Petah?

[u/Melodic_Judge_129]

[u/qualityvote2]

u/Melodic_Judge_129, your post does belong here!

[u/StuartMcNight]

Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?

[u/Top_Divide6886 → u/StuartMcNight]

More practically it leads to price decreases. When firms are unable to sell their goods and services the first thing they stop spending on is labor.

So deflation usually leads strongly to mass unemployment.

[u/revcor86 → u/StuartMcNight]

There is a hierarchy of bad economic things:

At the top is hyper-inflation. This is bad because the end result is total collapse of the monetary system and a switch back to the barting system ("I'll give you a bag of apples to paint my fence"). Central banks will crash economies right into a depression to try and stop it.

Next is deflation. This grinds an economy to a halt as people hoard money, which can create a death spiral. My money is worth more tomorrow so I'm not going to spend it today, so companies lower prices since no one is buying but people then go "Ill hold even longer", so they lower prices again and so on. While doing this, lots of people lose jobs because no one is buying.

Next is stagflation or a period of high-inflation. Stagflation basically means no growth. Ask Japan how well that's gone for the past 30 odd years and periods of high-inflation can create a K shaped economy or just lower buying power in general, create a credit crunch. We've seen this since COVID.

Lastly is moderate inflation. This is where we want to be. Slow, steady growth YoY in the 1-3% range. Keeps everything moving forward.

That's a gross over-simplification of complex things but the general gist.

[u/KretzKid → u/revcor86]

Thanks for making a whole hierarchy, it's interesting that deflation is the second worst

[u/TheRumpletiltskin → u/KretzKid]

actually it's all bad, because infinite growth is impossible! Eventually every system built like this will fail in one of these ways.

[u/EM3YT → u/StuartMcNight]

Deflation is “bad” because it leads to an economic death spiral, and there’s no way to stop it.

1. Prices go down
   
2. People see prices going down and hold on to money thinking it’ll be cheaper if they wait.
   
3. Less purchasing despite lower prices cuts profit margins, so producers produce less.
   
4. Sellers lower prices more in a desperate attempt to make SOME money.
   Repeat.

This usually leads to layoffs to try to salvage money, big sales to get rid of inventory, then eventually there’s nothing to buy, no one making it, and everyone loses their job.

Interest rates don’t fix it, taxes don’t fix it, you just cross your fingers and hold onto your butts

[u/Cultural-Capital-942 → u/EM3YT]

For how long can you not eat, be homeless or use Nokia 3310 before you stop waiting for lower prices?

Vast majority of my actual spending is not an investment but something I want or need.

[u/Star_king12 → u/Cultural-Capital-942]

want or need

So you keep buying what you need, but skip getting what you want because the prices will go down next week, and business feel the crunch because the money isn't coming. How long can you go in your old shoes or with the old iphone vs how long can businesses burn money paying salaries, but w/o income?

[u/Mango-D → u/EM3YT]

economic death spiral

Recessions cause the economy to optimise itself. So long as productive work is being done, why would it vaporize it itself

[u/EM3YT → u/Mango-D]

They’re not mutually exclusive. Recessions can trigger deflation and vice versa.

The problem with deflation is that it’s a positive feedback loop. Recessions not marked by deflation usually have stunting mechanisms. Deflation doesn’t. That’s not to say it’s infinite, rather I’m explaining why economists piss down their leg thinking about it

[u/RollinThundaga → u/Mango-D]

We've had recessions. We've had one recession that existed contemporaneously with deflation.

The economy was optimized, sure, but at the cost of the fresh infliction of poverty at a grand scale.

[u/1041411 → u/Mango-D]

That's the issue, deflation doesn't cause recessions. Deflation causes depressions. People stop buying products so the economy literally freezes. Basically think about sales. You know that there's a sale next week where everything will be half off. You as a rational consumer are only going to buy the bare minimum to ensure you can last until next week. Now with a sale there's a defined end date, so you'll buy a lot of products next week, but with deflation every week will have a lower price than this week. Meaning as a rational consumer you will always be buying the bare minimum to get to the next week. If everyone is buying only the bare minimum businesses stop making money. Without money businesses can't pay workers and layoffs begin. Then the death spiral kicks in, with higher unemployment the money supply continues to shrink, this makes deflation worse, people start to not buy because they don't have a job and can't afford to spend more money, companies continue to lose more and more money and layoff more people. Until you get the Great Depression. The economy basically has a heart attack. The only solution is to spend a bunch of money to force the economy to restart. Give people a bunch of money so they start buying again, which causes businesses to start making money again, which increases employment, which eventually gets the economy restarted.

[u/GaracaiusCanadensis → u/1041411]

I think we overestimate the number of rational actors in the economy.

[u/thevoidthatjerksback → u/StuartMcNight]

I doubt that anyone could explain this in a way where I would accept deflation as worse

[u/LvdT88 → u/thevoidthatjerksback]

1) If I can expect the price of a pair of shoes to drop if I wait, I’ll wait as long as I can before buying it. The shoe company is going to lose sales and fire workers and the government is going to miss out on taxes (both on the sale and on the now-unpaid salaries).

2) Most governments are deeply in debt. Imagine a fictional country has a debt of 1000 € and today you can buy a loaf of bread for 2 €. The “value” of the debt is 500 loaves of bread. Imagine due to deflation, the price of a loaf drops to 1 €. The value of the debt has gone up to 1000 loaves of bread.

[u/Gingevere → u/LvdT88]

The shoe company is going to lose sales and fire workers

A deflationary cycle will stop way upstream of the consumers.

Every company all the way up to the suppliers of the raw materials will stop turning an appreciating asset (cash) into goods that are losing value. They'll all cease production and eliminate the workers to hold as much cash as possible. Consumers are likely to get fired before they see anything get cheaper.

[u/IrksomFlotsom → u/thevoidthatjerksback]

Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down

[u/Gentle_Snail → u/IrksomFlotsom]

Deflation can also result in a very negative feedback loop, the Great Depression was a deflation spiral for example.

[u/Mayor_Death → u/Gentle_Snail]

Is deflation a cause or symptom, though? To me, it’s just a number, but I understand that it is more than that to various economic groups.

