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Deflation doesn't cause people to behave irrationally. The problem is that rational reactions to deflation such as hoarding cash, avoiding debt, and cutting spe
by dahdum 7y ago
Deflation doesn't cause people to behave irrationally. The problem is that rational reactions to deflation such as hoarding cash, avoiding debt, and cutting spending become a drag on the economy.
- ced 7y agohoarding cash, avoiding debt, and cutting spending Most of the people around here immediately buy something as soon as "they can afford it" - with credit. I find it hard to believe that these same people would suddenly hoard cash. Wikipedia says The Great Depression was regarded by some as a deflationary spiral.[35] A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century. Another related idea is Irving Fisher's theory that excess debt can cause a continuing deflation. Whether deflationary spirals can actually occur is controversial, with their possibility being disputed by freshwater economists (including the Chicago school of economics) and Austrian School economists. It sounds more like a theoretical concern than an immutable law of nature to me.
- bmurphy1976 7y agoThat's kind of my point. Those are not rational reactions during a deflationary period but that's what people will do anyway.
- dahdum 7y agoThey are rational for individuals acting in their own self-interest, and that's what economic theory is based on.