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Governments are afraid of deflation (prices going down) because consumers can go into a holding pattern (stopping spending while waiting for prices to continue

Governments are afraid of deflation (prices going down) because consumers can go into a holding pattern (stopping spending while waiting for prices to continue to decrease) which can cause the economy to stall out.

rhyme-boss 3y ago
Prices drop and people spend less? That's silly.
- deleted 3y ago
  [deleted]
- xwdv 3y ago
  It’s not silly. If you know prices are only going down you might hold off on buying that house or car until later because you know you’ll just get it cheaper.
  - cjbgkagh 3y ago
    Depends if you need a house or not, the idea that people are treating future consumption as an investment does not seem to hold much weight. In a competitive market others will be making a similar gamble meaning rents will be higher than normal due to increased demand, and the market will normalize.
- nvalis 3y ago
  It's more people see prices dropping hence their money increase in relative value so they save up more instead of spending it.
  - rhyme-boss 3y ago
    It just reminds me how unserious economic theory is. You can tell any kind of story you want.
- ferdowsi 3y ago
  So silly that it's exactly what happened during the Great Depression.
  - nostromo 3y ago
    Context matters. Prices dropped because people had less money. They didn’t drop because people were sitting on piles of cash hoping for cheaper prices next year.
brink 3y ago
If our government was actually as "green" as they say they are, they'd aim for this because consumers would slow down consumption to only buy what they need. But they know that inflation is another form of tax, and they're too greedy to say that inflation is anything but "good".
- ben_w 3y ago
  For a government, "green" isn't an end-goal, but a nice-to-have. People like the environment, but continued existence comes first, and that in turn required having a huge economy in order to make a huge military affordable, and that military is needed to maintain the continued existence of the government (as an institution rather than the specific jobs of specific people within it).
mahogany 3y ago
Is there any evidence that modest deflation actually causes this "holding pattern" in the overall economy? I see this theory stated a lot for the reason that deflation is bad, and it definitely checks out on a basic logical level. But economics is complex right? So I'm curious what the evidence is in the real world. I can imagine this happening with large deflation (10%, say), but what about 2% or 1%? It's not obvious to me that people would not buy a TV they really wanted if they knew it would be $392 instead of $400 next year. If consumers actually acted this sensitively toward a drop in prices, then wouldn't nearly all consumers wait for sales for all purchases? But we know that is not the case. Hell, if consumers were this sensitive toward their finances, they certainly wouldn't pay lots of interest on avoidable credit card debt, right?
- dualityoftapirs 3y ago
  It's more the bigger investments that drive a lot of the economy that are the concern - think real estate and stocks. Why buy a $1 million home today if you'll be able to buy it from $980k next year, and maybe $965k the year after that? More importantly, why continue paying the mortgage on your million dollar home when it's likely never to be worth a million again? Why buy 10,000 shares of a company now, when in a few years you could buy 10,500 shares for the same price?
  - mahogany 3y ago
    That's fair - but that is assuming indefinite long-term deflation. What about intermittent modest deflation as a tool to bring prices down? It seems that just the idea of deflation is immediately rejected in any conversation about monetary policy. Also, I think in the real world today, a home would still sell in a deflationary environment, given serious supply shortages. Especially for those buyers which are looking for a home and not an investment (investors would lose long term in a deflationary environment, as you say). Couldn't temporary, modest deflation actually open the housing market up for those "real" buyers primarily looking for a place to live?
    - dualityoftapirs 3y ago
cjbgkagh 3y ago
Speculative asset bubbles seem to tank money velocity more than small amounts of deflation. I think the 2% inflation target roughy yields the maximum long term sustainable capital gains tax.
nostromo 3y ago
Nobody is going to wait a year to save 3% on food or energy.
- porkbeer 3y ago
  No, but they will for cars, housing, even having children,
AtlasBarfed 3y ago
Well personally I'm cutting out as much consumption as possible, how is inflation not resulting in big drops in people spending? You know what causes a downward spiral? People stop buying things, sales drops, layoffs / cuts, people buy less, etc. I see companies freak out over 1-2% drops in sales, how is inflation not causing people to drop consumption by 10%? I don't travel, I'm eating out WAY less, I am price/bargain hunting far more. I never buy gas without gas price map checking. I'm holding back on as much purchases as possible. I don't even think about buying any clothes not on sale. Hell, I basically don't buy clothes unless absolutely needed.