As far as I understand it, deflation indicates that prices are going down, which is a good thing to me individually.

[u/leconteur → u/Mayor_Death]

If you get to keep your job or customers.

[u/cheapdrinks → u/leconteur]

Ok but after covid, prices skyrocketed compared to pre-covid levels and we got massive inflation. Wages didn't suddenly skyrocket at the same time, hiring rates didn't go through the roof, corporate profits did though. So why would prices suddenly returning to pre-covid levels require everyone to be fired and customers to disappear when the economy was working great before? Would it just be that companies would start mass layoffs to prevent a short term decline in quarter on quarter profits which would start a negative feedback loop?

[u/azac24 → u/cheapdrinks]

Because of how corps react to lower prices. They would just lay everyone off. Deflation itself isn't the issue, it's how little protections actual working people have and how much incentive corps have to keep their stock price high. Being able to sell something for less means less profit for the corps which is a big problem for corp leadership. So the solution is to temporally increase profits by getting rid of staff.

[u/aFreshFix → u/azac24]

But they're already laying everyone off in a lot of industries despite inflation and record profits.

[u/cheapdrinks → u/azac24]

Ahh ok so basically it all just comes down to corporate greed determining how much we should all suffer and be punished for even considering the idea that their stock price doesn't have to keep going up every 3 months and that they might be able to survive on 5% less profit this year compared to last year. Got it.

[u/Uqbar_Orbis_Tertius → u/cheapdrinks]

Well I just became more radicalized thank you

[u/piffledamnit → u/cheapdrinks]

Yup. Though in a very real sense it is less corporate greed and more individual greed. I don’t think any of these cunts need the unreasonable amount of wealth they have accumulated: https://www.forbes.com/billionaires/

[u/Beginning_Student_61 → u/cheapdrinks]

Yes. Owners make money just by having money, so they aren’t incentivized to spend money. Since they don’t need to spend money to make money they decide it’s too risky spend (why put money back into my business to try to eek out a margin that I might not even realize if I can coast on whatever I have stockpiled until I’m literally out of supplies and can buy everything cheaper later on or buy the same amount of supplies that I need and have more money that’s passively making money later?). Now that I’m not producing as much I don’t need as much labor, I’m going to lay off employees. When this goes on long enough deflation accelerates and I’m even more incentivized to slow production and lay off employees. It’s a positive feedback cycle where the more deflation increases the faster it accelerates and so the more companies are incentivized to lay everyone off and coast.

[u/Siefro → u/cheapdrinks]

This is exactly what people aren't understanding. And the ones who disagreed are just in denial.

[u/gicjos → u/Mayor_Death]

The prices only go down when people don't have enough money to buy things. For the prices to go down most people will be in a really bad situation 

[u/obeytheturtles → u/gicjos]

At a macro scale, the biggest benefit of some inflation is that it also devalues debt while it devalues currency. In a deflationary spiral, the real value with debt compounds with deflation in addition to interest, so the velocity of money grinds to a halt. No investment means no jobs, bread lines, and a complete collapse of the consumer economy, resulting in a corresponding collapse of the government's tax base. This is literally the entire basis of Keynesian economics - that the government must engage in deficit spending to combat deflationary pressures during recessions, because there is basically no other option.

[u/feralkitten → u/gicjos]

The prices only go down when people don't have enough money to buy things.

isn't that where we are now? I mean kids aren't moving out of their parents house. And everyone has either multiple roommates or multiple jobs. Tech is laying off, and no one is hiring.

[u/gicjos → u/feralkitten]

Nope, still not bad enough, that's how bad deflation is. But it does seems to be going this way

[u/ChocolateNo3010 → u/gicjos]

Would we see negative interest rates if this happpened? Among other things?

[u/No-Lake-8973 → u/ChocolateNo3010]

That's one way central banks have historically tried to combat the issue, so it's conceivable it would be used again should we face deflation.

[u/Beef-Town → u/feralkitten]

>isn’t that where we are now?

a situation like this is hard to miss. we’re definitely headed in that direction but you’ll notice when it gets that bad.

[u/HonkHonkBeach → u/Beef-Town]

Too many people have not studied how bad the depression was. There’s a reason granny kept a ham in her deep freezer from 10 years before you were born.

[u/LeeKinanus → u/HonkHonkBeach]

Mine had 4 cardboard barrels in the garage filled with freeze dried food. They were there 10 yrs before I was born and never opened them.

[u/GotSomeUpdogOnUrFace → u/feralkitten]

Except the prices keep going up anyway and that seems to be just as big of a problem. Basically it just sounds like the entire system as it is is meant to fuck us no matter what. Either the great machine can continue to pumping out more bullshit and we can keep buying it with the ever-increasing prices that they want to put on them or we can't afford it and then we all end up without jobs and in a death spiral. Perhaps the problem is the machine.

[u/GeoHog713 → u/gicjos]

Well, we're due for that, then.

It's harder to buy a house now, than during the Great Depression. Rent is through the roof. College is obscenely expensive. Wages have stagnated for decades.

The check engine light is on, and the temp gauge is in the red. Something has to give.

[u/Dry-Nectarine-3279 → u/gicjos]

There are other causes for deflation, such as technological advancement, demographic shifts, demand shifts, or money supply contraction.

[u/CosgraveSilkweaver → u/Mayor_Death]

It’s both at the same time really because it’s a feedback loop. Something causes deflation to start, suddenly it’s cheaper to buy something tomorrow instead of today (infinitely until deflation ends), people wait to buy things, demand for goods dries up rapidly, businesses fire people because there’s much less demand, unemployed people don’t buy as much, demand lowers further causing more deflation because supply is still backed up, etc etc. in a deepening spiral. We got out of it in the Great Depression with a combo of the WPA, New Deal, and WW2 spending.

It’s good for you only until the lowering prices causes your employer to fire you to cut costs or because they don’t need you to perform your job because demand has dropped. Deflation spirals include lots of people losing their jobs because businesses lose demand because goods will be cheaper if you wait to buy them.

[u/UmberOx → u/Mayor_Death]

Are you very wealthy and/or have alot of secured assets?

