So the global system is based on the concept of a perpetual motion machine? Why is that a laughable thing in physics but a totally reasonable premise in economics?
Probably helps that economics is mostly imaginary, I guess. I'm not saying that it isn't related to certain realities, but people are far from simple enough and predictable enough even in large groups to make it make much sense. That is both good and bad.
Arguably, they didn't exain that very well. All the mechanisms here have a reasonable explanation and it's not just made up.
Let me give it a try:
The problem with deflation is that it creates a strong incentive for businesses to infinitely accrue cash reserves on the expectation that large purchases like new machinery or maintenance and the likes are going to be cheaper in the near future. This means that consumption is declining, which means that productive businesses shut down, which means people working in those businesses are fired and in turn have less money to purchase goods and services from other businesses which means that even more factories/businesses shut down and now you're in an infinite downward spiral with no available monetary policy instrument to stop it. That's why minor inflation is seen as a necessity.
For the "infinite growth" argument, that builds on a bit of a misunderstanding: If I sell you a service and you sell it back to me, we have created GDP growth and we can do that indefinitely and keep creating GDP from essentially nothing... That part of the economy truly is just made up but it's just a way of comparing economies so it's effectively meaningless anyway.
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u/Various-Studio7644 5h ago
So the global system is based on the concept of a perpetual motion machine? Why is that a laughable thing in physics but a totally reasonable premise in economics?