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.
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.
8
u/CopiVT 8h ago
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.