[u/PiperUncle → u/Mayor_Death]

Prices going down includes your labour

[u/Civil_Act1864 → u/PiperUncle]

But when prices go up our labor doesn't?

[u/ellamking → u/Civil_Act1864]

Wages track prices both directions, but the inverse isn't stable. If prices go up and wages lag, company is extra profitable. If prices go down and wages lag, the company goes bankrupt. Negative profits doesn't mean less production, it collapses to 0 production.

[u/functional_moron → u/Civil_Act1864]

Because what we've experienced recently wasn't actually inflation by the definition that matters. Real inflation is our currency losing value. The "inflation" that happened with covid was all the corporations working together to raise prices across the board on everything but labor. It was just flat out theft. Going in the other direction would actually benefit real people.

[u/TheScarMaker → u/Mayor_Death]

It's not just the prices going down, it's the expectation they will keep going down.

Think of it like this: You want to buy a car but no need to buy it today because you expect that tomorrow it will be cheaper. Tomorrow you put off buying it again becuse you expect it will be cheaper the following day and so on and so on, so you never actually buy the car. Everyone is following the same expectation so no one buys a car or a phone or anything else.

Everyone's daily consumption of even groceries becomes the minimum because there's no need to buy that fancy bar of chocolate today because you expect it will be cheaper tommorrow.

So Demand sharply decreases and production (Supply) and profit margins with it. Lower Supply means downsizing industry so fewer jobs/consumer wealth which further decreases any Demand that was left.

Negative inflation causes a feedback loop that can spiral really fast and crash an economy due to lack of "economic momentum" like the engine metaphor from IrksomFlotsom.

Inflation at ~2% good, ~1% eyebrow raising, ~0% alarming, negative% bad.

[u/Clarknotclark → u/Mayor_Death]

Prices going down due to technology or whatever is good (eg TVs are cheaper than they used to be) but prices going down because people are choosing not to engage in the economy by not buying products or paying for services due to the fact that they will be cheaper in the future is bad.

[u/Captain_Pumpkinhead → u/IrksomFlotsom]

Sounds like we need a better engine.

[u/WillowPtar_Migan → u/Captain_Pumpkinhead]

Capitalism is by far the worst economic system, except for all the alternatives.

[u/Strong-Ring-7433 → u/WillowPtar_Migan]

Man, if only capitalism hadn't already fucking collapsed on itself, so people would stop repeating some bullshit line they heard, because they think it makes them sound insightful.

Seriously, the stretch from WW1 to the Great Depression showcased the fact that capitalism is a system fundamentally incapable of sustaining itself through a crisis. Pulling yourself by your bootstraps sounds wonderful until there are no boots going around to begin with.

You'd think that after the government having to come to the rescue again and again, maybe people would realize that a system where 12 people are worth more than half the Earth's population combined might have some issues needing addressing. Especially given the fact that the "golden age" of said system happened exactly when social welfare and strong worker's rights were a priority.

But no, it's the best out of all alternatives imaginable, so let's just keep pursuing the fairy tale it's supposed to be instead of working with the reality of what it is.

[u/Various-Studio7644 → u/IrksomFlotsom]

So the global system is based on the concept of a perpetual motion machine? Why is that a laughable thing in physics but a totally reasonable premise in economics?

[u/zoharel → u/Various-Studio7644]

Probably helps that economics is mostly imaginary, I guess. I'm not saying that it isn't related to certain realities, but people are far from simple enough and predictable enough even in large groups to make it make much sense. That is both good and bad.

[u/Alpha-Trion → u/IrksomFlotsom]

My body is an engine that take burritos and turns them into poop

[u/mindfuckedAngel → u/IrksomFlotsom]

And that is exactly why the system is wrong.

[u/RandO_o → u/IrksomFlotsom]

Sure but I feel we are overlooking the excessive wealth of the few which is driving the issue more than anything else.

[u/Dear-Wolverine577 → u/IrksomFlotsom]

Caught it at all 7’s right before I ruined it with an upvote 😌

[u/GenericGrad → u/thevoidthatjerksback]

Deflation means not spending money creates wealth because money is worth more tomorrow.

Basically it means doing nothing is a good strategy. Doing nothing isn't the point of life or anything.

[u/No-swimming-pool → u/thevoidthatjerksback]

Stuff gets cheaper, so you can buy more with your money. You also lose your job and no longer have money to buy cheaper stuff.

[u/SirUnknown2 → u/thevoidthatjerksback]

Bitcoin is a deflationary currency. We already have real life examples of what happens when deflation.

[u/fespadea → u/thevoidthatjerksback]

Deflation is bad for borrowers and good for lenders. Most people are borrowers rather than lenders, so it's bad for most people.

[u/HyliaSymphonic → u/thevoidthatjerksback]

Challenge accepted

Deflation punishes poverty and rewards the rich. 

A poor person needs to spend the bulk of their money to survive. They can’t spend less on food, shelter, ect. Because they are likely at the cheapest option already. If they were able to save that money they would be able to buy more tomorrow. But they can’t. So they spend money that ends up being worth more tomorrow than yesterday. 

A rich person can see deflation and hold back on their spending. Most of their spending is not necessity but discretionary.  They can spend less and grow their money by doing nothing with it. They don’t need that second yacht and can wait I’ll tomorrow when the price drops. 

[u/Steveis2 → u/thevoidthatjerksback]

They way it was explained to me is that a little bit of inflation is a good thing. Theoretically workers should get raises Based on the inflation rate one of the reasons things are so bad right now is that that isn’t happening but I digress. If your money is worth more then people will be layed off

[u/capucapu123 → u/thevoidthatjerksback]

Why buy x thing at $10 when you can wait till next year and get it at $9.50? But applied to companies so the effect is fucking huge and people hoard wealth even more than they do right now instead of spending it which is basically a requirement for the economy to function properly.

[u/a1b2t → u/thevoidthatjerksback]

today you earn $1000, next year you take a pay cut to $950 = 5% deflation

[u/ContextLengthMatters → u/thevoidthatjerksback]

All of your investments get wiped out and the economy crashes. Market crashes are strongly linked to deflation and it is likely the market you see falling out when you see signs of deflation on the horizon.

