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?
Indefinite, low inflation - inclusive of wages - is the expected and normal outcome of a continued functioning capitalist system. Inclusive of wages is key here, so the federal minimum wage is failing. Certain aspects of the economy are seeing runaway inflation even while CPI isn't as high as you might expect.
Outside of some really important key metrics (cough housing cough), spending power trends upwards over time at median wages. Prices are supposed to scale infinitely higher - slowly - and so are wages.
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.
Deflation is “bad” because it leads to an economic death spiral, and there’s no way to stop it.
Prices go down
People see prices going down and hold on to money thinking it’ll be cheaper if they wait.
Less purchasing despite lower prices cuts profit margins, so producers produce less.
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
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?
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
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.
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.
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.
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
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?
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.
That's because consumer spending is starting to go down and families are starting to cut back. So they have to either increase prices, which they're already doing and that's not working, so they have to cut costs, and the number one way for companies to do that is to cut employees.
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.
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/
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.
Put simply. If your money might be worth more tomorrow, then maybe you will do your best to put off buying that thing you need. If money is going to be worth less tomorrow, better buy now even if not absolutely necessary.
Prices drop for only one reason: people can no longer afford to buy the products.
The underlying reason can vary (war, crop failures, rising oil prices, etc.).
When a specific group of people can no longer afford to buy products, the producer will lower prices in order to make sales.
The cost of the plant, raw materials and/or energy remains the same—or may even rise—so the only area where the producer has some control is staffing; consequently, non-essential roles are eliminated.
As a result, those people can no longer buy products either, and the cycle repeats.
That is how you end up in a negative deflationary spiral.
The attempt at maintaining mass profits results in massive layoffs which leave many jobless, and with enough panic results in mass withdrawals from banks (the beginning of the end to any financial crash) and a decline in consumation.
Combined with the governments attempts to pay off companies sudden losses in order to help keep them running as before (using tax payers money).
Then futher decline in stock prices (if they haven't already by now), deflaction, before eventually the crash.
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.
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.
Deflation will happen when boomers start to retire enmasse and pur imaginary stock prices dont have the liquidity behind them for people retiring... only magically for more circular investment between the same 6 companies.
I doubt it'll be a sudden change though. At least not until it hits a breaking point and the public gets wise and tries to get what they can from it.
Oh it'll SEEM sudden, but there will have been thousands of economists ringing alarm bells well in advance while the politicians pull the curtain closed and say everything is fine, right up until the whole thing crashes. And then it'll be a "Who could have seen this coming? It's not our fault!"
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.
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.
One of the hurdles of affordability in housing is that no matter what you do it will hurt someone.
A lot of people who own their homes have them leveraged at their current value. If we make housing more affordable that means the value of their house goes down while their debt stays the same.
I personally (as a person who own their home) think we need to be making housing more affordable, but as a country we’re really bad about explaining and preparing for the negative impacts of positive progress and housing is just one example out of thousands when deflation hits the economy.
One thing is people need to think. Buying a house that is historical like $320K for $670K, a house thats doubled in value in 6 years. Its not smart. Like I get housing is needed but at the same time you need to have sense as a buyer. On no planet is that house a good investment. Youre umderwater the day you buy.
I just see houses in my parents development going or being asked for ludicrous prices. I know people that bleed money buying overpriced houses before the 08 crash. It'll happen again. People are so leveraged and likely have loans out for like 50 years.
I think the problem is buying a house as if it were an investment in general. I bought mine in 2022. No one can tell me whether the housing market will go up or down in the next 10,15 or 30 years.
So the decision on how much to spend is based on how much I like the place and what I can afford. I don’t take HELOCs or use my house as collateral on anything. And when I asked the bank to pre-approve me for $300k so I was ready to buy at $250k and they told me they could get me more I declined because I knew $250k is what I could afford no matter what the bank told me.
It’s my house, not my investment. I have a 401k for investing and I just don’t touch that shit. If my home value drops $100k in the next ten years my mortgage stays the same, unless I refinance for a lower rate and I can live with that.
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.
Seriously.. All that gives, is corporations and rich people trying to put the blame on everyone else. The money printing only works for so long without actually addressing any problems for the people
The week or so ebt wasn’t funded. My local Walmart had food items clearanced for under $1. Filled up my cart for $90, hadn’t done that in years. Multiple reasons why. AI orders everything for those stores now days, so trucks were coming to deliver more food. EBT is a massive subsidy for Walmart to fuel their greed. People need it to not starve. Corp knows that so they charge extra, I suspect. Like with student loans and tuition increases. We like to solve problems by creating new problems in this country🤣
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.
