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?
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.
Yes, the record profits are because they keep cutting the cost of labor by cutting off employees.
Sorry if my original comment didn't make sense. I'll try to explain it differently. Companies right now are raising prices. Every time a company raises prices, no matter the industry, people will stop buying it or buy less of it. But they need to keep making more profits, that's the American growth system.
So, they are continuously cutting more from the workforce, whether that is firing employees, laying them off, or replacing them with cheaper workers while letting go of all the better-paid ones. That way, the profits are steadily going up on a chart, but they are still laying off more and more people while raising prices.
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.
Keep in mind this is just the tip of the iceberg. Corporations actively lobby for these policies that ensure they get protections and bailouts while workers and citizens foot the bill and they largely get passed as a result of things like Citizen United, and that these lobbies also own and operate the media, which makes them the Kingmakers of your elected officials.
In history classes, we typically call this form of Oligopoly “Feudalism”, not Democracy.
The rich have gotten so rich they have essentially taken over the most important parts of government, and they’re using that power to funnel your tax money AND spending money directly to themselves.
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/
Deflation itself is the issue. Think about the psychology behind it. Why buy an appliance for $500 today when next month it may be $450? When the public anticipates that prices will keep going down it creates a death spiral where consumers withhold their spending and business make less sales and can't lower prices to attract more sales.
Sales are the lifeblood of employment. If you can't make payroll you've got to let people go which only further reduces overall spending in the broader economy. This is what the Great Depression was.
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.
What socialists and unions call "corporate greed" is really just the essence of a business: making a profit.
If a company with 20,000 employees lays off 1,000 of them, it is terrible for those 1,000 people; but if they don't lay those 1,000 off and the company goes bankrupt, it is disastrous for all 20,000 employees—including the original 1,000.
Usually, socialists and unions get angry because the profit isn't distributed among the employees.
But when the company is running at a loss, or needs to fund investments, research, or fine payments, do the unions or socialists ask all the employees to chip in?
That profit needs to be set aside for those very things.
What frustrates me the most is that everyone actually knows this, yet they refuse to admit it.
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.
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.
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.
There is a significant incentive to save rather than spend which compounds deflationary pressure which compounds the incentive not to spend. And then everyone goes home.
This is what I can think of when it comes to deflation. If prices go down that means companies aren’t making as much, so in order to try to keep their profits one of the first things they’ll look to do are layoffs. And now you’ll have even more people who can’t afford these cheaper prices and once again these corporations aren’t making as much money as they want so they’ll do another round of layoffs and the cycle continues.
If you want to buy something and every week the price gets cheaper are you going to buy it now or next week? For some things you will buy now because the price is worth it, but others things you will wait. If enough people start waiting on enough things then the system starts breaking down. Lots of things are done with the expectations of future demand, stores need to order inventory, factories need to manufacture those products, those factories in turn order raw materials and components.... It's a system that is not designed to slow down or stop because once it does it is very difficult to start again. If a factory shuts down, you can't just start it back up again later.
You're asking if Deflation is a cause or symptom, but then you're completely ignoring that it can be a cause.
Deflation reflects that prices are going down. But deflation itself causes huge changes in market sentiment, mostly people stopping spending (hence less money circulating). This causes HUGE effects.
You can't look at one metric of an economy and say that's good or not. Question is, is it a smooth-running engine, or is it fucking chaos?
Sure, but your money, your employers money, and the money of your customers is also suffering deflation. Money slows down, no one gets the value they desire.
Deflation means there is less money around which translates to less demand which leads to increased unemployement and bankrupt business. High inflation is bad but it can usually be fixed by monetary means (increased interests, stopping printing money and so on), deflation is a negative loop which is very hard to break even if the government starts printing money and giving away money for free. Deflation is usually stopped by heavy state spending which translates to more debt.
Food and fuel will surely cost less but it's because no one can afford it and there is too much of it on the market
I agree - inflation and deflation are terms too broad to take action on unless you go sector by sector or have specific examples. I think the fears over deflation are too overblown. Probably intentionally emphasized by people who have assets that do well in an inflationary environment.
The prices going down is a result of less consumption from the population having less disposable income to spend which is a result of a death spiral of layoffs and freezes in hiring. Its not a good thing. Inflation can be controlled somewhat or at least slowed down. Deflation is a self perpetuating disaster with no brakes on collapse.
To you individually it might be. But guess what happens when prices keep going down. The companies make less money. And at some point that will mean they lower wages or mass fire people. And the only reason there would ever be for companies to lower prices that much, is that something else has gone SEVERLY wrong.
The problem with deflation is that people stop spending money (outside of essentials). Why buy a TV for 1200 when it will be 1000 next week.
Sounds great in theory if you're a consumer but when people stop non essential spending, recessions start. People get laid off, less money is spent, more people get laid off, and around and around.
