Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?
Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down
Prices going down due to technology or whatever is good (eg TVs are cheaper than they used to be) but prices going down because people are choosing not to engage in the economy by not buying products or paying for services due to the fact that they will be cheaper in the future is bad.
Prices going down because supply catches up to demand is not neccessarily the same as deflation, as no sane producer or merchant would overproduce goods beyond demand in a way that would crash the entire market. Delfation that applies simultaneously to all prices would be caused bys something like massive reduction in monetary supply or unfathomable increase in productivity. Like if somebody would invent a star trek type replicator that can instantly create anything, even other replicators.
Lower the prices, and we need to have worker protections where they can't fire people just to increase quarterly profit margins to increase their stocks.
In a deflationary spiral where things keep getting cheaper and cheaper, what's the scenario where corporations just have infinite money to keep paying people at their current rate, even though the price of their products is collapsing?
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u/StuartMcNight 9h ago
Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?