Type: person/economist | Created: 2025-08-12T11:53:00Z | ID: 20250812-1153-lyn-alden-broken-money-ai-deflation {{#if:|Confidence: {{{confidence}}}%|}}

Lyn Alden on Fiscal Inflation Meeting AI Deflation[edit]

Economist Background[edit]

Name: Lyn Alden
Period: Contemporary (2020s)
School of Thought: Austrian-influenced, Fiscal Dominance Theory, Long-term Debt Cycle Analysis
Key Contributions: Framework for understanding monetary debasement, fiscal dominance over central banks, technology's role in monetary evolution

Core Idea[edit]

Alden argues that excessive government debt and spending create persistent inflationary pressure through currency debasement, as governments are structurally unable to reduce deficits. This "broken money" system leads to inevitable inflation as debt is monetized. However, this thesis must now contend with AI creating massive deflationary forces simultaneously.

Key Principles[edit]

Fiscal Dominance: Government spending needs override central bank independence
Debt Spiral Dynamics: High debt leads to more money printing, creating self-reinforcing inflation
Currency Debasement: Fiat currencies lose value against real assets over time
Technology as Monetary Evolution: New technologies (like Bitcoin) emerge as responses to broken money

Assumptions[edit]

Governments cannot meaningfully reduce spending due to political constraints
Central banks will ultimately monetize government debt
The current fiat system is unsustainable long-term
Real assets maintain value better than currency during debasement
Technology adoption follows predictable S-curves

Predictions/Implications[edit]

Alden's Original View:

Persistent inflation despite economic weakness
Real assets outperform financial assets
Currency debasement accelerates globally
Alternative monetary systems gain adoption

With AI Deflation Overlay:

Sectoral inflation divergence becomes extreme
Governments may need to spend even more to combat deflation, validating her thesis
The "crack-up boom" might manifest differently - asset bubbles with goods deflation
Bitcoin/crypto adoption accelerates as traditional economics breaks down

Historical Context[edit]

Alden's thesis emerged from studying:

Weimar Germany's hyperinflation
1940s US financial repression
1970s stagflation
Japan's deflation despite massive spending
2020s pandemic fiscal/monetary response

Modern Relevance[edit]

How AI Changes Alden's Framework:

AI deflation might force even more aggressive fiscal spending
The debt trap becomes more severe if deflation increases real debt burdens
Traditional inflation hedges might fail if AI disrupts faster than governments print
The "broken money" problem accelerates as economic measurement becomes impossible

Criticisms[edit]

May underestimate technology's deflationary power
Assumes political economy remains stable
Doesn't fully account for AI's impact on productivity
Linear thinking about exponential technological change
US-centric view may not apply globally

Supporting Evidence[edit]

Government debt-to-GDP at historical highs globally
Central banks consistently behind the curve on inflation
Negative real rates becoming normalized
Fiscal deficits structurally embedded
Currency debasement visible in asset prices

Contradicting Evidence[edit]

Japan's experience: massive spending without inflation (until recently)
Technology consistently creating deflation
Globalization's deflationary effects
Demographics (aging populations) creating deflationary pressure
AI potentially overwhelming any fiscal response

Related Ideas[edit]

[Technological deflation theory, portfolio construction under mixed forces, government debt sustainability question]