People do not lower prices for fun. They do it because the economy has tanked.

Everyone else is trying way too hard to explain something that is rather simple.

[u/Charming-Fig-2544 → u/thevoidthatjerksback]

The Great Depression was caused by a deflationary spiral. Inflation encourages spending, while deflation discourages it, and spending is what props up the entire economy. You need money constantly circulating, and deflation makes that grind to a halt because it's individually more financially sensible to delay as many purchases as possible during deflation.

[u/dart_shitplagueis → u/[deleted]]

Can't they just start printing more money nonstop to inflate? (Kind of - ~15% - serious question)

[u/milkipedia → u/dart_shitplagueis]

Don't know why you were downvoted. The fancy way of saying this is increasing the money supply to encourage spending

[u/Limp-Firefighter1054 → u/milkipedia]

Don't work in states where money dont trickle down.

[u/A-town → u/Limp-Firefighter1054]

So... All of them?

[u/realgamergirlTM → u/Limp-Firefighter1054]

you could give the new money directly to consumers instead of giving it to… well, who ARE they giving the money to? the banks maybe?

[u/Training-Chain-5572 → u/dart_shitplagueis]

Dude, you can't just go around saying something ridiculous like "just print money"

You have to call it Quantitative Easing so people think it's a legit strategy

[u/Radical--Rat → u/dart_shitplagueis]

Kind of but not really. The real problem with deflation is that it discourages spending and investment. When the money you have is going to appreciate in value more than the things you might purchase with it, it's a lot more appealing to just sit on it instead. This lack of demand then drives prices down further, perpetuating the cycle until businesses start failing and then you're stuck with an unemployment crisis, and now even if the deflation stabilizes, it's left a whole mess that returning to inflation will make worse before it gets better.

You can print a bunch more money, but unless that money is actually circulating, it doesn't really do anything. And if everyone's just holding onto their money watching the value go up, they'll certainly want the new dollars, but they won't want to spend them. And if they're not being spent, they might as well not exist for inflation/deflation purposes.

[u/BurningTrashBarge → u/dart_shitplagueis]

This is exactly what they do, and will do, it’s why everything managed to continue on without a revolutionary moment after Covid.

We’re so productive they’ve had to thumb suck the numbers for decades to keep the power structures in place. It’s why wealth is concentrating exponentially. All the money they print just flows one way.

[u/Own_Policy8854 → u/[deleted]]

We could redistribute wealth to prevent it from pooling and creating economic disasters in the first place.

[u/Exotic_Drink69420 → u/Own_Policy8854]

I believe the dragons would have something to say about that.

[u/miniatureconlangs → u/Exotic_Drink69420]

And the Christians have, sadly, decided that killing dragons no longer is the Christian way. Saint George shakes his head.

[u/karoshikun → u/miniatureconlangs]

as someone named after him, I feel disappointed of such state of affairs...

[u/Bulky_Algae6110 → u/karoshikun]

Your name is Saint George?

Awesome.

[u/karoshikun → u/Bulky_Algae6110]

just George...

[u/0019362 → u/karoshikun]

Just George, the Just.

[u/Relative-Relief-8816 → u/0019362]

Short for Justin George.

Which is two first names.

But his middle name Side.

So his name is Justin Side George which is also where he finishes. Because his spouse took on his name, and is also George.

[u/Nruggia → u/karoshikun]

Don't sell yourself short. Even Saint George was just George at some point.

[u/MizStazya → u/karoshikun]

Farmer George?

[u/karoshikun → u/MizStazya]

that's what the name means!

[u/Ari_On_The_Nette → u/MizStazya]

Venus has gone inside

[u/False_Snow7754 → u/miniatureconlangs]

Good thing I'm not a Christian. When do we raid, and who's the tank?

[u/bugzcar → u/False_Snow7754]

Leereeeeeeeeeeeeee

[u/UphillTravel → u/bugzcar]

rooooyyyyyyy

[u/IICMCDII → u/UphillTravel]

Jeeeeeeeeennnnn

[u/AKADabeer → u/IICMCDII]

kinnnnnssssss!!!!

[u/THSprang → u/miniatureconlangs]

Its always pertinent to remember that the "Dragon" that St George slays in the story they tell about him is supposed to be an allegory for paganism. And that story ignores the actual events in St George's life and rips off the pagan/Norse myth of Siegfried and Brunhilde (I am using the Western European names because the Northern European names and spellings completely escape me).

[u/JomavavLovesCheese → u/miniatureconlangs]

As a certified monster enthusiast, i stand with them. Although i doubt they want anything to do with me 🤣

[u/OrganizationLonely29 → u/Exotic_Drink69420]

No one can convince me that billionaires are not modern day dragons… and we should slay them.

[u/LazyAssLeader → u/Exotic_Drink69420]

Chromatic or metallic?

[u/urbanlife78 → u/Own_Policy8854]

We can't do that to the poor billionaires

[u/ActBest217 → u/urbanlife78]

Believe me, if there's an actual deflation, they'll all of a sudden stop being billionaires (companies not able to sell, revenues and stocks going down) and there won't be much to redistribute

[u/goldflame33 → u/urbanlife78]

Billionaires would love deflation, when money becomes more valuable over time the people with the most money benefit the most. Inflation is "better" for people with less savings relative to their income

[u/meltyandbuttery → u/[deleted]]

Not necessarily. Velocity is one of the core components of inflation. Policies that target this would change the risks

For example theoretically (hand waving a million variables) a wealth tax for single-payer healthcare encourages more movement through regular goods and services

[u/rsneary129 → u/Own_Policy8854]

Capitalism: a system so great it needs to be bailed out every 10 years

Edit: for those of you who refuse to look anywhere outside the US, the Nordic model has existed for over 90 years and is extremely successful. The countries that use it consistently rank highest in happiness, quality of life, work life balance, has low rates of corruption, and are economically competitive

[u/Big_Space_Potato → u/rsneary129]

whats the Nordic model called?

[u/Ok_One2540 → u/Big_Space_Potato]

Nordic Track?

[u/Arlcas → u/Big_Space_Potato]

Capitalism but with non corrupt institutions

[u/parrote3 → u/rsneary129]

That’s… also capitalism. I like the model but it’s as much socialism as the fire department.