There's a reason recession recovery packages almost always involve direct payments to the working and middle classes. Get people on the bottom rungs spending money again and it (theoretically) should result in hiring more workers, which gets more people spending money, etc.
Prices going down, as an abstract thing in a vacuum, does seem like a good thing.
However, deflation is both a cause and a symptom, which means it’s a self-reenforcing cycle. So economic activity slows, which causes deflation, which causes the economy to slow, which causes more deflation.
Or think about it in terms of supply and demand. Prices drop when supply increases or demand drops. In a deflationary cycle, you’ll see prices drop because demand drops, which causes the businesses selling the product to make less money and employ fewer people. That then causes people to be out of work and get paid less, meaning they can’t afford to buy things, and demand drops further.
In economic terms high deflation is bad because it rewards sitting on resources and punishes having to spend, specially if everything follows suit. We can see this a bit easier with a couple math problems. Let’s say we are in an extreme deflation period and for 5 days every thing will decrease by a dollar. There is a luxury good that costs 30 dollars and needed good that costs 10. Your paycheck is set as 10x the needed good cost each week. So before the deflation you could afford your week plus 1 luxury. Now before your pay is cut you actually get a nice week, it only cost 45 to get the needed this week, and you could actually get 2 luxury. But the next week is bad, you are now down to only 15 to spare after the necessary purchases, so you can only afford a luxury every 2 weeks compared to before. In comparison, the person that has a 1,000 assured pay is able to buy there stuff for much cheaper. The key bit is for 99% of people you are more likely in the former camp.
This is honestly why Bitcoin always perplexed me: you guys deliberately made a deflationary system? Won't that practically guarantee your system ends with a "Great Depression?"
Yep, I’m not going to go and buy a new phone / fridge / car even if I have a job if everyone I know is getting laid off. I’m going to save my savings just in case I’m next.
Good. Fuck 'em. I've always been poor. I'm maybe the 2nd level of blocks on the pyramid, not exactly the ground floor.
Mr. Capstone can find out what it's like down here in the dirt with the fucking rest of us. I don't have far to fall. If it takes being a little more poor for a while so that some rich asshole has to hurt, I'm fine with it.
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.
the stretch from WW1 to the Great Depression showcased the fact that capitalism is a system fundamentally incapable of sustaining itself through a crisis
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.
No "might" about it: it's already underway. Almost all countries with well-developed economies either have shrinking populations (anti-immigration policies) or populations increasing only through the addition of immigrants.
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.
It's a bit more nuanced even in that system - it's zero sum for resource extraction & our ecological impact, but not for knowledge/service/non-extractive forms of economic development & participation. But sure, as far as monetary supply goes you're right. I should've read your comment more carefully - although "money" is arguably not the only thing that constitutes wealth.
Anyway I'm not really a fan of debating any kind of economic theories as it's not like I subscribe to this idea, really, but it's clear that if we want to continue to exist on this planet then SOMETHING has to change. We cannot predicate our economic system on the idea of infinite growth while living on a planet with finite resources.
Truthfully, I think we're going to run this planet into the ground as people only begrudgingly and out of overwhelming necessity accept any encroachment on capitalism. I think the necessary adjustments to our current system will be forced upon us by the planet through large-scale disasters and destabilization, but by the point that people accept the need to change it'll be too late for the changes to actually fix the issues we've created.
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.
We're currently on the brink of population stagnation and decline globally as access to medical care and wage/resource inequality cause young people to make a decision.
All existence is an engine that creates its own fuel. Food isn't going to magically appear in front of you.
Even if we had a different economic system from the one we do, it would need to be self-sustaining, and by definition an engine that makes its own fuel.
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.
It's provably the best system humans have come up with. I'm not going to defend it but if you want to attack it you have to come up with something better.
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.
Ignore me if I’m missing the point: It’s not so much the drop in prices as the growing belief that the prices will continue to drop. People withhold money expecting a better deal and stop spending. The lack of consumer spending is the drop in fuel.
If your money will be worth more tomorrow than it is today you will only spend it today if absolutely necessary, is another way to phrase it that may help
Considering that the majority of people are living paycheck to paycheck, do we REALLY think enough people are going to hold on to their money that it would cause issues?
I still need to buy groceries. If they're cheaper next week, awesome, but I still have to feed the family. I still have to pay for my bills. It feels like this would only affect people with disposable income which may affect luxury items which are already overpriced because of companies trying to achieve infinite growth.
I'm shocked we haven't already entered into a recession with the skyrocketing prices tbh. What would essentially be a deflation to self-correcting the insanity of the past 6+ years would be welcome in my book.
Hell, I might actually have MORE disposable income in a deflation event.
The current economy is propped up by massive spending from the upper class, not the day to day spending that low income people are forced to keep spending regardless of how the economy is, because there's only so much you can cut when you're already paycheck to paycheck.
