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> consistent falling prices would be deflation, which tends to be economically disastrous as it rewards doing nothing I hear this all the time, and I see littl

> consistent falling prices would be deflation, which tends to be economically disastrous as it rewards doing nothing I hear this all the time, and I see little evidence that it's as strong an effect as everyone says. Cars, computers, and phones are all deflationary (at last in normal times). And people seem to buy them just fine.

its_ethan 4y ago
I think you might be confusing depreciation with deflation? A $25,000 car becomes a $20,000 car the moment you drive it off the lot due to depreciation. But the purchasing power of $25,000 cash becomes $26,500 after a year of 5% deflation, which means you _gained_ purchasing power by doing nothing (aka not spending money) as the result of deflation.
- zeckalpha 4y ago
  But if everyone sits on their cash, things slow to a halt.
- nordsieck 4y ago
  I get that cars, phones and computers are verticals, whereas deflation is a general decrease in price levels. But no, I don't mean depreciation. A 2019 vehicle that sits on a dealer lot slowly loses value over time. That has nothing to do with depreciation and everything to do with newer, better vehicles coming out over time. The same thing applies to computers and phones.
throw0101b 4y ago
And how many people have mortgages or other sources of debt? > Deflation is terrible for debtors. Prices and wages fall, but the value of your debt does not. So you’re forced to cut spending. This applies to consumers and to governments, and it is one of the biggest issues in Europe right now. As Yale University economist Irving Fisher wrote decades ago, debtors are likely to cut spending more than creditors increase it, and this can turn into a really bad downward spiral. (The experience of Japan, though, proves that an economy can have a prolonged period of moderate deflation without falling into that downward spiral.) * https://www.brookings.edu/opinions/5-reasons-to-worry-about-deflation/ https://www.brookings.edu/opinions/5-reasons-to-worry-about-... The Great Depression is an extreme example of high deflation: > Interest rates dropped to low levels by mid-1930, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment remained low.[13] By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.[14] * https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Depression * https://en.wikipedia.org/wiki/Great_Depression#Debt_deflation https://en.wikipedia.org/wiki/Great_Depression#Debt_deflatio... There are some arguments for good versus bad deflation: * https://www.nber.org/digest/apr04/good-versus-bad-deflation-lessons-gold-standard-era https://www.nber.org/digest/apr04/good-versus-bad-deflation-...
- nordsieck 4y ago
  1. I didn't say that there are no ill effects from deflation, just that they're overblown. There are also bad effects from inflation. 2. Most/all of the benefit of inflation to consumers is captured by lenders in the form of higher interest rates - there's a reason why so many rates are quoted as "prime + x". 3. Addressing your japan/great depression examples: I get that the transition from an inflationary economy to a deflationary one can be horrendous for consumers. Sure. But that doesn't say anything about how consumers would fare under a steady state deflationary economy.
bloppe 4y ago
Here, the "doing nothing" is referring to investments, not consumption. People consume cars, computers, and phones; the primary intent is to use the product. You might sell it used at some point, but that's not the primary intent, and you're almost certainly going to take a loss on resale. People invest in companies, governments, and individuals; the primary intent is to provide a loan that will be repaid with interest. A physical object could be considered an investment, but only if that object is rare or somehow naturally limited (e.g. real estate). So with inflation, you're rewarded for making investments, because otherwise your money will lose value sitting in fat stacks under your mattress. With deflation, you're rewarded for keeping those stacks hidden away, because it's a risk-free way for it to gain value.
- fogzen 4y ago
  The profit incentive still functions to drive investment under deflation, because you can make more money from investment than letting money sit there. US economy experienced massive growth through periods of deflation 1815 and 1860, and 1865 to 1900, as a result of industrialization and increased international trade. I think people greatly overestimate the impact of monetary policy. Consumer demand and technological improvement drive growth more than anything. Climate change and rising oil prices drive investment in renewables for example. Consumer demand for computing drove technological improvements, which drove investment and falling prices. In my view, this would happen regardless of monetary policy.
candiodari 4y ago
> I hear this all the time, and I see little evidence that it's as strong an effect as everyone says. You forget that in a deflationary economy prices would go down. Most of Wall Street, of course, is not their own money. It's borrowed money. Borrowed from pensioners, from central banks, from every bank in existence. Deflation would not only make it in the banks interest never to loan a cent again, it would suck something like 95% of the money out of the stock market (so no, it definitely wouldn't be in your interest to still own profitable firms). Wall Street is mostly smoke and mirrors, to convince people to work to pay pensioners and banks, and siphon off a healthy percentage for themselves. It just wouldn't work in a deflationary economy and it's the source of most of the money in the US economy. Without it we'd have to do something crazy like have the government run ~50 moonlanding-sized projects at the same time to make up for it.