[u/InternationalLaw8660 → u/parrote3]

What isn't socialist about "fire department?"

Your taxes go towards funding the department, you have an emergency, they come save you.

Pretty straightforward; unless you live in one of those "unincorporated" hell-scapes where you have the option of donating to the volunteer department, and if you don't they don't have to help.

[u/BenjaminWah → u/InternationalLaw8660]

AND...fire departments are unionized and collectively bargain their contracts

[u/SportTheFoole → u/[deleted]]

That’s not exactly true. If interest rates are above 0%, you can lower interest rates. If interest rates are below 0, quantitative easing can be used (as what happened to help pull the U.S. out of the Great Recession). According to this article, there are even more tools available. Deflation isn’t some inevitability where economists just throw up their hands and say, “oh well.”

[u/Andy_Pandy98 → u/SportTheFoole]

Well i learned something new. The tools seemed a bit more hail Mary though

[u/rocinante1882 → u/[deleted]]

The economic tool would be to pay people fair wages in the first place. Theoretically, according to the people who control the economy, increasing wages is what causes inflation, right? So if you increase wages, that should cause inflation, which would curb deflation, right?

[u/AI_abuser → u/[deleted]]

Explain to me please why printing more money and giving it to people an masse (like stimulus checks during Covid) wouldn't help deflation.

[u/professional_cunt25 → u/[deleted]]

Governments absolutely have tools: namely, monetary and fiscal stimulus. A perfect example is Australia during the 2008 GFC. The government issued direct cash payments to citizens to stimulate consumer spending over the holidays. It kept money moving through the economy and successfully shielded the country from a global recession.

Singapore, Taiwan, Japan and even the US have taken similar measures in the last 30 years

[u/ACcbe1986 → u/[deleted]]

We have 250 years of experience creating inflation. I don't think we will have any issues finding creative ways to battle deflation.

[u/Astro-2004 → u/StuartMcNight]

As far as I know deflation also means that debt is more expensive every year. Inflation can help to face up debt because every year your debt is worthless. But with deflation on each period you have to put more effort to pay your debt.

[u/SpaceChaosu → u/StuartMcNight]

As far as I'm aware it's more about investment perspectives, why would you invest money if you could keep it in bank instead (this money will gain on purchase power anyway).
Less investments = lower volume of money circulating in economy and less potential jobs = slower economic growth/danger of recession

If I remamber this economic theory correctly

[u/justin107d → u/SpaceChaosu]

It hits all parts of the economy. People don't want to spend or are afraid of spending so shops have to drop prices to lure customers in. This leads to tighter margins, then less room to hire and pay wages.

[u/SuspiciousSnotling]

Deflation is worse than inflation.

It means price can't go up anymore because ppl can't afford, businesses need to slack ppl off to stay afloat, which make ppl poorer and even less capable of buying stuff.

It's a death spiral

[u/PuzzleheadedFee6943 → u/SuspiciousSnotling]

why not just start printing money then?!

[u/Classy_Maggot → u/PuzzleheadedFee6943]

Germany tried that once. There's a reason the Weimar Republic lasted for about a decade

[u/samrus → u/Classy_Maggot]

but they werent trying to curb deflation, they printed more money to pay debts to other countries. i imagine if we are trying to curb deflation then we'd increase the monetary supply by a calculated amount to not increase inflation too much

[u/CreBanana0 → u/Classy_Maggot]

No seriously. Why tf would you get hyperinflation if you are countering deflation?

[u/BurningTrashBarge → u/CreBanana0]

You need the other nations that you trade with to not freak out when you magically just generate a whole bunch of new value.

It’s a lot easier to do when you have a gun to the world’s head. So it does and will happen in convoluted ways. But why it doesn’t happen anywhere else like Japan.

[u/layerone → u/BurningTrashBarge]

Well put, the world bares the pressure of the US Federal Reserve printing money. The US 40T debt it carried by the world.

This is because the US Dollar has been the reserve currency of the world.

People are so unaware of how good the USA had it before Orange started ruined all our socioeconomic ties around the world. He's vastly accelerated USD not being the world reserve currency anymore. US Citizen have no clue how much that will hurt us, it's unrecoverable too. Once USD loses that status, it will never get back.

[u/BurningTrashBarge → u/layerone]

Covid really underlined this for me. When things just kept ticking after everything went down cause they printed a bunch of money. The entire game is rigged in favour of keeping that established power structure in place.

If it ever stops being the reserve currency that’s it for the US empire. It’s a wonder everyone let the US have its way for so long, at the same time insane that the US is just ignorantly throwing it away now.

[u/rbrgr83 → u/layerone]

He's vastly accelerated USD not being the world reserve currency anymore.

This is the intent. Crash our economy, buy up big swatches of wreckage for dirt cheap, and finally push your own crypto for further grift on the desperate.

[u/WarbleDarble → u/PuzzleheadedFee6943]

That's just stagflation.

[u/Winnier4d → u/PuzzleheadedFee6943]

Actually, during an deflation maybe a good call to bring down the value of money again.

[u/Unbekannte-0 → u/PuzzleheadedFee6943]

Weimare approves

[u/ReaperTys → u/SuspiciousSnotling]

This is literally happening with inflation

[u/KeyEntrepreneur5449 → u/ReaperTys]

It's just not happening "to" the investing class. Deflation is when they, the investors, are harmed. Which is why it's an actual problem, as opposed to ever rising prices with stagnant wages which just kills the poor and homeless so that's ok.

[u/MysteriousCherry2267 → u/SuspiciousSnotling]

Isn't that already the situation?

[u/birbbbbbbbbbbb → u/MysteriousCherry2267]

I think people don't understand how much worse it could be. The economy isn't great but is nothing like talking to my grandparents/great grandparents about the Great Depression (which had periods of high deflation. You can search for deflation in this article if you're curious https://en.wikipedia.org/wiki/Great_Depression or look at this article comparing it with inflation https://en.wikipedia.org/wiki/Deflation#Compared_with_inflation).

I'm not saying things are great or anything about how the Great Depression specifically interacted with deflation (I have no idea personally) but the answer to whether we are in the scenario economists are worried about with deflation is a very clear "absolutely not". They are imagining much worse.

