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> it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I've always wondered if the worry about deflation is over

by u801e 10y ago

> it might hold some water if there was inflation, but there's not. deflation is still a bigger risk. I've always wondered if the worry about deflation is overblown. We still have a lot of things that people and businesses buy that have inelastic demand which will not change regardless of whether or not we are experiencing deflation. Also, when looking at expenses related to computer hardware, it has been going down relative to its capability. That hasn't led to a delay in purchases from either consumers or businesses from what I understand.

tradersam 10y ago
I think you're misunderstanding macro-economic deflation vs. technology advancing. Mass production and technological advancement reduce prices, sure, but whole economic deflation makes debt's real value increase, basically exponentially punishing people holding debt while favoring lenders, where as inflation obviously does the opposite. So, the majority of people with a mortgage, car or student debt get screwed during a deflationary event.
grigjd3 10y ago
Under deflation, there is decreasing motivation to work or produce. Why buy seeds to grow food when your money could just buy more later? A little inflation motivates people to produce, either by labor, investment or both.
- fauigerzigerk 10y ago
  >Under deflation, there is decreasing motivation to work or produce Is that only a bad thing? If we have overcapacities and therefore prices fall then producing less would be the rational thing to do. I do understand that this has negative consequences as well though.
adrianratnapala 10y ago
During the 19th century, with money more strongly tied to gold, deflation was pretty common. And it seemed like no big deal. Of course the evidence is hard to interpret. The 19th century was poorer than the 20th. Well Duh. The had 19th lots of recessions and depressions. But nothing so bad as the Great Depression. But also nothing so good as the Great Moderation. My guess is that moderate anything is fine. But that policy wonks get the heebie-jeebies about not having the monetary lever in "their" hands.

by u801e 10y ago

tradersam 10y ago

I think you're misunderstanding macro-economic deflation vs. technology advancing. Mass production and technological advancement reduce prices, sure, but whole economic deflation makes debt's real value increase, basically exponentially punishing people holding debt while favoring lenders, where as inflation obviously does the opposite. So, the majority of people with a mortgage, car or student debt get screwed during a deflationary event.

grigjd3 10y ago

Under deflation, there is decreasing motivation to work or produce. Why buy seeds to grow food when your money could just buy more later? A little inflation motivates people to produce, either by labor, investment or both.

fauigerzigerk 10y ago
>Under deflation, there is decreasing motivation to work or produce Is that only a bad thing? If we have overcapacities and therefore prices fall then producing less would be the rational thing to do. I do understand that this has negative consequences as well though.

adrianratnapala 10y ago

During the 19th century, with money more strongly tied to gold, deflation was pretty common. And it seemed like no big deal. Of course the evidence is hard to interpret. The 19th century was poorer than the 20th. Well Duh. The had 19th lots of recessions and depressions. But nothing so bad as the Great Depression. But also nothing so good as the Great Moderation. My guess is that moderate anything is fine. But that policy wonks get the heebie-jeebies about not having the monetary lever in "their" hands.