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Deflation makes people save instead of buying shit they don't need. This preserves resources and limits pollution. It also means they only invest in new venture

by nonbel 7y ago

Deflation makes people save instead of buying shit they don't need. This preserves resources and limits pollution. It also means they only invest in new ventures when they seem like a really good idea, so less time/resources are wasted on bad ideas.

AnthonyMouse 7y ago
You're both missing something. Currency deflation is bad because it causes people to hoard cash in a mattress because it will be worth more tomorrow than the returns on equally safe investments. Then you get underinvestment and economic collapse, which causes more deflation, which causes more currency hoarding. It spirals into a depression. But that's caused by the value of the currency increasing relative to everything else. "Deflation" in the price of products in a single industry is basically the source of all growth. It's what happens when you make something more efficient. And it doesn't cause anybody to have any reason to hoard cash in a mattress, because it's not the cash that's worth more -- it still buys the same amount of wheat or land -- it's only the computer chips that lose their value. Which just causes people to not hoard manufactured computer chips as an investment, which there is no apparent benefit in anybody doing anyway. (Maybe it would ensure that we have a stock of computer chips available to rely on in a chip shortage, so then instead we get a big price spike when severe weather strikes a major manufacturing region, but that's about it.) And the lower prices don't even necessarily hurt the industry, because they're a result of lower costs. So the companies are still moving product at a profit, but now at the lower price there is more demand and they move more product. Selling a billion of something for $1 each is more profitable than selling a thousand of them for $100,000 each with the same profit margin percentage. Apple today makes a whole lot more money than IBM did in 1970.

by nonbel 7y ago

AnthonyMouse 7y ago

You're both missing something. Currency deflation is bad because it causes people to hoard cash in a mattress because it will be worth more tomorrow than the returns on equally safe investments. Then you get underinvestment and economic collapse, which causes more deflation, which causes more currency hoarding. It spirals into a depression. But that's caused by the value of the currency increasing relative to everything else. "Deflation" in the price of products in a single industry is basically the source of all growth. It's what happens when you make something more efficient. And it doesn't cause anybody to have any reason to hoard cash in a mattress, because it's not the cash that's worth more -- it still buys the same amount of wheat or land -- it's only the computer chips that lose their value. Which just causes people to not hoard manufactured computer chips as an investment, which there is no apparent benefit in anybody doing anyway. (Maybe it would ensure that we have a stock of computer chips available to rely on in a chip shortage, so then instead we get a big price spike when severe weather strikes a major manufacturing region, but that's about it.) And the lower prices don't even necessarily hurt the industry, because they're a result of lower costs. So the companies are still moving product at a profit, but now at the lower price there is more demand and they move more product. Selling a billion of something for $1 each is more profitable than selling a thousand of them for $100,000 each with the same profit margin percentage. Apple today makes a whole lot more money than IBM did in 1970.