Free Trade means deflation

[unmerged(47118)]

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.

Yeah that's exactly the formula, the one I wrote happens when V is constant.
I agree free trade decreases inflation but add that isn't the same as deflation.

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?.

EUIII its an historical game based in many true facts in every aspect of the game including economics. Now we have some true concepts we can start thinking in how we can implement that to the game.

 

[Adam B.]

Yes but the inflation as it was handled in EU II was really no where NEAR how inflation really works. It would require a complete overhaul, one wich I'd rather not have, I liked the "inflation" from EU II, simple and did the job of historically representing bad economy's quite ok.

 

[unmerged(47118)]

Yes but the inflation as it was handled in EU II was really no where NEAR how inflation really works. It would require a complete overhaul, one wich I'd rather not have, I liked the "inflation" from EU II, simple and did the job of historically representing bad economy's quite ok.

Yeah, it would be difficult to implement in EU the concepts of inlfation, the only way I imagine is differenciting between production and money income but that would be too complicated. EUII system wasn's bad at all..

 

[Yakman]

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

yes, poverty in the streets, rioting, shortages of every sort, political instability, and crazy drug addled motorcycle gangs.

Yup, deflation sure is terrible....

 

[unmerged(2456)]

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.

True, but deflation on sector basis, say for a house, doesn't have the same impact as deflation on a widescale basis.

Ultimately though high inflation is more of a danger than high deflation because people will always need to buy certain things reguardless of whether its benifitical to keep their moeny in the matress. However they may be unable to buy bread if inflation outstrips their ability to pay for it.

But neither deflation or inflation as a whole is good. 0 sum inflation would be the best.

 

[Yakman]

True, but deflation on sector basis, say for a house, doesn't have the same impact as deflation on a widescale basis.

Ultimately though high inflation is more of a danger than high deflation because people will always need to buy certain things reguardless of whether its benifitical to keep their moeny in the matress. However they may be unable to buy bread if inflation outstrips their ability to pay for it.

But neither deflation or inflation as a whole is good. 0 sum inflation would be the best.

True.

The issue of the period though, was inflation, which was a direct result of the currency being specie and the values of gold and silver collapsing between 1519 and 1600.

 

[unmerged(20915)]

True, but deflation on sector basis, say for a house, doesn't have the same impact as deflation on a widescale basis.

And I think that this is what free trade can do. In real life, cheap imports push down prices for some goods, not all goods, which leads a greater number of people to, hopefully, allocate their resources more efficiently. I think it would be fair for free-trade policies to reduce inflation. You could balance it by having mercantilist policies reduce revolt risk or increase the tax value of some provinces or something like that.

 

[Arturro]

But neither deflation or inflation as a whole is good. 0 sum inflation would be the best.

In fact, 2-2,5% inflation is best, or rather may authorities believes so . Low inflation weakens national currency - it's good for export.

 

[George LeS]

True, but deflation on sector basis, say for a house, doesn't have the same impact as deflation on a widescale basis.

Ultimately though high inflation is more of a danger than high deflation because people will always need to buy certain things reguardless of whether its benifitical to keep their moeny in the matress. However they may be unable to buy bread if inflation outstrips their ability to pay for it.

But neither deflation or inflation as a whole is good. 0 sum inflation would be the best.

Strictly speaking, "deflation on a sector basis", doesn't exist. What's happening is the relative prices of certain commodoties are going down, relative to the others. De- or in-flation refers to the economy as a whole.

&, IMO, the 2 - 2.5 % optimum cited by Arturro is a characteristic of contemporary views, carrying with it a memory of serious inflation a generation ago. The same 2 % would have been a shock to Victorian Britain. But then, that's just my opinion; I am anything but an economics-wallah.