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?
Hobbits disagree with you on that. Also banks pay interest on savings accounts. Arguably the richest already are on the do nothing train. Deflation would just allow for everyone to benefit from that
i dont thinkg you understand too much about this stuff
fantasy stories are a terrible source of economic policy
the amount of interest bank pay on savings is controlled by the feds to moderate inflation/deflation the reason banks are paying interest on savings now is becuase we were trying to curb high inflation. when we come to deflation banks will be told to stop paying interest on savings (or even charge to keep savings if it gets absolutely crazy) to get people to stop hoarding money
the rich behave in extremely immoral ways but this we are talking about economic activity. the problem is not that they are not performing economic activity, the problem is that they are doing it selfishly rather than for societies benefit. but they are making and selling things and hiring people.
deflation would mean business activity would slow down due to low investment. that means you'll have fewer places to buy the things you need. thats bad
No. Deflation means thing that costs 20 today will cost 19 tomorrow. Why buy something today, when you can buy it for 1 less tomorrow? Why buy tomorrow when you can buy the day after tomorrow. And so on and so forth. Under deflation, the entire consumer side of the market collapses, no one buys anything anymore. Producers cannot produce more because it will cause loss, and they aren't gaining capital. No buying/selling, liquidity drops, economy's dead. Recession.
sure. The seller sells you spaghtti for a dollar of profit today, breaks even tomorrow, and loses a dollar the next day. A week later, the seller closes shops because it is impossible to stay afloat. Recession.
Most things that are bought aren't bought because they will be worth more tomorrow. They are bought because they are wanted or needed. They will still be wanted and needed. I will gladly buy my board game knowing I could have bought it cheaper tomorrow. Because I want to play my board game. I don't want to wait an infinite amount of time not playing it just so it can be cheaper.
Also deflation is not an infinite exponential. It can never be. It would be impossible to buy an infinite number of things with 1 dollar. What you buy will always have value and cost. That can't be erased. Deflation just removes imagined cost. It forces it down to where it is only what it actually cost to make and what value it actually has
Truly more things will actually be bought because there will be more capabilities for people to buy things. Because they will be able to buy more things with the same money. And if you know anything about people you will know that they love buying things
You are an irrational actor then. Rational actors will buy things cheap. Which means, they will not buy today which can be bought tomorrow cheaper. Producers are forced to drive their costs lower and lower, and turn in and cut losses as fast as they can. Then, production will stop because it is nigh guaranteed to incur loss. No one buys, no one sells. Any market wants its liquidity to be high. Deflation essentially freezes everything.
People aren't rational actors. The term rational actors is completely made up by people who don't know anything. People are inherently irrational actors. We have countless evidence for this. There is zero evidence that the average person is really going to care enough to wait. Especially because the actual rate of deflation would be too small to care about. You're treating the concept of .1% deflation as 500% deflation compounded daily. The majority of things that we buy will still be bought. At worst it gives people a second hesitation on things that they never would benefit buying in the first place
I truly enjoy the many opinion in this thread of “I will just act differently than every other person has acted in this exact scenario for all of human history” response lol. This is real “Those who do not remember the past are condemned to repeat it”material.
Yes, people will buy some things regardless of price, but people also wait to buy things until they're on sale. Deflation is a sale that gets better every day. You might want to play the board game today, but if you wait until tomorrow, you get rewarded with the same game at a cheaper price. How important is the board game that you wouldn't wait to pay less for it?
Then there's the lower limit. The lower limit isn't the cost of production. Firstly, producers aren't going to break even. Even if we include the costs that exist outside of the actual production, going home without more money in the pocket is a bad thing, even if that money is worth more tomorrow. Instead, they'll lower production and production costs (which includes labor). Secondly, the stores where you buy the goods can't pay rent without profitting from the goods, and they certainly can't pay rent from no income. If you don't sell necessities, your income will drop. Eventually, selling below cost is more valuable than not selling at or above cost. But if you're not making above cost, you're not buying inventory. As a seller, you would have to cut your expenses, including workers.
Now we've cut labor in production and at the store. Fewer people are employed because prices have dropped, so fewer people are buying anything that isn't necessary. Prices continue to go down because demand goes down. Demand continues to go down because people are losing their jobs.
And then there's necessities. They're not immune. When people can't afford to buy anything because they don't have an income, they're getting the cheapest necessities when they can and using them less. Now your farmers aren't making money. In a sane world, farmers would replant as much of their production as they can. We don't live in a sane world. If a farmer doesn't make enough money, they can't buy more seed. Food production will tank as well.
Basically, the best case scenario in deflation is that nobody or almost nobody is willing to wait for a bigger discount, which slows down deflation and leads to inflation. In the real world, people hold off longer and deflation speeds up. Low or even negative interest rates might stop it as more money ends up in consumer pockets to drive consumption, but a prolonged state of deflation isn't sustainable.
Well, for people it's because they need them now and they don't care, maybe with stuff like homes they can wait some time (but even then they are paying for renting in the meantime, so it is still not worth it to wait). And business needs stuff and services to operate, they can't just stop working and wait.
And business needs stuff and services to operate, they can't just stop working and wait.
Exactly. But they only need to operate if they're making money. If no one is buying, you don't continue to produce your product. You close shop. Then you lose your job. And no one is hiring, because every business is failing.
If you have money saved, yeah, you benefit. However if you live from wages, you are fucked. For one, the products and the work loses value compared to the money, thus the wages drop literally, you need to work more for the same amount of money. Today your work is 1000€ worth, tomorrow only 950€. Also since saving money is better, since tomorrow it will be more valuable, less investments and consumption is done, ergo money is missing for the companies to pay. In fact It is also more reasonable to deinvest during deflation, stocks, houses, machines, factories, whatever, loses value whereas the money itself gains value.
The banks pay interest on money in a savings accounts because that money is being lended to someone else, who then pays interest repaying the loan. The money is absolutely not sitting there “doing nothing.” This is the foundation of capitalism: I provide you with capital to deploy it creating value, and you reward me for providing that capital by paying me back more than I lent. It incentivizes deploying capital to create value.
A deflationary spiral destroys this engine, because now even if I do nothing, I win. Deployment of capital for some investment doesn’t just have to compete with other possibly ways of deploying the capital, it has to compete with doing nothing. And as less capital is deployed and the engine slows further down, the harder and harder it becomes to see a return on deployment of capital over the return of doing nothing.
Put differently: the only way deflation happens at economic scale is exactly because people have stoped spending. I only lower my prices for good because there is no demand at a higher price. If there was demand, I wouldn’t need to lower my prices to convince people to spend their money.
I understand capitalism. I do not like capitalism. Deflation destroys capitalism. I'm fine with this. You have not explained why or how it would destroy economy. It just destroys the ability for the rich to dictate and control the world through capital
Banks are doing something. During severe deflation banks won't pay interest generally and will start charging you fees to have a savings account cause their cost of providing a service is now more than what they can make doing something with your money.
No if everyone expected the value of their money to go up then they simply put off making purchases, and when people put off making purchases jobs get cut, stores and factories shut down, debt becomes MORE expensive, and it turns into a death spiral for an economy.
The rich and very rich don't park most of their wealth in bank accounts and keep it liquid, the bulk of it is invested.
Wait until you realise what banks do with your money... that will be a shocker, because invested money needs to be productive, otherwise how can it give you interest?
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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?