I'm no economist and really don't know much, but it seems like much of our inflation is artificial anyway. Prices seem bloated not because people can afford to spend more, but because they are forced to. Corporations are making record profits while wages have barely increased. At some point, I think that trend will fail and things will balance out. Maybe that's what you're seeing as deflation. People will stop spending money on unnecessary things that cost more and the rest of the economy will follow. It's just a latent process because prices can increase at any time, but it takes time for people to realize they're not willing to spend that anymore or find other options. Like I said, I'm not an economist and not here to argue, so I'd like to know why someone thinks that's wrong.
The vibes and fact that our inflationary environment is bad for consumers in different ways doesn't really change that deflation tends towards self reinforcement. The economy is based on a certain level of continuous self feeding growth and more of that growth has been captured by companies in the form of record profits but it's not related to the fact that a true contraction causing deflation is also bad.
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.
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.
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.
The simplest way I can put it is when prices go down, people notice and they wait to buy things as they wait for them to go down more. This is what causes economic output to plummet
As far as I understand it, deflation indicates that prices are going down, which is a good thing to me individually.
Median voter moment.
The price of a thing going down is fine. The price of everything going down means that anyone who makes things is now better-off if they stop making things and just hold on to their money. When all production stops at once you'll have a very bad time.
No need to task a random redditor with devising a new economic paradigm, turns out one or two discerning experts spotted the trouble with the whole "the economy can grow forever!" concept. They spotted it pretty early, in fact. Adam Smith literally wrote about this problem.
I was unfamiliar with it, so I took a look on Wikipedia (hardly the most reliable or in-depth source, but it’s a fine beginning for most things) and I’m certainly no expert, but there is a glaring flaw in the base concept (just like capitalism/supply & demand break down with a very simple thought experiment, ie - the monopoly). In a stable state economy, it hinges on a “constant population size” which might seem ok on paper, but it’s something that goes against human nature. I’m unaware of any successful state-mandated population control, but I have heard of the One Child Policy and that wasn’t pretty.
EDIT: Some pointed out that population is trending towards a “constant size”, and it’s a fair point. And it’s true that in some developed nations, population rates can & have fallen below replacement levels.
My point stands that it’s no trivial thing to maintain a “constant population size”.
My comment wasn’t meant as a sweeping condemnation of “steady state economy” any more than monopolies are a sweeping condemnation of capitalism. Just because it’s a flaw, it doesn’t mean there is no solution.
Also your assumption to fully understand human nature and that stable population size goes against it is just bonkers. I feel like you're just looking back historically and saying that's the way it's always supposed to be now and forever and ignoring the reasons why we had so many more children in the past. Like your brain is trying to think, but it's just stopping halfway through on every thought and regurgitating things like "One Child Policy = bad" "Wikipedia = unreliable" with no attempt to understand the mechanisms behind why.
Population sizes tend to stabilize. If you look at many developed nations, they're actually struggling with the opposite - people aren't having enough children to support aging older generations.
If the economy is constant then, for example, a 2% productivity increase means you need to decrease total labor hours by roughly 2%. Total wealth is basically zero-sum, so for anyone to become rich someone else must become poor (or several people become slightly poorer).
This does not sound compatible with the way the world is now, at least not for countries like American.
Pretty sure president Jefferson called the up n coming debt based economy neo slavery and reluctantly agreed to put into effect. It really is a shame production is not focused on permanent viability instead of this plastic rat hell we have conjured up.
And worse that so many people will ardently defend it just...because?
Like, look around - even if you're well-off and comfortable, which honestly, my wife and I are, surely you can see that this is not sustainable nor working well in many ways.
People get so wrapped up in defending today's EXACT flavor capitalism because of the technological innovations that they think it's solely responsible for giving us that they truly freak out at the suggestion that we can improve our economic system and...make life better for everyone? Stave off our impending ecological doom?
Simply because they don't like even the whiff of the idea that they might have to contribute, that people who they think are "lesser" might become more economically equal to them, or because they literally can't stop believing that "any threat to capitalism" == "slippery slope to totalitarianism".
Yeah the ideology seems to be a relic of the 50s barely clinging to life in the form of nationalism. A lot of things in life don’t make sense to me but this one takes the cake.
It quite literally works for 1-5% of people and that number is shrinking with the worst seemingly on the horizon.
