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?
They don't need to trickle down. Most of the printed money end up in the economy by gov spending. These can be anything from direct contracts or just paying gov salaries (they aren't limited to central gov for instance).
It works. You print money, increase the government spending by doing projects. This will make some contractors very rich, but also the workers get wages.
QE in itself doesn't necessarily cause long-term problems. It's about what the state of the economy is when doing so. If you're on a job market recession, oversupply of goods and services, QE is a strategy that could correct the economy with little tradeoff.
Every economic strategy causes tradeoffs somewhere, it's about when, how long, why, etc that matter
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.
Yes, but that needs to be done BEFORE we enter the deflation spiral. Once we're in it, poor people are going to be subject to the same economic pressures to save and stretch their money. Stimulus funds are definitely more effective going there than going to the rich, but the effect is still going to be blunted.
It's kind of like the gag in movies sometimes where a car will crash and then the airbags deploy after everything's already settled and they don't really serve their purpose anymore.
That’s kinda what we did during the pandemic. We drastically increased unemployment insurance, both the amount we gave people & the length of time they could get it, and when they were eligible. We had people who were suddenly making more by being unemployed than they’d ever made from working.
We also expanded the child income tax credit, which, despite its name, means we wrote checks to low income people with kids since it’s a “refundable” credit, meaning if you have no federal income taxes to “credit” (which low income
People usually don’t have) the govt just writes you a check.
We also increased SNAP a lot.
And there was the stimulus checks.
And we paid up to 18 months of unpaid rent & utility bills (and lots of people had 18 months of unpaid bills since we stopped all evictions & utility terminations so lots of people just stopped paying).
I worked on many of these programs in my city, county, and state. We were writing massive checks.
It had a few effects.
It led to the largest drop in poverty since the “Great Society,” especially child poverty.
All those trillions we spent doing that was a big part of inflation.
Cuz what makes giving low-income people money an effective boost to the economy is they spend it.
(And, unfortunately, some people spend that money on guns, drugs, prostitution, and other stuff you don’t necessarily want them to. This was disheartening for me to see first hand.)
But, most don’t do that. They’re paying rent, utility bills, food, clothes, etc. and so the money ends up w/ landlords, utility companies & whomever they’re buying stuff from. SNAP & child tax credit refunds likely go to food, clothes, etc.
And then we also saw lots of local & state govt’s increase minimum
wages (lots of cities and states are now in the $15-20 range, a few even higher).
when coupled with supply-side constraints that limit the ability to create more stuff, all that increase in money & spending puts upward pressure on prices.
For a brief moment, people feel richer… until the price increases come and absorb it.
And then we cut that money off. So we’re back to crappy incomes but new higher prices.
At that point, a lot of the ones then trickles up & lands in the pockets of the landlords & corporations.
And everyone gets pissed about the higher prices.
But if inflation is low and sales are below manufacturing capacity & you can make more stuff without supply side limits, then yeah, it can goose the economy.
But, we really suck at building housing, so a lot of it ends up getting absorbed by housing prices and higher rent since supply isn’t expanding much.
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.
The reason is kinda basic supply and demand: increasing the supply of something would lead to the value of 1 unit of that supply decreasing over time. So in this case, increasing the supply of a currency would eventually lead to the value of 1 unit of that currency (i.e. a dollar) would decrease, which would cause everything else to rise in price, which would just in the best case bring you back where you started, worst case make the situation even worse.
In this scenario, iirc the best course of action is circulating and building trust back into the dollar. Personally getting rid of Fiat currency and backing the dollar to something again would be a step in the right direction imo.
Yes, this is exactly how you'd fight a deflation crisis, print money and start investing it, first thrhough public spending and then through near zero intrest loans.
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).
Trina Schart Hyman's illustrations for that book are still vivid images in my brain and I haven't seen that book in likely 25 years. Really wild how some images just capture us when we forget so many other things from those years.
