1) If I can expect the price of a pair of shoes to drop if I wait, I’ll wait as long as I can before buying it. The shoe company is going to lose sales and fire workers and the government is going to miss out on taxes (both on the sale and on the now-unpaid salaries).
2) Most governments are deeply in debt. Imagine a fictional country has a debt of 1000 € and today you can buy a loaf of bread for 2 €. The “value” of the debt is 500 loaves of bread. Imagine due to deflation, the price of a loaf drops to 1 €. The value of the debt has gone up to 1000 loaves of bread.
The shoe company is going to lose sales and fire workers
A deflationary cycle will stop way upstream of the consumers.
Every company all the way up to the suppliers of the raw materials will stop turning an appreciating asset (cash) into goods that are losing value. They'll all cease production and eliminate the workers to hold as much cash as possible. Consumers are likely to get fired before they see anything get cheaper.
because you believe in that company to be even more valuable than money under the mattrass.
If you don't believe in that company, don't invest. Good companies will find investors anyway, and bad companies will no longer get life support on your fear of inflation.
How do you think companies found investors before 1913?
The shoes are still being bought. They just have better value for the customer than the company in this. The threat of firing workers only goes so far when they fire people anyways and will always need workers. Its not a company if they fire 100% of the workers.
If the debt was being paid back exclusively in loafs of bread this would be bad. But it just shows that in the long run it becomes easier to pay it back because more of the money is able to be put towards the debt
Who is going to buy a product today if it’s going to be cheaper tomorrow? Only the people who absolutely can’t do without, and there is not that many of them. Consumerism is the driving force of all modern economies, and it’s partly driven by the fact that waiting to buy something is just going to drive its price up because of inflation. That’s why a lot of people would rather buy on credit than save for a purchase.
I apologise for making a practical example in the hopes that it would make it easier to understand why deflation is bad for anyone who’s indebted.
The argument doesn't make much sense looking at individuals.
People go out and buy things in our current reality that they could get cheaper in the future, because they want the thing, they could wait another year to buy a game, but they want it now. And they buy more than what they need to just survive instead of putting all their money in safe slowly growing investments, which mirrors deflation offering money growing in the bank.
There has to be other arguments that hold more weight.
You are, as evidenced by the very phone or computer you’re using read this right now. This device has gotten cheaper over time and will continue to get cheaper over time, yet you bought one anyway.
Regarding debt spirals, I don’t have much insight there other than to say it is a crushing thing when currency deflates, so I mostly agree with you on this point.
This device has gotten cheaper over time and will continue to get cheaper over time
That’s why I always tried to make do with bottom-of-the-market hardware. Boy is it working wonders now that prices have quadrupled. See? If I had known AI would have fucked over prices, I would actually have bought those 64/128 GB of RAM when I built my setup, instead of squeezing by on 32.
Using ephemeral inflationary deviations is an odd way to drive your point. Prices in technology will continue to drop, AIs influence on tech prices won’t last forever. The point remains that your phone and computer today will have been cheaper to purchase if you waited until tomorrow. Maybe not literally tomorrow because of AI, but eventually. And if you still disagree, then fine, use TVs instead, or any other good which has shown itself to be deflationary over time but not impacted by the effects of AI.
You buy bottom of the market hardware, that’s fine. The point still stands even there, because even that hardware gets cheaper over time, yet you bought it anyway. You can argue that if it weren’t deflating you would be more inclined to buy more expensive hardware, and I don’t really have any thoughts on that. I think the quality/tier of what you buy should be dictated by your financial situation and discipline rather than these economic factors. Like inflation leads to massive borrowing by a lot of folks, but we say that tends to be okay because inflation lessens the impact of that borrowing over time. Whereas conversely, deflation worsens the impact because it makes your debts deeper as the currency deflates. So people say “see? Can’t even borrow money with deflation.” But I think that line of thinking is exactly wrong, being able to borrow is something that should only be used when absolutely necessary, not to finance every last thing like a door dash order. Financial discipline is what should be used to purchase things in a deflationary environment, really any environment, not debt.
What about house? You expect me to buy a house without borrowing? In a deflationary economy? Honestly yes. The fact mortgages are so common I think is evidence of how pervasive inflation has become. Nobody realistically tries to buy a house, we just mortgage it now, which is short selling our future selves. In a deflationary economy where your cash gains value over time, saving actually means something and actually meaningfully grows. I think buying houses outright would be far more common in such an economy. But true, borrowing would still have to be a thing as well. Maybe it would be more common to see people put large down payments on houses in such an economy. Idk I’m rambling now, this went on longer than expected, I just think we often look at the idea of a deflationary economy through the lens of our inflationary world and assert “well that can’t work, I can’t even borrow money.” The point is, you should almost never need to borrow money in a deflationary economy, provided you exercise the smallest amount of financial discipline properly.
