3 ms·

Deflation has a bad rap because its insidious form is caused by economic contraction. But other causes of deflation are neutral / positive and there isn't anyth

by rcme 3y ago

Deflation has a bad rap because its insidious form is caused by economic contraction. But other causes of deflation are neutral / positive and there isn't anything inherently wrong with it. Go look up how much a 400 MHz processor (e.g. Pentium II) cost in 1997 vs. today. Processors get cheaper all the time, but it doesn't seem to harm demand.

lxgr 3y ago
Both (too much) inflation and deflation are ultimately very bad for money: Too much inflation ruins the "store of value" aspect; deflation disincentivizes trading it for goods and services, cutting into the "medium of exchange" aspect. Any drastic change of value/purchasing power, i.e. both inflation and deflation, make it useless as a unit of account. > Processors get cheaper all the time, but it doesn't seem to harm demand. Processors aren't purported to be money, though.
flagrant_taco 3y ago
Deflation really only has a bad name because the definition of inflation was effectively changes in the 80s. We used to consider inflation to be the expansion of the money supply, deflation being the opposite. For whatever reason the word inflation was repurposed to describe and increase in *prices*. That metric is effectively useless though as prices are just a side effect of multiple factors including the total money supply, supply and demand of a particular good, technological innovations, etc. Deflation as we see it today was actually a common thing historically. Prices for a good decrease in time as we become more efficient at producing it and as demand decreases when something better comes out.
- lxgr 3y ago
  > Deflation really only has a bad name because the definition of inflation was effectively changes in the 80s. I wasn't alive at the time, but the modern definition makes a lot of sense to me: Monetary base is one of several factors impacting inflation, so conflating inflation and (an increase of) the monetary base seems quite confusing. > Prices for a good decrease in time as we become more efficient at producing it and as demand decreases when something better comes out. It's totally fine if some prices go down, but the more useful notion here is that of purchasing power. When people expect the purchasing power of a currency to increase meaningfully, they start deferring purchases and investments (since most/all goods and services are expected to be cheaper tomorrow than they are today), which can cause inefficiencies just like inflation can.

by rcme 3y ago

lxgr 3y ago

Both (too much) inflation and deflation are ultimately very bad for money: Too much inflation ruins the "store of value" aspect; deflation disincentivizes trading it for goods and services, cutting into the "medium of exchange" aspect. Any drastic change of value/purchasing power, i.e. both inflation and deflation, make it useless as a unit of account. > Processors get cheaper all the time, but it doesn't seem to harm demand. Processors aren't purported to be money, though.

flagrant_taco 3y ago

Deflation really only has a bad name because the definition of inflation was effectively changes in the 80s. We used to consider inflation to be the expansion of the money supply, deflation being the opposite. For whatever reason the word inflation was repurposed to describe and increase in *prices*. That metric is effectively useless though as prices are just a side effect of multiple factors including the total money supply, supply and demand of a particular good, technological innovations, etc. Deflation as we see it today was actually a common thing historically. Prices for a good decrease in time as we become more efficient at producing it and as demand decreases when something better comes out.

lxgr 3y ago
> Deflation really only has a bad name because the definition of inflation was effectively changes in the 80s. I wasn't alive at the time, but the modern definition makes a lot of sense to me: Monetary base is one of several factors impacting inflation, so conflating inflation and (an increase of) the monetary base seems quite confusing. > Prices for a good decrease in time as we become more efficient at producing it and as demand decreases when something better comes out. It's totally fine if some prices go down, but the more useful notion here is that of purchasing power. When people expect the purchasing power of a currency to increase meaningfully, they start deferring purchases and investments (since most/all goods and services are expected to be cheaper tomorrow than they are today), which can cause inefficiencies just like inflation can.