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Monday, March 17, 2003

On the Advantages of not Having Television

Gosh, I can hardly believe it. Idly Googling at the weekend I came across someone who actually came up with a demographic inflation, deflation theory six years ago. He's an amateur organic farmer, he doesn't have a TV, he studied, oh sin of sins, sociology, and he lives in Belgium. Well Mr Van Nieuwenhov, I and the rest of the thinking world salute you. You got there first. Even if the theory is of the basic, back of the envelope model, type. Even if there are plenty of holes to be filled in, here we have someone, for once, who has actually understood something. Isn't this what science is all about. While all the doctors honoris causus, professors emeritus etc are busy looking the other way (probably applauding the latest Nobel, maybe even the one for inventing the euro. We know that life imitates art, but does science really have to sink to the level of an Oscars ceremony?), a low-tech, carrot growing, asparagus lover, who was meanwhile building his very own tube amplifier, nips quietly in behind. Remember he was saying all this back in 1997. Chapeau Walter.

It is curious to see that economists take notice of the phenomenon of inflation, without giving an explanation of how this important trend comes to be. Now that inflation seems to be nearly dead after decades of persistent price increases, we see a sudden interest in the subject arise. As will be shown in this text, inflation is not an eternal thing. It was just present in the post-WWII period, which happens to be the timeframe of our collective memory. To understand inflation, we have to look at this century's history from a different angle: that of agricultural development and population growth. Now the odds seem to favour stable prices and even deflation. Our thinking of investing, borrowing and even of our lives will change drastically at the beginning of the next century...........

The model described here is a very mechanical one. As this is about human behaviour we can assume feedback, learning and anticipative behaviour. After an initial stage of inflation, price increases become institutionalized...........

An historical test of the model is quite difficult: The population explosion is unprecedented in known history, so historical studies of a comparable situation are not available. Comparing several present-day economies seems to supply some proof the model is right: In countries with a fast growing population and a relatively small active age group (USA, Brazil), inflation tends to be higher than in countries with slow population growth and a large active age group (Japan, Germany). A treasure of demographic data can be found at the International Data Base of the US Census Bureau.

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