[u/panatale1 → u/SuspiciousSnotling]

You mean the point where we already are?

[u/Soberdonkey69 → u/SuspiciousSnotling]

We’re literally suffering from this under high inflation???

[u/BalticHorndog]

Hi. Barely educated Peter here.

So, inflation. Prices and paychecks go up (though not toe-to-toe), and money loses value because it takes more money to buy the same thing than it took earlier. We hate it when it's high because prices go up, everything's expensive, we can't buy shit. Consumers cry. However, the opposite is just as bad.

Low inflation means prices aren't going up much, or at all. Consumers cheer. Very low inflation, however, close to 0% or even negative (that's deflation), is a problem. If prices start dropping, rational people will hold off from buying stuff because they'll wait for prices to go even lower. That can and will kill businesses because they don't get any revenue when people aren't buying stuff. And when business isn't booming, it can mean layoffs at your local grocery store or something, because business owners also want to save money.

Another thing where inflation has meaning, is debt. Mortgages, leases, etc. Even the 10 bucks you owe a friend. If inflation is high, those debts start having less impact on your money because by then you hopefully got a small raise, and so debts are easier to pay off. Low inflation makes debts bite just as hard, and much harder if deflation happens, because bread being cheaper doesn't mean your mortgage payments will be smaller.

Anyways, quick crash course on inflation done, hope you learned something. More educated Peters pls correct me. Barely educated Peter out.

[u/TheLamey → u/BalticHorndog]

I think the main difference that people forget: discretionary vs mandatory spending. People are currently being killed by mandatory spending (housing/rent, food, healthcare, gas/transportation) to the point that their discretionary spending is all credit or avoided entirely.

The price gouging since 2019 has been extreme. Companies have inflated prices to what the market can and will bear. Look at fast food; the value proposition has completely collapsed. Automobile prices are insane.

This is the find out phase of FAFO: when no one has any money to buy your shit. You either carve out a niche of consumers who spend more per transaction, or attempt to rebalance towards more consumers and less per transaction.

Unfortunately, consumers are hurt on both sides of our economy (rampant inflation/stagnation of wages, and recession). Those with assets will profit when we print more money, and by buying up the lost assets from the working class at discount prices.

Makes you wonder who the economy is meant to be working for.

[u/Lucreth2 → u/TheLamey]

The discretionary vs mandatory argument is exactly why all of the deflation fear mongering is bunk.

The country inflated so fast with minimal actual wage increase that it could bear a fairly significant deflation and it would be more of a correction than an issue.

[u/nick2473got → u/Lucreth2]

You're thinking of deflation as a singular event where prices just go down and then they're lower and the issue of over-inflation relative to stagnant wages is corrected.

That's not how deflation actually works though. Deflation is often an economic death spiral, and that's because of the reasons for it. Deflation doesn't typically happen as a response to previous inflation.

Deflation usually happens because some part of the economy is collapsing. People stop buying products (yes they still buy basic food if they can, but that's not all the economy needs to function), which leads to reduced production, which leads to layoffs, which further impacts the public's spending power, which leads to even lower purchases, and even lower production, and so on.

It's a vicious cycle that is almost impossible to break out of. It leads to severe economic depressions, which are worse than recessions.

What we need is disinflation (a reduction of the inflation rate), not actual deflation. Deflation is a disaster 99% of the time.

[u/BalticHorndog → u/TheLamey]

I didn't even think of it but you're right. The prices are insanely high, at least partially due to greed. Meanwhile wages climb slow or not at all, also at least partially due to greed.

The on-the-nose note about the economy being geared towards the rich is sad, but true. For the rich folk it's life on easy mode, and for the rest of us it's suffering until the law changes and is enforced properly to help even those who aren't rich. But changes are unlikely to happen because those who pass the laws are mostly bought by the rich folk to vote in a way that benefits the rich folk. Screws the little guy, but that's how it is.

[u/TheLamey → u/BalticHorndog]

Protectionist policy for specific industries (reducing import competition) doesn't help the consumer pricing either. Wages have not kept up with inflation (since 2019 30% vs. 15-16%).

It's the difference between debt/assets that benefit from inflation, or cash, which is devalued from inflation. Gen Z/Gen A are being priced out of their own future (housing, families, assets) while being told they're not working hard enough (when their take home isn't enough to afford renting a 2 bedroom).

[u/psychularity → u/BalticHorndog]

The only useful comment here

[u/Skeptical_Skeleton42 → u/BalticHorndog]

Yeah, the critical thing people often don't understand is that the economics definition of inflation is only half of what people are often talking about when they use it colloquially. To an economist, the increase of prices (including wages, because that's just a price for labor) and the reduction of real wages (i.e. how much your wages actually buys) are two separate phenomena that have different causes. They just tend to be linked because of psychological factors; it's easier for your boss to just not give you a raise then it is for him to reduce your wages. This is an actual, useful distinction to make when you are trying to understand and work through what causes these phenomena, even if it the distinction kind of doesn't matter to everyone else.

[u/nebileyim_ben]

its japans economic trap, worse than inflation.

[u/4thdimmensionally → u/nebileyim_ben]

There are four types of economies. Developing, developed, Japan and Argentina.

Such a good quote.

[u/Grouchy_Theme1461 → u/nebileyim_ben]

bruh u gotta explain it

[u/nebileyim_ben → u/Grouchy_Theme1461]

its deflation, prices keep falling over time.

japan experienced long periods of deflation which is hurt spending and as a result affected economic growth.

its super hard to fix that bcs of liquidity trap.

[u/Terpcheeserosin → u/nebileyim_ben]

Why does things costing less make people buy less?

If wages stay the same, shouldnt people just buy the dip?

[u/Poland-lithuania1 → u/Terpcheeserosin]

It isn't things cost less, it's money can buy more. Isn't it better to save that money for the future, when it's probably gonna be able to buy more?

[u/Terpcheeserosin → u/Poland-lithuania1]

So things don't cost less

But money can buy more?

So right now eggs are 10$ a pack

After deflation

You can buy 2 for 10 dollars because "money can buy more"

How is that not also, "eggs cost less" ?

