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.
Lets say the government gives anyone in the US a stimulus of $500, stores can now ask more for their products knowing people have more to spend, but the prices stay at a higher point so the prices are inflated and the overall value of the currency deflates.
Did you hear your elderly talk about what you could buy for a dollar in their days, and how worthless a single dollar is today? Thats the same principle.
the person your responding to is proposing an idea to curb defaltion. you saying that would cause inflation, which is exactly what we would would to counteract deflation. whats the problem?
yeah. we want a little inflation for the economy to work properly. if we have too much we can curb it. thats easier to do than curbing deflation. whats the problem with that?
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u/AI_abuser 7h ago
Explain to me please why printing more money and giving it to people an masse (like stimulus checks during Covid) wouldn't help deflation.