Legit please do correct me if i'm wrong, but if price of product x goes from 5 to 10, my 1000 salary would mean i can now only buy 100 of x instead of 200, but if x went from 5 to 2, it means that, while my salary is still the same, my purchase power is now higher, because now i can buy 500 of x instead of 200
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.
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u/a1b2t 8h ago
And why does it increase?