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But, the economy doesn't stop when there is no inflation or deflation. Well, I suppose that depends on your meaning of the word economy.

by IncRnd 4y ago

foobarian 4y ago
Certainly I was wrong if you take those words literally. You got me. At the end of the day hopefully you got positive insight out of it. :-)
- IncRnd 4y ago
  I didn't "get you". What is your non-literal definition of economy?
- rolisz 4y ago
  No, I didn't get it either. People will still need food, electricity, gas, clothing. Buildings will need maintenance. Are you saying people will decide to not eat because deflation? Or not fix their broken windows?
  - mypalmike 4y ago
    In deflation, prices are going down. So I know it will cost me less next week to fix that broken window than doing it today. So I wait a week. But the logic doesn't change - when next week comes, I'll wait another week to get a better price. Apply this across the board, and people mostly just buy what they need. Producers of goods stop producing. R&D disappears. Etc.
    - JamesianP 4y ago
      Seems more like a good thing you've turned upside down. As long as some R&D has an average payoff that outperforms the rate of deflation, people will be motivated to take the risk. Deflation would disproportionately hurt risky investments, whereas inflation causes worse and worse choices to become increasingly attractive. I'd say we already got way more stupid investments than we needed in the last few decades of low inflation.
      - colinmhayes 4y ago
        Deflation forces real interest rates up which kills investment and immediately lowers gdp. It is unequivocally an awful thing that leads to massive unemployment.
        JamesianP 4y ago
        Lowering prices is a good thing for consumers and businesses who need to buy those things. There's nothing "unequivocal" about the argument here. Including the value of speculative investments (good investments will still pay better than real interest rates) or the position of economists as you surely are aware. And by the way those historic periods of massive unemployment had other causes with deflation as a side effect, not the cause. Other times in history had deflation during periods of growth.
  - imtringued 4y ago
    They will decide to not eat because the medium of exchange is scarce. Some rich people see their big bank accounts go up in value and keep it there but poor people will keep spending until they have no money. Because the medium of exchange is blocked they can't sell their labor to obtain a medium of exchange which they can then use to buy food. Deflation is like turning off the internet and no longer being able to pay with your credit card but it also affects paper money. The problem isn't a lack of productivity or a lack of capable workers. If the medium of exchange didn't act as a gatekeeper people would keep trading in some beautiful purely theoretical economic model via barter. How do we keep money flowing without inflation?

But, the economy doesn't stop when there is no inflation or deflation. Well, I suppose that depends on your meaning of the word economy.

by IncRnd 4y ago

But, the economy doesn't stop when there is no inflation or deflation. Well, I suppose that depends on your meaning of the word economy.

foobarian 4y ago

Certainly I was wrong if you take those words literally. You got me. At the end of the day hopefully you got positive insight out of it. :-)

IncRnd 4y ago
I didn't "get you". What is your non-literal definition of economy?
rolisz 4y ago
No, I didn't get it either. People will still need food, electricity, gas, clothing. Buildings will need maintenance. Are you saying people will decide to not eat because deflation? Or not fix their broken windows?
- mypalmike 4y ago
  In deflation, prices are going down. So I know it will cost me less next week to fix that broken window than doing it today. So I wait a week. But the logic doesn't change - when next week comes, I'll wait another week to get a better price. Apply this across the board, and people mostly just buy what they need. Producers of goods stop producing. R&D disappears. Etc.
  - JamesianP 4y ago
    Seems more like a good thing you've turned upside down. As long as some R&D has an average payoff that outperforms the rate of deflation, people will be motivated to take the risk. Deflation would disproportionately hurt risky investments, whereas inflation causes worse and worse choices to become increasingly attractive. I'd say we already got way more stupid investments than we needed in the last few decades of low inflation.
    - colinmhayes 4y ago
      Deflation forces real interest rates up which kills investment and immediately lowers gdp. It is unequivocally an awful thing that leads to massive unemployment.
      - JamesianP 4y ago
        Lowering prices is a good thing for consumers and businesses who need to buy those things. There's nothing "unequivocal" about the argument here. Including the value of speculative investments (good investments will still pay better than real interest rates) or the position of economists as you surely are aware. And by the way those historic periods of massive unemployment had other causes with deflation as a side effect, not the cause. Other times in history had deflation during periods of growth.
- imtringued 4y ago
  They will decide to not eat because the medium of exchange is scarce. Some rich people see their big bank accounts go up in value and keep it there but poor people will keep spending until they have no money. Because the medium of exchange is blocked they can't sell their labor to obtain a medium of exchange which they can then use to buy food. Deflation is like turning off the internet and no longer being able to pay with your credit card but it also affects paper money. The problem isn't a lack of productivity or a lack of capable workers. If the medium of exchange didn't act as a gatekeeper people would keep trading in some beautiful purely theoretical economic model via barter. How do we keep money flowing without inflation?