I might be sleep deprived and i don't follow the conversation but wasn't Satan depicted as a dragon few times? Slaying dragons should be one of more christian things to do.
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.
Communism recognizes that people are greedy, and distributes goods and wealth evenly to ensure that everyone gets some. It fails because it doesn't account for the fact that people are lazy, and won't do the work required to be a healthy society without motivation.
Capitalism recognizes that people are lazy and rewards people for working hard. It fails because it doesn't account for the fact that people are greedy and will hoard wealth, causing many to go without.
Both systems fail because they don't account for the fundamental flaw of Mankind: people are assholes, and no matter what system you use, someone will fuck it up just because they can. I don't have a system that accounts for this. When I think of one, I will start a revolution. Don't hold your breath however, because I am too lazy to start anything.
Capitalism can be pretty great when it's restrained by laws to help keep things balanced. Back in the 1950s the highest tax bracket in the U.S. was around 90%, IIRC, and they were more serious about breaking up monopolies and "trust busting". Unions were pretty strong. Minimum wages were reasonable. Things weren't perfect, but they were pretty good.
The problem is that powerful corporations and the wealthy seem to eventually find ways to get rid of or disable the restraints, to tilt things in their favor. And they just keep tilting things further and further in their favor. They find ways to make most unions go away. Allow monopolies to persist. To push more and more of the tax burden on the non-rich and non-corporations. Prevent the minimum wage from keeping up with inflation. They demonize government handouts to individual people, while corporations get huge subsidies and bailouts constantly.
In the U.S. capitalism is like a garden, where the weeds somehow convinced the owner that the garden would be better if the weeds were never pulled out or restrained in any way. The weeds (the rich and corporations) are now choking out the rest of us.
Other countries have figured it out. But in the U.S. a large percentage of the population has bought into the propaganda that restraining capitalism = socialism = communism = evil. It's crazy and maddening how many people believe it.
This fails to understand WHY America was able to do these things.
America in the 50’s and 60’s were exploiting the labor of foreign countries. Destablizing their governments and killing their leftists for daring to try and make life better for them.
America would fund right wing groups to kill the dissenting leftists who were trying to make their countries better. Capitalism has been a blight on the global south before it was called Capitalism.
America destabilized Guatemala for the capitalist interest of the United Fruit company in 1950 by overthrowing a left leaning (but still capitalist) Juan Jacob Arbenz) because he had the audacity to try and make his markets work for his people
America caused massive destabilization of the Middle East, because they were scared of left leaning politicians coming into power and ridding the influence of the West.
Cuba basically has been under the American stranglehold for decades because they overthrew the American backed military dictator. America has done everything in its power to weaken Cuba, and they blame the struggles on communism but it’s really capitalism
There’s literally dozens of these. Capitalism only works when there are people to be exploited.
The Nordic model is capitalist, it's just a social democracy.
There are ways in which Sweden is more market oriented than the US, and way's it's not. What isn't arguable is that sweden has much better social safety nets. Sweden had previously been much less market oriented but has liberalized it's economy since the 80s/90s.
On certain market freedom indexes Sweden outscores the US. Sweden has much higher %Gdp as government than the US, but the US also has a lot more trade barriers, and subsidies, and other bloat that makes it hard to do a 1:1.
Because Keynes is a hack who only gets used because it justifies the government spending money. You don't need a bailout if you just actually let poor business models fail
Nordic countries are capitalist countries. They implement programs and policy that are socialism in ways, but the economies by and large are capitalistic.
Have insurance? Pay for it every month? Something bad happen to you that you need insurance for? Sorry too bad you had your child in the car so actually we are just going to pretend like you didn’t have insurance through us for the last 6 months and retroactively revoke your insurance through us.
Don’t like that? Well guess what we have a completely different business that actually makes sure you are covered in that type of situation, and you get to pay them too, ontop of your insurance premium, so now you’re paying your car payment for a car that’s realistically worse in every metric than it was than even just 10 years ago, you pay your “full coverage” insurance, and now you get to pay your broker.