its_ethan 4y ago

I think you might be confusing depreciation with deflation? A $25,000 car becomes a $20,000 car the moment you drive it off the lot due to depreciation. But the purchasing power of $25,000 cash becomes $26,500 after a year of 5% deflation, which means you _gained_ purchasing power by doing nothing (aka not spending money) as the result of deflation.

zeckalpha 4y ago
But if everyone sits on their cash, things slow to a halt.
nordsieck 4y ago
I get that cars, phones and computers are verticals, whereas deflation is a general decrease in price levels. But no, I don't mean depreciation. A 2019 vehicle that sits on a dealer lot slowly loses value over time. That has nothing to do with depreciation and everything to do with newer, better vehicles coming out over time. The same thing applies to computers and phones.

throw0101b 4y ago

And how many people have mortgages or other sources of debt? > Deflation is terrible for debtors. Prices and wages fall, but the value of your debt does not. So you’re forced to cut spending. This applies to consumers and to governments, and it is one of the biggest issues in Europe right now. As Yale University economist Irving Fisher wrote decades ago, debtors are likely to cut spending more than creditors increase it, and this can turn into a really bad downward spiral. (The experience of Japan, though, proves that an economy can have a prolonged period of moderate deflation without falling into that downward spiral.) * https://www.brookings.edu/opinions/5-reasons-to-worry-about-deflation/ https://www.brookings.edu/opinions/5-reasons-to-worry-about-... The Great Depression is an extreme example of high deflation: > Interest rates dropped to low levels by mid-1930, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment remained low.[13] By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.[14] * https://en.wikipedia.org/wiki/Great_Depression https://en.wikipedia.org/wiki/Great_Depression * https://en.wikipedia.org/wiki/Great_Depression#Debt_deflation https://en.wikipedia.org/wiki/Great_Depression#Debt_deflatio... There are some arguments for good versus bad deflation: * https://www.nber.org/digest/apr04/good-versus-bad-deflation-lessons-gold-standard-era https://www.nber.org/digest/apr04/good-versus-bad-deflation-...

nordsieck 4y ago
1. I didn't say that there are no ill effects from deflation, just that they're overblown. There are also bad effects from inflation. 2. Most/all of the benefit of inflation to consumers is captured by lenders in the form of higher interest rates - there's a reason why so many rates are quoted as "prime + x". 3. Addressing your japan/great depression examples: I get that the transition from an inflationary economy to a deflationary one can be horrendous for consumers. Sure. But that doesn't say anything about how consumers would fare under a steady state deflationary economy.

bloppe 4y ago

Here, the "doing nothing" is referring to investments, not consumption. People consume cars, computers, and phones; the primary intent is to use the product. You might sell it used at some point, but that's not the primary intent, and you're almost certainly going to take a loss on resale. People invest in companies, governments, and individuals; the primary intent is to provide a loan that will be repaid with interest. A physical object could be considered an investment, but only if that object is rare or somehow naturally limited (e.g. real estate). So with inflation, you're rewarded for making investments, because otherwise your money will lose value sitting in fat stacks under your mattress. With deflation, you're rewarded for keeping those stacks hidden away, because it's a risk-free way for it to gain value.

fogzen 4y ago
The profit incentive still functions to drive investment under deflation, because you can make more money from investment than letting money sit there. US economy experienced massive growth through periods of deflation 1815 and 1860, and 1865 to 1900, as a result of industrialization and increased international trade. I think people greatly overestimate the impact of monetary policy. Consumer demand and technological improvement drive growth more than anything. Climate change and rising oil prices drive investment in renewables for example. Consumer demand for computing drove technological improvements, which drove investment and falling prices. In my view, this would happen regardless of monetary policy.

candiodari 4y ago

> I hear this all the time, and I see little evidence that it's as strong an effect as everyone says. You forget that in a deflationary economy prices would go down. Most of Wall Street, of course, is not their own money. It's borrowed money. Borrowed from pensioners, from central banks, from every bank in existence. Deflation would not only make it in the banks interest never to loan a cent again, it would suck something like 95% of the money out of the stock market (so no, it definitely wouldn't be in your interest to still own profitable firms). Wall Street is mostly smoke and mirrors, to convince people to work to pay pensioners and banks, and siphon off a healthy percentage for themselves. It just wouldn't work in a deflationary economy and it's the source of most of the money in the US economy. Without it we'd have to do something crazy like have the government run ~50 moonlanding-sized projects at the same time to make up for it.