rhyme-boss 3y ago

Prices drop and people spend less? That's silly.

deleted 3y ago
[deleted]
xwdv 3y ago
It’s not silly. If you know prices are only going down you might hold off on buying that house or car until later because you know you’ll just get it cheaper.
- cjbgkagh 3y ago
  Depends if you need a house or not, the idea that people are treating future consumption as an investment does not seem to hold much weight. In a competitive market others will be making a similar gamble meaning rents will be higher than normal due to increased demand, and the market will normalize.
nvalis 3y ago
It's more people see prices dropping hence their money increase in relative value so they save up more instead of spending it.
- rhyme-boss 3y ago
  It just reminds me how unserious economic theory is. You can tell any kind of story you want.
ferdowsi 3y ago
So silly that it's exactly what happened during the Great Depression.
- nostromo 3y ago
  Context matters. Prices dropped because people had less money. They didn’t drop because people were sitting on piles of cash hoping for cheaper prices next year.

brink 3y ago

If our government was actually as "green" as they say they are, they'd aim for this because consumers would slow down consumption to only buy what they need. But they know that inflation is another form of tax, and they're too greedy to say that inflation is anything but "good".

ben_w 3y ago
For a government, "green" isn't an end-goal, but a nice-to-have. People like the environment, but continued existence comes first, and that in turn required having a huge economy in order to make a huge military affordable, and that military is needed to maintain the continued existence of the government (as an institution rather than the specific jobs of specific people within it).

mahogany 3y ago

Is there any evidence that modest deflation actually causes this "holding pattern" in the overall economy? I see this theory stated a lot for the reason that deflation is bad, and it definitely checks out on a basic logical level. But economics is complex right? So I'm curious what the evidence is in the real world. I can imagine this happening with large deflation (10%, say), but what about 2% or 1%? It's not obvious to me that people would not buy a TV they really wanted if they knew it would be $392 instead of $400 next year. If consumers actually acted this sensitively toward a drop in prices, then wouldn't nearly all consumers wait for sales for all purchases? But we know that is not the case. Hell, if consumers were this sensitive toward their finances, they certainly wouldn't pay lots of interest on avoidable credit card debt, right?

dualityoftapirs 3y ago
It's more the bigger investments that drive a lot of the economy that are the concern - think real estate and stocks. Why buy a $1 million home today if you'll be able to buy it from $980k next year, and maybe $965k the year after that? More importantly, why continue paying the mortgage on your million dollar home when it's likely never to be worth a million again? Why buy 10,000 shares of a company now, when in a few years you could buy 10,500 shares for the same price?
- mahogany 3y ago
  That's fair - but that is assuming indefinite long-term deflation. What about intermittent modest deflation as a tool to bring prices down? It seems that just the idea of deflation is immediately rejected in any conversation about monetary policy. Also, I think in the real world today, a home would still sell in a deflationary environment, given serious supply shortages. Especially for those buyers which are looking for a home and not an investment (investors would lose long term in a deflationary environment, as you say). Couldn't temporary, modest deflation actually open the housing market up for those "real" buyers primarily looking for a place to live?
  - dualityoftapirs 3y ago

cjbgkagh 3y ago

Speculative asset bubbles seem to tank money velocity more than small amounts of deflation. I think the 2% inflation target roughy yields the maximum long term sustainable capital gains tax.

nostromo 3y ago

Nobody is going to wait a year to save 3% on food or energy.

porkbeer 3y ago
No, but they will for cars, housing, even having children,

AtlasBarfed 3y ago

Well personally I'm cutting out as much consumption as possible, how is inflation not resulting in big drops in people spending? You know what causes a downward spiral? People stop buying things, sales drops, layoffs / cuts, people buy less, etc. I see companies freak out over 1-2% drops in sales, how is inflation not causing people to drop consumption by 10%? I don't travel, I'm eating out WAY less, I am price/bargain hunting far more. I never buy gas without gas price map checking. I'm holding back on as much purchases as possible. I don't even think about buying any clothes not on sale. Hell, I basically don't buy clothes unless absolutely needed.