Nobody is going to give hungry because food will be cheaper next year. Nobody is going to go homeless because rents will be cheaper next year. Even if doing nothing is a good strategy, humans aren't going to do nothing because our time on earth is finite and we hate saving.
Even in an inflationary environment the rational thing is not to consume, but to invest in investments where the expected return beets inflation.
From the perspective of the wealth (who account for most consumption) we have effectively been in a deflationary environment as their investment returns consistently beat inflation
You think people won't put off buying a new car/TV/refrigerator/etc for a year if they think it will be cheaper then? That kind of broad-based pull back in spending stalls economies and leads to layoffs.
No, deflation isn't always bad. But it often portends a larger economic problem and can be a cause or symptom that deepens a recession.
So why doesn't everyone simply invest every extra dollar since returns on a high yields savings account surpasses inflation. And according to government data electronics depreciate in price each year. So they should just be delaying that TV purchase indefinitely. And yet they don't. Theory diverge heavily from what we observe in actuality. It's why economists tend to make very poor traders
You don't think people put off buying homes when prices are falling? Or cars? Not to mention you're acting like every single person will operate the same way. That's absurd. But it literally only takes percentages of people putting off purchases for revenues to fall below expectations, causing reductions in staffing, and so on. You're treating people like perfectly rational robots.
No, quite the opposite. That's why we reduce interest rates. By reducing the monthly cost to purchase a home more people buy homes. The only reason people avoid buying homes in environments that proces are falling is that proces are falling due to a recession and so people simply cannot afford a home.
All else being equal, a decrease in housing prices increases volumes of sales. Right now lrices are extremely high and yet home sales are at an all time low. After the 2008 crash, home sales volumes quickly rebounded
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u/GenericGrad 8h ago
Deflation means not spending money creates wealth because money is worth more tomorrow.
Basically it means doing nothing is a good strategy. Doing nothing isn't the point of life or anything.