Kind of but not really. The real problem with deflation is that it discourages spending and investment. When the money you have is going to appreciate in value more than the things you might purchase with it, it's a lot more appealing to just sit on it instead. This lack of demand then drives prices down further, perpetuating the cycle until businesses start failing and then you're stuck with an unemployment crisis, and now even if the deflation stabilizes, it's left a whole mess that returning to inflation will make worse before it gets better.
You can print a bunch more money, but unless that money is actually circulating, it doesn't really do anything. And if everyone's just holding onto their money watching the value go up, they'll certainly want the new dollars, but they won't want to spend them. And if they're not being spent, they might as well not exist for inflation/deflation purposes.
Yes, but that needs to be done BEFORE we enter the deflation spiral. Once we're in it, poor people are going to be subject to the same economic pressures to save and stretch their money. Stimulus funds are definitely more effective going there than going to the rich, but the effect is still going to be blunted.
It's kind of like the gag in movies sometimes where a car will crash and then the airbags deploy after everything's already settled and they don't really serve their purpose anymore.
That’s kinda what we did during the pandemic. We drastically increased unemployment insurance, both the amount we gave people & the length of time they could get it, and when they were eligible. We had people who were suddenly making more by being unemployed than they’d ever made from working.
We also expanded the child income tax credit, which, despite its name, means we wrote checks to low income people with kids since it’s a “refundable” credit, meaning if you have no federal income taxes to “credit” (which low income
People usually don’t have) the govt just writes you a check.
We also increased SNAP a lot.
And there was the stimulus checks.
And we paid up to 18 months of unpaid rent & utility bills (and lots of people had 18 months of unpaid bills since we stopped all evictions & utility terminations so lots of people just stopped paying).
I worked on many of these programs in my city, county, and state. We were writing massive checks.
It had a few effects.
It led to the largest drop in poverty since the “Great Society,” especially child poverty.
All those trillions we spent doing that was a big part of inflation.
Cuz what makes giving low-income people money an effective boost to the economy is they spend it.
(And, unfortunately, some people spend that money on guns, drugs, prostitution, and other stuff you don’t necessarily want them to. This was disheartening for me to see first hand.)
But, most don’t do that. They’re paying rent, utility bills, food, clothes, etc. and so the money ends up w/ landlords, utility companies & whomever they’re buying stuff from. SNAP & child tax credit refunds likely go to food, clothes, etc.
And then we also saw lots of local & state govt’s increase minimum
wages (lots of cities and states are now in the $15-20 range, a few even higher).
when coupled with supply-side constraints that limit the ability to create more stuff, all that increase in money & spending puts upward pressure on prices.
For a brief moment, people feel richer… until the price increases come and absorb it.
And then we cut that money off. So we’re back to crappy incomes but new higher prices.
At that point, a lot of the ones then trickles up & lands in the pockets of the landlords & corporations.
And everyone gets pissed about the higher prices.
But if inflation is low and sales are below manufacturing capacity & you can make more stuff without supply side limits, then yeah, it can goose the economy.
But, we really suck at building housing, so a lot of it ends up getting absorbed by housing prices and higher rent since supply isn’t expanding much.
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u/Radical--Rat 7h ago
Kind of but not really. The real problem with deflation is that it discourages spending and investment. When the money you have is going to appreciate in value more than the things you might purchase with it, it's a lot more appealing to just sit on it instead. This lack of demand then drives prices down further, perpetuating the cycle until businesses start failing and then you're stuck with an unemployment crisis, and now even if the deflation stabilizes, it's left a whole mess that returning to inflation will make worse before it gets better.
You can print a bunch more money, but unless that money is actually circulating, it doesn't really do anything. And if everyone's just holding onto their money watching the value go up, they'll certainly want the new dollars, but they won't want to spend them. And if they're not being spent, they might as well not exist for inflation/deflation purposes.