4 ms·
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 doe
by 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 agoSeems 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 agoDeflation 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 agoLowering 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.