The real shame being how adequate technology has become, there’s no reason to continue this nonsense unless you’re winning already.
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?
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.
Arguably, they didn't exain that very well. All the mechanisms here have a reasonable explanation and it's not just made up.
Let me give it a try:
The problem with deflation is that it creates a strong incentive for businesses to infinitely accrue cash reserves on the expectation that large purchases like new machinery or maintenance and the likes are going to be cheaper in the near future. This means that consumption is declining, which means that productive businesses shut down, which means people working in those businesses are fired and in turn have less money to purchase goods and services from other businesses which means that even more factories/businesses shut down and now you're in an infinite downward spiral with no available monetary policy instrument to stop it. That's why minor inflation is seen as a necessity.
For the "infinite growth" argument, that builds on a bit of a misunderstanding: If I sell you a service and you sell it back to me, we have created GDP growth and we can do that indefinitely and keep creating GDP from essentially nothing... That part of the economy truly is just made up but it's just a way of comparing economies so it's effectively meaningless anyway.
If your money gets worth less over time, you have an incentive to spend it. If it's going to be worth more in the future than it is now, you have a strong incentive to not spend it, and lots of people follow that incentive, and spending (especially investing) craters.
But companies could stop this if they weren’t so greedy. People are struggling to buy the essentials and pay their bills so if they make food cheaper but keep other things the same wouldn’t that help. If people find them selfs with extra money at the end of the month they tent to spend it on things they don’t need.
My educated but amateur (BA in econ, so I understand more than average, but nowhere near professionals) thought is that the biggest reason deflation would be a catastrophe is that our government (US) doesn't have the political will to address the economy with fiscal policy. They've been relying on monetary policy (the fed) for decades. I suspect wealth inequality is so bad that you could theoretically shift the pain on to the 1%. It would be extremely complicated for sure, but I think its possible.
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.
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
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.
you got the numbers wrong. At 5% productivity increase, you'd need 10% deflation to justify that pay cut. At 5% deflation, there's no pay cut at all. And at 5% inflation, the pay cut is hidden, because the productivity increase is funneled away from you.
Legit please do correct me if i'm wrong, but if price of product x goes from 5 to 10, my 1000 salary would mean i can now only buy 100 of x instead of 200, but if x went from 5 to 2, it means that, while my salary is still the same, my purchase power is now higher, because now i can buy 500 of x instead of 200
The problem isn’t really any one person’s salary. It’s the nationwide effect of everyone getting paid less. Deflation is probably great for a handful of people at first, but job growth halts (and for most industries probably shrinks dramatically) because now all these companies are losing profits while their employees are making the same amount.
Global trade becomes more difficult for us because we have fewer dollars in circulation. Debt (federal and personal) doesn’t decrease so anyone with a loan is now paying the bank a higher % of their income. A lot of people will eventually receive pay cuts to balance things out, who will then likely reduce their spending, which then leads to less consumer products being bought, which AGAIN leads to lower salaries or layoffs.
The issue is really that deflation is a longer death spiral whereas inflation is a lot more abrupt. That inflation is a punch in the gut, but typically we all reset to the new normal. Deflation can be a lot harder hitting and it really dries up our economy. So, even when deflation finally winds down, there’s still a long recovery and a lot of non-essential goods and services have likely been abandoned or shut down. That could take decades to recover.
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.
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.
The economy is a flow of goods and services. Regardless of economic status, when this flow is happening you a better off. There’s way for the flow to be skewed, not as helpful, etc but you are generally speaking - better off. The flow lets you sell whatever product or service you are performing, and but whatever you need or want.
Inflation cuts into your ability to use the intermediary (money) overtime. Depending on your economic status this can mean essentially a pay cut if you don’t get raises to counter this effect, or a cut to savings, or very little as most of your wealth comes from assets that are resilient to inflation.
Deflation on the other hand discourages the entire process from occurring. Considering buying something? Don’t do that. It’s a bad idea. You can get it tomorrow for cheaper. This grinds things to a halt and governments have to take drastic measures to fight it.
Of course, if people aren’t buying things, the counter is you’re now not selling. Jobs will be lost to save costs, which means less people with money in their pockets to buy the things that they shouldn’t be buying if they can manage anyway.
It’s a vicious cycle, and one that’s hard to grasp because it doesn’t really happen in the same way inflation does, partially because governments are so adverse to it.
Additionally, not all deflation is bad - and most people have experience with the good kind of inflation - technological, manufacturing, and business efficiencies over time. Comparing the price of a tv over time is one kind of deflation, and it’s awesome. But it’s not coming from the monetary, system level deflation that’s so concerning.