Now you need to make basically the median wage of the country just to afford having a car.
Both groups have this idea that socialism and capitalism are mutually exclusive. The Nordics are a good example of how you can benefit from both systems. Sweden for example is very pro business and has a lot of capitalistic ideals woven through their policy. Yet they still have a ton of social safety nets and common sense for the greater good policies that are ideals normally found in socialism doctrine. Hell in America our eras of greatest growth and progress go hand in hand with the spreading of wealth AND supporting business and capitalistic competition. Things like the GI bill allowed a ton of new businesses to start and flourish which in hand with the monopoly busting of the 1880's fostered an environment of competition in the market and opportunity for both consumers and producers.
I want the USA to move towards a more Nordic model like we were closer to in the 50s. I also think the Nordic model would have to be modified to work in a country has geographically big, diverse, and economically massive as the US. That doesn't mean we can't make it work.
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.
The trick is, who gets to do the redistribution and who gets to decide how much someone gets...that's the part everybody loves to conveniently gloss over
Fun fact: before Milton Friedman became the "Supply Side" guy, he advocated for a higher velocity of money changing hands instead of it being pooled by high-wealth individuals.
You snap your fingers. Everybody can afford Salmon and steak overnight. Salmon goes extinct within six months and the world’s forrests are gone because the entire industrial capacity of the world turned them into pasture. Everybody dies.
The law of unintended consequences is always smarter than us
Oh, God, no. At least not if you live in the United States. We have a problem where big money has defanged regulators. Regulatory capture is the closest thing to a platform that the right-wing in this country has and the "left-wing" democrats might as well have it as a covert platform as well.
We do not have a strong left-wing party in the United States, which is part of the problem.
Yeah good luck growing businesses and innovation with regulations on how much money you have. A buisness owner with an innovative idea is bound get a ton of money because people will pay for it.
Entire world mainly runs on capitalism. Even communist, socialist countries accept capitalism for their markets because that's the only way out. Money is a huge motivating factor. Be it innovation or something entirely opposite.
Doesnt happen like that. Most peoples wealth is in trust. Assets. And stocks
Which is why the lazy liberal argument of "redistribution of wealth" will never work.
They don't understand money on a fundamental level .. youll really have to fuck shit up to "redistribute wealth" in a way someone with that type of lazy argument will probably never actually beable to understand
So we will always be in a perpetual cycle of circle jerking while tthe 1% continue to enjoy run away interest to a point of a level of disgust.. on interest alone with a federal minimum wage that hasnt moved in 20. 30 years?
this is the dumbest fucking idea ive heard, doing that would create a way worse economic disaster than leaving the economy the fuck alone… the more people meddle with it the worse it gets
Basing that on your feelings is called heuristic thinking.
Since you don't have any logic to back up what you said, I'm going to assume you're just emotionally charged on this topic to the point that you can't actually engage with it in good faith.
Everyone says "redistribute wealth" with no follow up.
What is the plane here illegally steal money from rich folks then redistribute it like Robinhood?
Because if it's going to go through the tax system into the federal coffers, the middle and lower classes will never see a dime of that "redistribution".
So exactly is your solution to "redistribute wealth"?
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?
in a deflationary situation consumption would be low so companies wouldnt have revenue to increase wages.
also increasing wages increasing spending and thus inflation when we already have inflation, becuase there no use keeping your money safe since it'll jsut lose value
the problem with being in deflation is that its a pit thats hard to out of. even if you give people more money, they will hoard it because the money will increase in value over time but things they buy wont. consumption will be restricted to neccesities
the reason we need some inflation is so the money loses value faster than things so people buy things which moves money around faster so people have more mobility and flexibility and mobility in creating value. deflation stops the money cycle dead and starting up from cold again is hard
That would be one way, but the problem is that it can't be done centraly in reliable fashion. One way to do it would be goverment giving instant pay raise to all goverment employees (with printed money) and hope that it alone will uptick spending and make private sector follow suit.