[u/InternalCapable5286 → u/Terpcheeserosin]

It's more about people holding out on buying things because they believe it will be cheaper later. Food is a bad example because people will always buy food, regardless of the cost. But why would you buy a car if it might be $2,000 cheaper in a few months? Then a few months pass and now it looks like that car might be even cheaper, will you spend now or keep holding out to see if it goes lower?

[u/TheLamey → u/InternalCapable5286]

It's such a bad system when the logic follows the other path too. "I should buy a car now because it's only likely to get more expensive, while my income stagnates"

[u/RPGxMadness → u/TheLamey]

yes that's the entire point, to make money move(also known as an economy), instead of having money hoarders that just hold money for no goal and so does nothing for anyone.

Oh wait, that's what's happening right now as the flow of the economy goes into the glorified hoarders of the top 1% and the real economy is rotting from the inside out.

Tax the rich hard and make the money move again into the real economy.

[u/TheLamey → u/RPGxMadness]

Yeah, I don't disagree on most of what you're getting at. I just disagree that the inflationary pressure is the main, or should be the main driver of consumer spending (I should buy now cause it'll be more expensive later). Normal consumers are buying as they need.

Give 300 people $1, and they'll spend it in their local economy. Give 1 person $300, and they're saving. The velocity of money increases when it's returned to normal consumers.

[u/Stargost_ → u/TheLamey]

Yup, that's why many economists agree that having very low inflation (0.1-2% YOY) is better for the economy compared to no inflation. But that also only works so long as salaries increase alongside it, which in many parts of the world, they haven't.

[u/bakatomoya → u/Stargost_]

Because at the end of the day money is for spending. Having some savings is good, but over saving is a trap for both the economy and an individual person. Imagine you live incredibly frugally your whole life, always saving. One day you die, and what did you work your whole life for? How much of life, or things you could have enjoyed, did you miss out on?

[u/kbeks → u/Terpcheeserosin]

When you zoom into a single grocery store item, it’s great. When you zoom out to a mortgage, you’re borrowing $400k from the bank and promising to pay them back with dollars that are more valuable than the dollars you’re spending today. Plus interest. While the value of your property drops year after year.

It’s also toxic to farmers who have to borrow to buy for the same year’s harvest. Again, the dollars they pay to pay off the loan will be worth more than the dollars they borrowed at the beginning of the year, and again, plus interest. The commodity they’re selling is also going to be worth less by the end of the year than at the beginning. Look into the Cross of Gold speech by William Jennings Bryan, it explores the same theme. Back in the day, the dollar was based on gold. As new gold was discovered, the value of the dollar would drop as more money/gold entered the system. In the absence of new gold finds, there would be deflation. Bankers loved it. Farmers did not. They preferred silver, which we were mining quite a lot of back then.

[u/tiserafostata → u/Terpcheeserosin]

Eggs cost more today than tomorrow, therefore you are inclined not to spend money today.

It's not that hard to understand.

[u/UncomprehendedLeaf → u/Terpcheeserosin]

It’s not that they cost less now than before. It’s that they’ll cost less in the future, so why buy now?

[u/Terpcheeserosin → u/UncomprehendedLeaf]

I haven't bought beef or eggs in months because of prices

If they go back to normal, I'm buying them

[u/cidthekid07 → u/Terpcheeserosin]

You’re literally just proving their point. You’re going to wait till prices drop to buy. In a deflationary environment, everyone will do the same.

“But when they go back to normal, I’ll buy” you keep saying. 1, what’s normal? And 2, what happens when they go back to normal but the expectation is that they’ll go lower than that? Do you buy at the “normal” price or wait till it goes even lower?? You’ll say you’ll buy at the normal price to be argumentative on Reddit, but the reality is most people will keep waiting if they believe prices will continue to fall.

[u/CopiVT → u/Terpcheeserosin]

Deflation means that every single day your money is worth more, so for example
(Effectively)
Day 1: Eggs cost $12
Day 3: Eggs cost $10
Day 5: Eggs cost $8
So on and so forth, but for everything.
What happens is people start only buying what’s necessary immediately, because in a few days things will be even cheaper. It’s a constant spiral that’s really difficult to stop, because you either have to take a nuclear option and implement price floors, or figure out how to incentivize people to actually spend their money.

[u/rickterpbel → u/CopiVT]

Eggs are a bad example because people always need to eat. Think cars. Why buy a car today when it will cost less tomorrow? Repeat endlessly.

[u/coilboi → u/rickterpbel]

Computers and smartphones would drop their prices (per computational power) at a ridiculously high rate and it lasted for decades. I don't think it reduced the demand for them, quite the contrary: people would constantly abandon their electronics in order to buy better and newer models, just because they'd become more affordable every year.

[u/Zealousideal-Lab9843 → u/Terpcheeserosin]

If wages stay the same

That's the neat thing,

[u/Terpcheeserosin → u/Zealousideal-Lab9843]

Pikachu face

[u/UmpireDapper1757 → u/nebileyim_ben]

Japan never suffered from deflation. The CPI stayed roughly flat for about 25 years. The most deflationary period, from like 1998-2013 saw average deflation of like 0.3%, which had a trivial effect on spending

https://fred.stlouisfed.org/series/JPNCPIALLMINMEI

Switzerland had similar CPI data from 2009 to 2020, with no ill-effects

https://fred.stlouisfed.org/series/CPALTT01CHA657N

[u/Poland-lithuania1 → u/Grouchy_Theme1461]

So low inflation can lead to deflation, which is when the value of money increases, which makes saving money much more attractive, which leads to lower spending, increasing the value of money, but the lower spending means the economy doesn't expand.

[u/Ordo_Liberal → u/Grouchy_Theme1461]

Let's say that you want to buy a PS5.

But the PS5 price is falling everyday.

Everyday you think, huh, why buy today if I can buy it tomorrow and save a few bucks.

You do that and the store goes bankrupt because no one is buying anything. Now every employee is unemployed.

This is why deflation is worse than inflation.

The same shit happens with stocks, loans, industrial goods...