Not sure where you live but generally people notice prices going up a lot easier than average salaries going up.
For example in the US in jan 2025 the average salary had higher purchasing power (you could buy more of the same stuff) than before covid but people were up in arms about inflation and high cost of living.
Basically what I am trying to say is that tbe average person is very unlikely to accurately asses the current economic situation even for themselves they act almost purely based on what the media tells them and vibes.
Considering that the majority of people are living paycheck to paycheck, do we REALLY think enough people are going to hold on to their money that it would cause issues?
Yes,
Something like 40% of the stock market is held by retirement accounts. In a deflationary economy contributing to a retirement account doesn't make sense since you can just buy the stock later at a cheaper price. So you'd see tens of trillions of dollars be pulled out of American companies because holding cash is more appealing than investing in the economy. So you'll see businesses shut down.
And then the problem becomes, you still need to buy groceries, but there's no store to buy them at because you now gain wealth faster by holding onto pictures of dead presidents, then you do by selling produce.
Yes, because people will hold off to the last possible moment. And even with paycheck to paycheck living it will still punish any extraneous spending, like want to buy a bag of chips? it will be cheaper next week, so people hold off, for eternity and everything grind to a halt. People will buy the absolute minimum to survive. The great depression was a deflationary crisis.
Agreed, and even if people are paycheck to paycheck, that doesn’t necessarily mean hand to mouth, so realistically virtually everyone (excepting the homeless and some others) can delay even a few percentage points of spending for a week or more.
It's actually a little more than that. The primary problem with deflation isn't that consumers won't spend. It's that it's no longer profitable/feasible to supply to consumers, so there's literally nothing to spend money on.
People will buy food when they're hungry. People will buy shit when they're bored. The problem is on the supply side because it's no longer economically feasible to continue to produce, distribute, or sell the supply.
So not only is there not shit on the shelves/fuel in the pump, but there's no one to stock the shelves or deliver the fuel anymore either.
This is what all the bailouts in 2008 prevented - had the government not intervened and subsidized the banks, it would have been no longer profitable for the banks to exist/operate, thus all that capital would have just fizzled in a puff of smoke.
Basically, if the cost of gas doesn't come down fucking FAST we're going to see the same thing with groceries, retail, gasoline, and basically anything that gets to you by a truck or train.
Because it results in less people making products due to them no longer being profitable. This leads to less jobs. Which leads to less money for people to spend. Prices drop as no one can afford the old price. Less people make the product due to it not being profitable and so the loop continues.
That is the thought at least. The desire for profit drives creation which is the fuel for the economy.
Imagine a company doesn't just fail to make as much as they wanted but are actively losing money. First thing they'll do is lay people off. We've now got a bunch of people who will try to save what they have left, rather than spend it. So other companies follow our first one and we get even more people trying to not spend money and the cycle continues in a negative spiral until, at some point, no one even trusts money to have any value anymore. And that's when either we revert to a barter economy or wait for a different, strong economy to drop on by to give a hand.
The flow of money is how the economy works; money that doesn't change hands is pointless.
And the difference between low inflation and deflation is massive. It's not like low inflation leads to deflation. Deflation would mean economic collapse and the fact you don't understand means you should not be trying to explain anything.
That's a bad analogy because thats not how engines works. If anything, a runaway engine is what quickly breaks down and an engine that slows to a complete stop just needs more energy to restart than it would to continue running.
So maybe it is a good analogy, just not in the way you think 🤷♂️
Just sort of curious. Due to the wealthy hoarding and consolidating the worlds resources don’t we sort of have to go through a period of deflation for a “reset”? This is a problem 45 years in the making.
Correct. But fuel means energy and material grab (oil, carbon, minerals, foodstock ---> ecossystems) and while the current engine is spinning faster and faster, humany seems to reducing gears on its fullfilment
This is the best answer, unfortunately we’ve constructed the global economy to run on growth, as soon as there is no growth the entire system breaks apart
But that only really effects rich people. Poor people like me wont see a big change in their lives. So why should I care if the engine slows down or stops? I already have no home, I already starve, I already can't afford to see a doctor. Why should I care?
As the wage gap continues to grow between “us” and “them,” those sitting on the lower end, us, do not have the means to buy the things that “them” at the top are offering/controlling. Money stops getting spent, shit hits fan, they retreat to their bunkers as chaos ensues. What a fucking time to be alive!
😃🔨
Edited addition: inflation..deflation…petrodollar becomes petroyen. (Yen replaces dollar as global currency) and we are in a very awkward position. I think we’ll still be the world police because we’re positioned to be…but that’ll become even more expensive? China has no interest in taking that roll over…they’ll just be cool with being taken care of due to decades of quiet diligence. That’s about as far as I can see 😂 I’m sure it’s super accurate too 🤷♀️
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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?