deflation

Deflation itself is not necessarily bad. If it comes about as a result of increased productivity whether from improvements in production (Ford's implementation of the assembly line) or technology as can be seen in the decreasing price of better computers it is good. If it is the result of a collapse in demand it is bad as recently seen in Japan. There is a difference of opinion on this, but in the case of Japan I am in the camp of those who say that deflation is a symptom of other problems rather than a main problem in itself.

On the analogy of people not buying because the prices will drop. How many people have not bought a computer because the prices are decreasing? They may postpone it a bit, as I think most everyone on this list can attest you buy a computer anyway.

Cheers,
Red

 

[unmerged(47118)]

Deflation itself is not necessarily bad.
Red

Deflation is as bad as high inflation, if prices decrease there are no incentives to produce more or to produce new products 'cause you know every day it passes you'll earn less money. Deflation is bad, really bad.
On the other hand i've read these: "More products = deflation" ???????If this was true, as someone has said, Adam Smith was wrong and all our economic models are rubbish cause they are based in competitive markets in which the number of products increase in order to satisfy the demand.
Inflation depends in one thing: OFFER OF MONEY.
If you create more money that the products your country is producing you'll have high inflation:

h = i + g

h = money increase rate
i = inflation
g = product increase rate

EDIT: Thread name should be changes it's completely false.

 

[reddingstacey]

Deflation

...if prices decrease there are no incentives to produce more or to produce new products 'cause you know every day it passes you'll earn less money...
h = i + g

h = money increase rate
i = inflation
g = product increase rate

Of course it is challenging to summarise the complexities of inflation in a forum, but I think it should be added to what you have said that if production costs are decreasing faster than the decrease in what you are selling it for you will probably produce more.

The formula I remember from long ago is
MV (monetary velocity) = PQ (price*quantity)

Cheers,
Stacey

P.S. On the original question free trade should definantly decrease inflation.

 

[Adam B.]

Guys, is this an economical thread of a thread of deflation in EU III ? In EU II Deflation was the best thing ever, if youre economical assumtions are correct, it shouldn't really be.

How to fix that in a meaningfull way?