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Deflation is almost invariably a sign of economic distress. This can easily be observed historically. By the way the term I think you mean is "quantity demande

Deflation is almost invariably a sign of economic distress. This can easily be observed historically. By the way the term I think you mean is "quantity demanded" with respect to price, "demand" is invariant to price. Under deflation average income decreases. It's not like everyone is suddenly richer. Your employer gets less money, and so has to pay you less, or lay off a portion of their workforce. The price of labor is a price like any other. Assuming a fixed money supply, hoarding currency will cause deflation. Hoarding currency takes money out of the money supply. Saving by making investments is different; the money is still participating in the economy. Deflation discourages investment in useful activity. If you can earn a 5% rate of return just for already having money, why bother with a investment could return 5% or less?

danenania 16y ago
America had steady deflation during a period of massive economic expansion in the late 1800s. Deflation is only a sign of distress historically when preceded by government-induced monetary expansion. A boom causes a bust. Wages are sticky so moderate deflation strongly benefits workers. Both wages and savings will gradually increase in purchasing power. Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world. That anyone has been convinced a massive counterfeiting scheme in their currency is doing them a favor is a monumental feat of propaganda.
- nerfhammer 16y ago
  The deflationary periods in the 1800s correlate exactly with economic shocks during that time, especially the panic of 1837 and the Long Depression. If you think deflation is associated with growth you are simply wrong.
  - danenania 16y ago
    Wikipedia (emphasis mine): "The Great Deflation or the Great Sag refers to the period from 1870 until 1890 in which world prices of goods, materials and labor decreased.This had a negative effect on established industrial economies such as Great Britain while simultaneously allowing incredible growth in the United States which was just beginning to industrialize. Deflation has historically been more associated with recession, than growth, but this is one of the few sustained periods of deflationary growth in the history of the United States." http://en.wikipedia.org/wiki/The_Great_Deflation http://en.wikipedia.org/wiki/The_Great_Deflation This clearly refutes your statement: "Deflation is almost invariably a sign of economic distress." Perhaps deflation isn't traditionally associated with growth, but it clearly can be and has been in history. Note 'one of the few'. Deflationary growth isn't that rare of a phenomenon in history, though its rarity will be inversely proportional to the prevalence of central banking, monetary expansion, and economic authoritarianism. The market's had an uphill battle. In general, deflations associated with recessions will also be associated with reckless monetary expansion. Including this form of deflation in statistics can be misleading. Its cause is entirely different from the cause of gradual, moderate deflation as the natural result of an expanding economy with limited currency.
    - nerfhammer 16y ago
      Your contention is that "one of the few" refutes "almost invariably" but is compatible with "not that rare"
      - danenania 16y ago
        "One of the few" in the US alone, which has a relatively short and central-bank dominated history.
      - erikpukinskis 16y ago
        I feel like you're being pedantic. The key point is that the causal relationship between the deflationary periods and the associated recessions is in doubt.
- cabalamat 16y ago
  > Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world. If that was true, then economies that use gold and silver as currency, and where there isn't a large supply of new money, there wouldn't be much income inequality. But there was plenty of income inequality in ancient Rome, and in most ancient despotisms. So I suspect your hypothesis is wrong.
  - danenania 16y ago
    Wikipedia: "The problem of debasement in the Roman economy appears to be pervasive, although the severity of the debasement often paralleled the strength or weakness of the Empire." http://en.wikipedia.org/wiki/Roman_currency http://en.wikipedia.org/wiki/Roman_currency Political authoritarianism, corruption, direct taxation, seizure, and military plunder are also effective ways for a ruling class to steal from the rest, so you can certainly have terrible inequality in societies with sound currency, but inflation is the most efficient and covert method, and has been the most popular way for governments and their corporate allies to gain at the expense of the world's poor and middle class in the last 100 years.
    - cabalamat 16y ago
      Good point regarding debasement in the Roman Empire; something I had forgotten.

danenania 16y ago

America had steady deflation during a period of massive economic expansion in the late 1800s. Deflation is only a sign of distress historically when preceded by government-induced monetary expansion. A boom causes a bust. Wages are sticky so moderate deflation strongly benefits workers. Both wages and savings will gradually increase in purchasing power. Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world. That anyone has been convinced a massive counterfeiting scheme in their currency is doing them a favor is a monumental feat of propaganda.

nerfhammer 16y ago
The deflationary periods in the 1800s correlate exactly with economic shocks during that time, especially the panic of 1837 and the Long Depression. If you think deflation is associated with growth you are simply wrong.
- danenania 16y ago
  Wikipedia (emphasis mine): "The Great Deflation or the Great Sag refers to the period from 1870 until 1890 in which world prices of goods, materials and labor decreased.This had a negative effect on established industrial economies such as Great Britain while simultaneously allowing incredible growth in the United States which was just beginning to industrialize. Deflation has historically been more associated with recession, than growth, but this is one of the few sustained periods of deflationary growth in the history of the United States." http://en.wikipedia.org/wiki/The_Great_Deflation http://en.wikipedia.org/wiki/The_Great_Deflation This clearly refutes your statement: "Deflation is almost invariably a sign of economic distress." Perhaps deflation isn't traditionally associated with growth, but it clearly can be and has been in history. Note 'one of the few'. Deflationary growth isn't that rare of a phenomenon in history, though its rarity will be inversely proportional to the prevalence of central banking, monetary expansion, and economic authoritarianism. The market's had an uphill battle. In general, deflations associated with recessions will also be associated with reckless monetary expansion. Including this form of deflation in statistics can be misleading. Its cause is entirely different from the cause of gradual, moderate deflation as the natural result of an expanding economy with limited currency.
  - nerfhammer 16y ago
    Your contention is that "one of the few" refutes "almost invariably" but is compatible with "not that rare"
    - danenania 16y ago
      "One of the few" in the US alone, which has a relatively short and central-bank dominated history.
    - erikpukinskis 16y ago
      I feel like you're being pedantic. The key point is that the causal relationship between the deflationary periods and the associated recessions is in doubt.
cabalamat 16y ago
> Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world. If that was true, then economies that use gold and silver as currency, and where there isn't a large supply of new money, there wouldn't be much income inequality. But there was plenty of income inequality in ancient Rome, and in most ancient despotisms. So I suspect your hypothesis is wrong.
- danenania 16y ago
  Wikipedia: "The problem of debasement in the Roman economy appears to be pervasive, although the severity of the debasement often paralleled the strength or weakness of the Empire." http://en.wikipedia.org/wiki/Roman_currency http://en.wikipedia.org/wiki/Roman_currency Political authoritarianism, corruption, direct taxation, seizure, and military plunder are also effective ways for a ruling class to steal from the rest, so you can certainly have terrible inequality in societies with sound currency, but inflation is the most efficient and covert method, and has been the most popular way for governments and their corporate allies to gain at the expense of the world's poor and middle class in the last 100 years.
  - cabalamat 16y ago
    Good point regarding debasement in the Roman Empire; something I had forgotten.