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.
Yep the marginal propensity to spend will vary but to kill deflation, you need to kill that mindset and its a difficult thing to do. Japan struggled with it for.decades because outside of immediate needs people will hold off. Hell even with immediate needs, if you know (or think you k ow) gas will be cheaper on friday than it is today you probably.only fill up what you need to gwt to and from work then buy they rest later.
Take a look at COVID stimulus payments as an example. They didn't spike inflation until much further down the road because people didn't really have much to spend on during lockdown and with travel and other restrictions in place.
I'd argue that COVID was a unique situation that doesn't really tell us about wider economic trends. I'd also argue that someone waiting until Friday to get gas, instead of gassing up on Wednesday isn't really an economic crisis. If we had a country full of affluent folks who could sit on cash and not spend it because of a hypothetical gain based on deflation, we probably wouldn't be having a lot of the conversations we are having now.
COVID is just one example of this. Other nations have experienced sticky deflation and had a beverage tough time combating it. The issue isn't the single person, its the trend. If everyone is delaying every purchase as long as possible it its a real problem. Wealth inequality is also a problem but a different one.
Those who have immediate needs will spend the money and pass it on to those who can wait. They will be only intermediaries whose spending changes nothing.
Which, to me, is why a wealth tax makes sense. If you're sitting on a sum of money larger than you'd ever need in your lifetime, simply because it'll be worth more a bit later, perhaps it's time to create incentives not to sit on wealth.
I think people are confusing macro scale economics with household scale. People will still have to spend on necessities. The real problem becomes the macro scale things that happen when money stops moving. Borrowing money becomes riskier and more expensive over time. When you think about how money actually moves through our economy it really looks like a bunch of IOUs being passed around, but this lending and borrowing happens because sitting on the cash is not as wise as investing it in something that will be worth more than the cash itself. In a deflationary environment, real goods and services are going to be worth less over time. When runaway deflation hits we're talking about prices of goods falling 10's to 20's of percent, there is almost no investment that can beat the fact that your cash buying power is increasing 10-20% just by literally sitting on it. This will change your spending habits on everything that isn't a necessity. Which will feed back into business decisions which will feed back into wages and jobs and will feed back into your life and decisions.
It feels to me similar to the goldilocks zone of planet habitability. There is a goldilocks zone of monetary policy that keeps an economy moving forward. Any deviation outside of it and things can and will spiral out of control due to negative feedback loops just like if earth moved out of the goldilocks zone of the sun. The negative feedback loops would eventually render this planet inhospitable for life as we know it
If the folks investing money were investing in real growth then I don't think it would as big of an issue as it is. They're investing in AI and data centers, not manufacturing or agriculture. Teslas valuation vs Toyotas is a clear indication of how broken things are in our current economy.
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
Nah. Deflation is extremely easy to curb. Thats why deflation, when occured, is much worse, because the situation of everything else has to be soo bad to not be able to even curb deflation.
Also, deflation is very much a symptom rather than the disease. There's been no economic situation in history where causing consumer prices to stop falling has caused an economic recovery. There have been dozens of cases where economic growth and recovery has been enjoyed with deflation
Oh there are tools and policies that could be implemented to address deflationary pressure. They're just extremely heavy-handed, draconian, political landmines.
Negative yields from the central bank forcing lenders to start loaning money, massive QE and the fed stuffing its balance sheet to inject liquidity into the market, currency manipulation...
Some of these are the correct decision to some degree in a crisis (the Great Recession, for one) but they all present a lot of risk down the road. Sovereign debt would almost certainly explode, which would put you in the position of needing to grow your way out of it before you run into an inevitable debt crisis down the road....there's a strange sort of lossy feedback loop that does make this more feasible and less of an out and out gamble, since these policies will also inflate the value of securities, and real property substantially, though.
4.9k
u/StuartMcNight 9h 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?