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It's because the true, severe deflation is accompanied by mass unemployment and contraction of the economic output. 1930s is a great example, you know well wha
by H8crilA 7y ago
It's because the true, severe deflation is accompanied by mass unemployment and contraction of the economic output.
1930s is a great example, you know well what came next after the economies got almost killed and people got angry.
I, too, would personally prefer deflation - I could buy cheap assets.
- logicchains 7y ago>It's because the true, severe deflation is accompanied by mass unemployment and contraction of the economic output. That's not the case with deflation in general; there were deflationary episodes before the 1930s where this didn't happen (e.g. https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation). The difference in the 30s is that a wage floor was imposed, so wages couldn't fall to adjust to the increased purchasing power of the dollar, so there was massive unemployment. Labour economists nowadays refer to this as "sticky wages". Imagine if there was 90% deflation now. A dollar would buy ten times more, but a minimum wage worker would be ten times more expensive. If the minimum wage wasn't adjusted downwards to match the deflation, then suddenly nobody could afford to pay minimum wage, so a huge amount of people would be out of a job.
- H8crilA 7y agoTrue. You're right that the topic of deflation is handled rather "bluntly". Also, I can see some benefits of inflation - for example to slowly dilute govt debt after some government gets over-indebted. My point is that it cannot be judged by a simple always good / always bad attitude.