That's why as much as everyone hates inflation, deflation is worse

[u/Fantastic-Kale9603 → u/Ordo_Liberal]

Also debt; the real value of your debt becomes a lot worse in a deflationary environment (set in a pre-deflation value but paid back with post-deflation lower salaries), so many people would go bankrupt trying to make payments.

[u/Shaddoll_Shekhinaga → u/Grouchy_Theme1461]

Deflation is the opposite of inflation. Essentially, the market value of golds and services decreases as time goes on. For example, with 2% deflation, a loaf of bread that would cost 1€ will cost 0.98€ next year, ~0.96€ the next, and so on.

This is not ideal, because consumers will expect prices to continue to drop - and they actually will. This leads to less people spending money, which will in turn reduce demand, which will reduces prices further, which will increase deflation which will... You get it. Modern economies only work as long as money circulates, and deflation has a chilling effect on that, ultimately leading to a weaker and weaker economy. Deflation is hard to control, since you can't exactly convince people to start buying more things for higher prices. Anyway this is slightly outside my area of expertise. Google Japan Deflation for more info.

[u/thesanguineocelot]

Damn, that's wild. Better give the billionaires another tax break and fuck the working class harder, that'll definitely fix everything.

[u/Pixez1082 → u/thesanguineocelot]

True that. We're behind on our "killing the poor" quota.

[u/RogerDogerBoop → u/thesanguineocelot]

This is the way things are going, unfortunately.

[u/procommando124 → u/thesanguineocelot]

You probably don’t wanna hear it but it’s not just the wealthy that need to be taxed more. Everyone needs to be taxed more.

[u/MySafeWordIsDone → u/thesanguineocelot]

Everyone making decisions was too privileged and/or coked up during the Reagan era to know it doesn't work.

We're fucked.

[u/Old_Man_Drifter]

One, it isn't really low. Two, sometimes if it is, it means something bad might be coming. Three, by which measure & how's it calculated & was the measure recently changed in a manner that supports certain politicians in power. Four, as I recall it's calculated by the Department of Commerce & as of earlier this year, per NPR, their analysts are more subject to political control than they should be.

https://www.npr.org/2026/08/31/nx-s1-5948057/department-commerce-census-bureau-scientific-integrity

[u/Tom_C_NYC]

Inflation isnt low.

[u/beatthedookieup]

It signals stagnation in an economy since there is a low consumer demand, which could lead to layoffs and others things of that nature.

[u/CMDRCoveryFire → u/beatthedookieup]

There is not low demand there is no consumer money.

[u/beatthedookieup → u/CMDRCoveryFire]

Thank you for reminding me of that missing piece, I was trying to recall stuff from economics class 12 years ago lol

[u/the-dude-version-576 → u/CMDRCoveryFire]

Demand is measured in money supply at the macro level- so low demand and no money are on in the same.

[u/Cyase311 → u/CMDRCoveryFire]

i see…. eat the rich?

[u/AdRich6641]

Conventional theory dictates you will hit a recession if your people aren't making money. In order for people to make more money, inflation is a necessary byproduct. 

[u/Glad_Camel_6078]

Prices are Still rising and it is being normalised...

[u/GAPIntoTheGame → u/Glad_Camel_6078]

We want prices to rise, just not too quickly.

[u/GoldenPigeonParty → u/GAPIntoTheGame]

My groceries are 2.6x times their 2018 value. It's too late for the "not too quickly" part.

[u/its_all_one_electron → u/GAPIntoTheGame]

Only if wages rise accordingly and they haven't got a LONG time

[u/Knyfe-Wrench → u/its_all_one_electron]

We had real wage growth vs inflation by the end of Biden's term, but now everything's screwed up again.

[u/GenesisAsriel]

Furries all over the world in shambles

[u/Sotyka94]

It's always ""funny"" when economist say shit like "deflation would be bad for the economy" "we cannot solve it" and ignore the fucking huge reason behind it that causes it. Like fucking billionaires hording all the wealth while average people cant afford to live... But god forbid, it's unimaginable to have a little bit of wealth re-distribution so average people live better and spend more...

Economy is just another term for billionaires private net worth at this point. We should not care about it, only issue is, they privatize winning and socialize losing, so they make it everyone's problem if they gamble and lose...

Fuck this word, fuck the Epstein class...

[u/dismal_sighence → u/Sotyka94]

Economy is just another term for billionaires private net worth at this point. We should not care about it, only issue is, they privatize winning and socialize losing, so they make everyone's problem if they gamble and lose...

Yeah, economists are pretty against this as well. It's literally the antithesis of a free-market economy.

And yes, deflation would be terrible for the economy (and workers) for a number of reasons, and we have strong historical evidence to support it (see the Great Depression, among others). Many people would lose their jobs and poverty rates would skyrocket. When you have no incentive to put money into the economy, economic activity (which fuels jobs) drops. If your cash accrues value just by sitting under your mattress, why wouldn't you just keep it there?

Stable, predictable inflation is the best way to maintain good economic conditions.

[u/notaredditer13 → u/Sotyka94]

What you are whining about has nothing whatsoever to do with the question of the thread.

But Reddit loves it.

[u/Effective_Ideal_1652 → u/Sotyka94]

Economist and Democratic Socialist here. Deflation is REALLY BAD for our economic system. We can redistribute wealth and control of industry without deflation.

But yeah, I feel mostly the same with how our country and world is going right now…

[u/Savorypensioner]

Growth leads to inflation. An economy that is seeing very low inflation, or deflation is stagnant. Deflation is an incentive not to spend across the whole economy because you expect your money to buy more in the future than it does today.

Also, there are tools to effectively lower inflation in economies that control their currency, even though they are painful. There isn’t any real silver bullet to solve stagnant growth.

[u/fortheculture303]

Inflation is not low. It’s around 3.2 percent and fed wants it at 2

[u/mehthisisawasteoftim]

The high inflation was because people could afford to pay rising prices, the prices aren't able to rise anymore is not an indication that things are getting better, it's a sign that people are no longer able to afford the rising prices, this is a strong recession indicator.

[u/tuvar_hiede]

Inflais built into the system intentionally. If inflation is low it means the economy is in rough shape. Think COVID where rates were low in order to encourage spending.