Deflation means that every single day your money is worth more, so for example
(Effectively)
Day 1: Eggs cost $12
Day 3: Eggs cost $10
Day 5: Eggs cost $8
So on and so forth, but for everything.
What happens is people start only buying what’s necessary immediately, because in a few days things will be even cheaper. It’s a constant spiral that’s really difficult to stop, because you either have to take a nuclear option and implement price floors, or figure out how to incentivize people to actually spend their money.
Computers and smartphones would drop their prices (per computational power) at a ridiculously high rate and it lasted for decades. I don't think it reduced the demand for them, quite the contrary: people would constantly abandon their electronics in order to buy better and newer models, just because they'd become more affordable every year.
Computers dropped prices not because of deflation, they cost less because parts became optimised and production became cheaper, but eveyrhting else was increasing in price due to inflation.
I'm wondering if consumer spending is a bad way to look at this (even if it's true as a whole). But it makes more sense if you look at what the wealthy will do with investments - why invest in something today if you think it's going to be valued at less tomorrow?
Not only would you be literally losing money as the value of your investment drops, but you'd be able to buy more for the same price if you wait it out. So investments dry up and companies start running out of money and new companies can't start, etc. And the dragons sit on their piles of gold while the rest of us starve.
This isn't a hypothetical, we've had real world examples of deflationary spirals. It happened in the Great Depression from 1930-1933, again in 2009. You can go back and look at any year where inflation went negative and see "things were pretty horrible that year."
More than that, if you look at the years where inflation is causing significant problems, it's usually 8%+. If you look at the years where deflation is a problem, it might only be -1-2%.
110
u/Terpcheeserosin 7h ago
Why does things costing less make people buy less?
If wages stay the same, shouldnt people just buy the dip?