It's more about people holding out on buying things because they believe it will be cheaper later. Food is a bad example because people will always buy food, regardless of the cost. But why would you buy a car if it might be $2,000 cheaper in a few months? Then a few months pass and now it looks like that car might be even cheaper, will you spend now or keep holding out to see if it goes lower?
It's such a bad system when the logic follows the other path too. "I should buy a car now because it's only likely to get more expensive, while my income stagnates"
yes that's the entire point, to make money move(also known as an economy), instead of having money hoarders that just hold money for no goal and so does nothing for anyone.
Oh wait, that's what's happening right now as the flow of the economy goes into the glorified hoarders of the top 1% and the real economy is rotting from the inside out.
Tax the rich hard and make the money move again into the real economy.
Yeah, I don't disagree on most of what you're getting at. I just disagree that the inflationary pressure is the main, or should be the main driver of consumer spending (I should buy now cause it'll be more expensive later). Normal consumers are buying as they need.
Give 300 people $1, and they'll spend it in their local economy. Give 1 person $300, and they're saving. The velocity of money increases when it's returned to normal consumers.
I agree with the sentiment that aggressive inflation shouldn't be used as the sole tool of moving money around. Decades of purposeful mismanagement of the economy to favour the few as got us into this position.
taxing the higher brackets like we used to would spread out the money throughout the economy and we could go back to sensible regulations that stamp down on the excesses of the stock market, so the money can get invested into more diversified spread of the economy that would help build out the middle class again.
inflation is already a tax, so higher inflation means rich people get taxed, while average consumers with no savings basically don t, the real problem here is where the inlfation is localized, being converged to consumers good rather than technology development.
Because of this, Joe that spent 10% of its salary on food now spends 15%, while Elon instead of spending 1$ on his egg spends 2$ which doesn t matter to him.
You can see the problem is that the inflation is caused by consumer goods being scarce rather than having inflation caused by economic pressure. Or even better the economic pressure pushes the industries to invest more using more water electricity and land that was used to make food, washing machines or just space to build houses which weighs even more on the average joe as economic pressures and products being scarce sum their weight.
Inflation hits people at the bottom way harder than people at the top because the things they need to live become more expensive and they have to choose between rent and food.
Thats a whole different level to “my portfolio didn’t outperform inflation over 5 years”.
Inflation is a devaluation of currency, not a tax; there is a major difference. The rich do not have their money sitting as cash, being devalued by inflation. Quite the opposite, they usually have it in assets, which appreciate alongside inflation, and benefit from governmental spending/money printing. This is historically the case. The gains to assets are generally higher than inflation, and are used as non-taxable loan collateral, not taxable income.
Normal people are hurt by inflation due to real increasing prices and stagnating income. Savings are devalued: Any cash on hand can now purchase less. If you have 0 savings, and income increases alongside inflation, the net outcome is neutral. This is almost never the case. The devaluation of current and future purchasing power is the point.
The inflation we've seen since 2019 is not tied to normal inflationary pressures nor scarcity. It's tied to profit seeking behavior, and maximizing profits per transaction. Sure, total inventory and manufacturing capacity can drive up prices, but so can collusion and price fixing behavior (chip industries come to mind).
That's a given that inflation to input costs impact sales price and margin. These are real costs.
All I'm hearing is that the system succeeding requires buying power to decrease. Which just makes me want the system to fail cause why the fuck would I care when I'm already making nothing and can't afford shit. Let the whole thing collapse idgaf anymore.
I wish people would just say the thing out loud that matters - what is best for you is not necessarily what is best for the economy at large. Your financial success quite literally threatens others', almost by definition.
Take away the means of production and give it to the people who are actually doing the labor that creates the economy. The endless accumulation of wealth for the few, siphoned from the many with state-glorified approval, is what is ruining pretty much everything. Solidarity, not the illusion of choice, is what actually creates systems that address the entropy of the human condition.
never understood this "tax the rich" thing. Rich people can make their money disappear on paper = not rich on paper = cant tax them and/or wont pay too much tax.
Exactly what Elon does for example.
Yup, that's why many economists agree that having very low inflation (0.1-2% YOY) is better for the economy compared to no inflation. But that also only works so long as salaries increase alongside it, which in many parts of the world, they haven't.
