It all makes sense to me , except why are people so sure its going to be cheaper next week. How would people instantly know it isn't a temporary situation. Im actually trying to learn something, not argue.
Under the thesis of modern liberal capitalism, inflation is supposed to be targeted at 2% to encourage investment while preventing harm to the population.
Deflation is the worst possible case scenario. Cash becoming worth more is good for people who have cash, but the vast majority do not. The increase in value of cash also means an increase to all debts. Based on the structure of most nation’s spending, it would be mean the collapse of most governments.
Inflation encourages people to borrow money, as skills/education/hiring people/buying stock are things that increase in value. With inflation, debt becomes cheaper over time as well.
If just holding money becomes more profitable, there is no spending, which means no employment or investment.
Those that are wealthy also move money from companies/employing people to buy up hard resources instead.
The true evil is the economics stall, when people does not spend their money, and does not fuel the economy.
Maybe, the problem is ...money? That's a resource with no intrinsic value.
So, let's use MWh as a currency? Surely, power also can get cheaper and cheaper.
This will trigger immediate response: conversion these MWh into cheaper fresh water, more aliminium and rare earths.
No stall, a production increase instead!
Assume even the true deflation in energy production, leading to "free" MWhs.
Power plants are shutting down their production, causing shortage in power supply, rebalancing the MWh prices.
In the details, Devil is not in the Deflation, the Stall in.
Why would an average person assume it would go on indefinitely? Aren't there more people who are priced out of buying commodities than people who can afford them currently. Why wouldnt the next step down in wealth pick up the slack of the people who are currently able to afford them (the savers during deflation). I know im wrong, I just want somebody to explain why I'm wrong.
Deflation is a death spiral. Once it starts, it's incredibly hard to stop. The same way the average person knows that inflation is happening, they know that deflation is happening.
But I think you aren't thinking big enough. In a deflation, people are still buying eggs and bread, sure. But if you're thinking about buying a $1000 TV to replace your old TV, and the price might drop to 900... Why not wait? You don't need the new TV today. And people moving houses will delay because the price might drop. Business will delay their orders. It's uncertainty sure but that contributes. And then because nobody is spending, the deflation continues. One business starts firing people because of the early signs of deflation. Those fired people can't afford things, so prices drop. So more companies fire more people. They stop making products. Prices drop again. And it keeps going.
A bit of deflation hits and people say “look at that, shit is getting cheaper, I should wait to buy that thing I don’t really need.”
Those delays (waiting for it to be cheaper) means the producers of those things have a glut of inventory.
That means they curtail production.
That means people don’t work.
Now less people have money to spend, so the costs of things need to be lower or nobody could afford it.
Of course if you have a job/income/wealth you see that and say - why buy today if it’ll be cheaper tomorrow?
If you save money during deflation, your money is worth more tomorrow and things are cheaper. You don’t even need to earn interest or any return. You can put a stack of greenbacks under your mattress and you have more wealth tomorrow.
If you save money during inflation, your money is worth less tomorrow and things are more expensive. You need to earn interest or get some return on your otherwise idle capital to not lose money. So you invest or buy shit.
"A bit of deflation hits and people say “look at that, shit is getting cheaper, I should wait to buy that thing I don’t really need.”" No, not necessarily. People have time preference, they're not necessarily going wait for an amount of time they need to in order for the price of a product to reach its maximum cheapness.
"Those delays (waiting for it to be cheaper) means the producers of those things have a glut of inventory." This assumes that everyone in the economy on mass, whilst in a state of deflation, is just biding there time for products to reach there maximum cheapness, which is an absurd assumption. Time preference prevents this.
Yes if everyone stopped buying things on mass then producers would stop producing because no ones is buying, but this scenario however is completely unrealistic and fantastical. There is no such thing as an economy in which no consumes anything ever.
"Of course if you have a job/income/wealth you see that and say - why buy today if it’ll be cheaper tomorrow?" Again with this faulty assumption. Real human beings do not infinitely delay consumption on the basis that they know a product will become continuously cheaper overtime.
"If you save money during deflation, your money is worth more tomorrow and things are cheaper. You don’t even need to earn interest or any return. You can put a stack of greenbacks under your mattress and you have more wealth tomorrow." Yes, this is correct and is why deflation is good as it incentivizes people to save and accumulate wealth, it rewards good behavior.
"If you save money during inflation, your money is worth less tomorrow and things are more expensive. You need to earn interest or get some return on your otherwise idle capital to not lose money. So you invest or buy shit." Also correct and is why inflation is bad, because it destroys your savings overtime and thus disincentivizes saving and wealth accumulation.
It isn’t no one consumes anything. It’s less people consume many things. You’re still going to buy shit you need. You aren’t going to buy shit you don’t (unless you’re a fool).
Debt also becomes more expensive. So if you have a fixed rate mortgage, the real cost of servicing the debt goes up, not down. At the same time, income/pay go down. That’s not good.
Inflation isn’t great for saving at an individual level, but excess saving doesn’t lead to a thriving economy in the broader sense either, much is why economists want some inflation.
Inflation keeps you from stashing a pile of greenbacks under your mattress.
It’s very similar to the arguments for land value tax; the current property tax system means that it can be economically beneficial to hoard land and not put it to use. That’s good for the landowner, but not so good for society at large.
But if people are saving money, the banks will have more cheap credit, and opening businesses, investing, or building becomes even cheaper, no? Therefore, people will have more jobs and build more.
I suppose it's the venture capitalist waiting to buy a company that stops a new team from getting a job to do the M&A work, which affects multiple families. You apply this across the economy and you get bad economic results.
Methinks placing this kind of power in the hands of rich fucks isn't the best idea.
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u/Various_Education622 8h ago
Asssuming you have a job, yes.
Deflation also means that you are incentivized to not spend money.
If you know something’s going on sale tomorrow, you wait until tomorrow to buy.
If you know deflation is going to make things cheaper tomorrow, you wait until tomorrow to buy.
The whole house of cards is built on people continuing to consume at higher and higher cost.