All this to say that if the original meme is about deflation that’s fucking stupid. It’s a huge leap to be taking just to try to be negative.
Deflation mostly happens when people stop trusting in the dollar and trade in other commodities. This makes the dollar essentially worthless.
By design economies need relatively low but stable inflation to maintain itself. This means the trust in the currency is growing and being utilized. If no one uses the currency then your economic system collapses because you cant collect taxes off of traded goods.
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.
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.
Deflation is a symptom, rather than the core issue. The issue is people are reducing spending, and this reduced spending means businesses sell less, build fewer houses, dont invest to increase capacity etc. This leads to job losses and people end up spending even less, creating a vicious circle. This decline in economic activity shows up as low inflation or deflation in macro data. You can print money to counter it, but it doesnt address the root problem.
There is something called Impossible Trilemma in economics where government can only control two of three things: free capital movement, monetary policy, exchange rate.
The short of it is, if you have free capital movement and use monetary policy (cut interest rate, print money), then your exchange rate must float (will depreciate in this case). You may defend the depreciation until you run out of foreign reserve, but beyond some point your currency goes into freefall / hyper inflation. This is "bad inflation".
"good inflation" is demand-pull, not cost-push / money-supply driven. So yea, you can create inflation, but it wont be productive for the economy.
My understanding of Catholicism is that if you name your kid Saint [Something] they grow up to be pretty awesome. But then there's the, you know, martyrdom.
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).
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
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
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
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
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.
There is always going to be capitalism even in a socialist system.
We’ve unironically coup’d foreign governments(ie Iran) for threatening to do what Norway did with nationalizing their oil reserves.
It’s insane to me that we sell federal land to private companies to exploit, rape, and pillage for what would be pennies on the dollar for the amount of wealth they extract from it.
A deflationary crisis has nothing to do with wealth concentration and almost everything to do with liquidity. Japan is your best example for that.
Believe it or not, more socialism isn’t the cure for everything that can go sideways in an economy. A bank failure can cripple a welfare state like it did with Iceland, debt and lack of liquidity blew up the Eastern Block, Dutch Disease killed Venezuela and sadistic bailout conditions wrecked Greece.
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.”
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?
Generally because it becomes a mass psychological issue. The issue of deflation entrenching itself is that you dont spend that 500$. You stick in under your pillow because it'll buy you more next week. But then, next week, it'll buy you even more stuff next month and even more next year.
This assumes that the folks getting this money can afford to sit on it, and don't have immediate needs that they need to use it on. I can see why Elon would stop spending (though I don't think he's got a lot of cash laying around) but your average family putting groceries on credit cards can't afford to sit on a windfall because it'll be worth more later. They HAVE to spend it because they need food/gas/medicine now.
capitalism generally works on the premise that allocating resources well will earn you more than you spend. you profit from your investment.
but in order for that to happen, you need a growing money supply. and as the money supply grows, a static amount of money becomes worth less. that's inflation.
deflation is when that goes negative.
if spending resources doesn't get you more resources, you stop spending resources. if no one's spending resources, there's no work to do.
you might be able to kick start things by adding some resources to the pile for people to spend, but if the underlying issue doesn't get fixed, investors will continue to believe that spending money is a bad idea, and you end up in the same situation.
to give an analogy:
you have a car. you fill it with gas, and you spend that gas because spending that gas to go to work, which makes you more money than the gas cost. you profit from that expenditure.
if, one day, you lose your job, suddenly the math changes. it doesn't make sense to spend that gas anymore, because spending it doesn't give you a positive return.
eventually, you run out of gas, cause you've still gotta exist.
if someone gives you some free gas, does that fix the issue? does that get your 'economy' running again?
maybe, maybe not.
if there's a job waiting for you, and the gas can get you to it, then it might get you back into a positive cycle
but if there's no job, you're still stuck in a negative cycle, and you'll eventually just run out again.
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
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.
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
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.
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?
Economists for the past 30 years have been saying Japan's stagnant rate of inflation and often rates of deflation were horrible for Japan. What they failed to mention in that same time the average Japanese work year went from 2400 to 1900 hours with no decrease (or increase) in wages and no decrease in standard of living. Their stock market stayed more or less level over the same period, despite massive dividends being paid out.
Economists claimed that a 20% decrease in work hours with no change in relative wealth was a bad thing.
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u/StuartMcNight 8h ago
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?