So I support people being able to buy necessities with increasing value and ease more than I support consumerism and the constant push to make people buy things they don't need
I appreciate the perceived weight of the dangers of debt. I'm saying it is a perception and deflation would make it easier to get out of debt. The debt would feel heavier but paradoxically would be easier to get out of.
What you don't seem to understand is that selling stuff is how businesses generate revenue. This isn't about one person making a decision not to consume, but an entire population. At these macro scales, individual decisions quickly add up and cause businesses to let go of their workers at scale.
So the unemployment rate goes up. As this happens and more and more people get into economic hardship, consumption will slow down even more, leading to additional job losses. The Great Depression for example, a period of massive deflation, had an unemployment rate of 25%. And the people that did have jobs got severe wage cuts or were underemployed.
So stuff getting cheaper doesn't mean that you will be able to afford more. Quite the opposite actually.
People hear deflation and think they get more buying power and that the effects stop there. The armchair economists in here are scary because all it takes is another idiot like the current president to get in power and think they know better about, say, deflation, and wreck everyone’s shit because they don’t know better. Japan has had deflation problems and there are countless studies out there about all the problems it has caused. I promise you, no matter how good anyone thinks deflation is, it’s the opposite & worse
Plus Japan’s contraction was buffered by them exporting a lot of their production, which saved a lot of jobs, and by demographic collapse, which meant fewer people needed the jobs that were being shed when companies just didn’t replace employees who quit or retired. They also have significantly different attitudes about corporate responsibility that meant companies would keep employees who weren’t necessary on staff because it was the socially expected thing to do.
None of that is true of the US. Their president is rapidly making their exports toxic to the rest of the world, demographic collapse hasn’t really taken hold, and corporations fire people to make their quarterly numbers look better.
Making people buy things they don't need is the only way to stop deflation causing people to lose their jobs. You can't just anti-consumerism your way out of an economy that depends on consumers.
The debt isn't easier to get out of. If the value of goods goes down, the amount of money you make goes down. The value of your work is tied to the value of your production, so if the value of your production decreases, your value decreases, so you make less money.
People can't buy necessities if they don't have jobs. If the velocity of money slows down, businesses make less income and lay people off, and then they don't have money to buy the cheaper goods. So even less sells, and we're in a downward spiral.
In steps:
1) people are happy to wait to buy something if they think they don't need it right now. An example of this is when people say "I'll wait until the summer sale to buy this".
2) when you have a low level of deflation, you know things will be cheaper in the future
3) therefore you put off discretionary purchases
4) this hurts the company that makes the thing you would have purchased
5) because they have less demand for their products
6) because they have less demand, they make less
7) because they aren't making as many products, they don't need as many workers so they lay them off
8) uh oh, it turns out that you're not just a consumer, you're also a worker
9) now you are unemployed so you decrease your discretionary purchases even more
10) repeat
11) you are now in a deflationary spiral
I've got no clue what you're trying to say with your second point. Bread becoming cheaper isn't a problem. You can have some prices for some goods decreasing in your economy, it's actually very normal. It's especially not a problem if those products are things you need and consume, like food. You don't really defer your food purchases for a meaningful amount of time. If you have it overall, then you get an issue of deflationary spiral.
You are looking at debt the wrong way. Inflation is actually what eats away at debt. Deflation essentially would grow debt for everyone.
Let's say I owe 100k and I make 30k a year. If the economy deflates that means I'm going to end up getting paid less every year. Instead of a 2 or 3% pay bump everyone would expect to see a 2 or 3% pay drop every year.
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u/LvdT88 7h ago
1) If I can expect the price of a pair of shoes to drop if I wait, I’ll wait as long as I can before buying it. The shoe company is going to lose sales and fire workers and the government is going to miss out on taxes (both on the sale and on the now-unpaid salaries).
2) Most governments are deeply in debt. Imagine a fictional country has a debt of 1000 € and today you can buy a loaf of bread for 2 €. The “value” of the debt is 500 loaves of bread. Imagine due to deflation, the price of a loaf drops to 1 €. The value of the debt has gone up to 1000 loaves of bread.