Because at the end of the day money is for spending. Having some savings is good, but over saving is a trap for both the economy and an individual person. Imagine you live incredibly frugally your whole life, always saving. One day you die, and what did you work your whole life for? How much of life, or things you could have enjoyed, did you miss out on?
Actually it could theoretically be any number as long as it's generally accepted that that's the target- it's only 2% bc some dude in New Zealand thought that sounded good. The economy/stock market is all about managing expectations.
Well, the other advantage of inflation is that wages are sticky downwards. It's very unpopular and difficult to cut workers' wages, so if wages in a particular job are too high, inflation provides a natural release valve to gradually reduce the real wages over time. Sucks to get your real spending power reduced but it beats being laid off.
All that to say that some salaries not tracking inflation is a feature, not a bug. But you're right that if median wages fall behind inflation, that's bad news for everyone's standard of living.
You want that Porsche? Get it now rather than wait as it will be more expensive next year. Don’t feel like paying $1MM for the Porsche, that’s where free market comes in and says go get a Miata.
Then the cycle repeats until company XYZ is willed into existence because the Miata got too expensive, or wages have caught up.
Instead of a car, think of a house. If you buy a house now, you want the value of the house to increase or stay the same. You don't want the value of your house to lose 50% of its value after 10 years.
Not really. My example was just about inflationary driven spending, and how it's not really the driving factor of consumer behavior.
It's possible that the difference in rate of inflation and compensation leads to a decrease in purchasing power, without decreased economic activity (on paper). Maybe less people are spending, but those that are, are spending more (the niche driven spending we're currently seeing where prices are inflated and specific consumers are paying those prices, offsetting the lack of spending from others).
You mentioned “while my income stagnates.” That’s the decreased economic activity which is the crucial difference in inflation vs stagflation. Inflation isn’t necessarily a bad thing provided wages are rising at a comparable rate.
People do this exact thing with iPhones ("I can wait one more generation before upgrading") and Apple is doing just fine.
There is no real reason to fear deflation. It is feared by the owning class because it would enable the working class to build generational wealth, rather than slaving away their entire lives for nothing.
Is it going to apply to a culture that FUCKING LOVES SPENDING? Something by like 80% of Coachella apparently went into debt to go, meanwhile, Japan doesn’t, unanimously accept credit cards still.
But inflation doesn't lead to me buying a house now because it would be more expensive later. Inflation led to me not buying a house because it got to expensive to buy one with my wage, which didn't get a proportional rise. It also didn't lead to me buying more stuff in general because of fomo.
On the contrary, if deflation would lead to my money being worth more and I would be able to buy a house, I wouldn't wait to buy one.
There are massive cultural differences at play between Japan and the US though. There is a major austerity movement built into much of Japanese culture that the US just does not have.
I feel like economists underestimate how poorly people manage their money. Most folks don't wait for prices to come down, they make purchases whether they have the money or not.
I don't believe that theory holds up. Spending is more of a psychology thing rather than economy. People would definitely buy more with deflation, no sane person would think that not buying something is better because it would be cheaper later. People would buy more because things are cheaper and they need those things, simple as that. Inflation is good in theory but it make people spend less because things are getting expensive. People don't buy things or pend be cause they have to keep the depreciating money to be able to afford basic things while they increase in price. I never saw inflation being good at ney point. Theory only works in some specific perfectionist scenarios. After I see what deflation does in real life than I'll decide if it's bad or not.
"no sane person would think that not buying something is better because it would be cheaper later."
But you already see this all the time with people holding out for sales. If people have a reasonable expectation that something will be cheaper, the impulse is to wait for it to be cheaper. And nobody is saying "inflation is good", it's that a small amount of inflation is expected in a healthy economy.
But they’re not talking about some imaginary theory, they’re talking about something that has explicitly happened in real life. The original commenter in this thread even gave an example, which you could verify with [two seconds of googling](https://en.wikipedia.org/wiki/Lost_Decades)
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u/Terpcheeserosin 7h ago
Why does things costing less make people buy less?
If wages stay the same, shouldnt people just buy the dip?