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Deflation throws on the breaks in the economy, because X is cheaper if you postpone it. With X representing essentially all economic activities like buying a ne

by nikanj 3y ago

Deflation throws on the breaks in the economy, because X is cheaper if you postpone it. With X representing essentially all economic activities like buying a new phone / hiring a programmer / going on vacation / etc This would be great for the environment, but absolutely terrible for the economy

ajmurmann 3y ago
To add to this, it's also very hard to get out of as we've seen for decades in Japan. Some countries get stuck in recurring waves of inflation as well, as we set with Argentina, but that's arguably more sure to avoidable policy choices.
thaumasiotes 3y ago
> Deflation throws on the breaks in the economy, because X is cheaper if you postpone it. With X representing essentially all economic activities Sometimes I think about this as promoting investment in cash. Deflation over time means cash yields a profit. But since cash doesn't actually do anything, investing in cash instead of something else is harmful. One implication of both of our comments is that unanticipated deflation is good. What causes problems is the reaction people take to anticipating that deflation will occur -- they wait it out -- not the fact that things are cheaper. The necessary refinement would be that unanticipated deflation that comes from an increase in the amount of stuff is good, and unanticipated deflation that comes from a reduction in the amount of money is [?]. Introducing that dimension asks us to fill out the grid: - anticipated deflation from an increase in the amount of stuff: [?] - anticipated deflation from a reduction in the amount of money: bad
- ajmurmann 3y ago
  > not the fact that things are cheaper In these discussions it's easy to forget that it's not only things that get cheaper or more expensive. Services and people's salaries also adjust the same way. With deflation your salary will also go down.
  - thaumasiotes 3y ago
    That's the point of what I called "the necessary refinement". If there is more stuff, stuff gets cheaper without a matching decrease in your salary. If there is less money, stuff gets cheaper and there is also a matching decrease in your salary. But in either case, the problems associated with deflation come from the actions people take to prepare for it, not from the consequences of it having already happened.
mjan22640 3y ago
The benefit of having X now rather than later can still be more valuable than the price drop.

by nikanj 3y ago

ajmurmann 3y ago

To add to this, it's also very hard to get out of as we've seen for decades in Japan. Some countries get stuck in recurring waves of inflation as well, as we set with Argentina, but that's arguably more sure to avoidable policy choices.

thaumasiotes 3y ago

> Deflation throws on the breaks in the economy, because X is cheaper if you postpone it. With X representing essentially all economic activities Sometimes I think about this as promoting investment in cash. Deflation over time means cash yields a profit. But since cash doesn't actually do anything, investing in cash instead of something else is harmful. One implication of both of our comments is that unanticipated deflation is good. What causes problems is the reaction people take to anticipating that deflation will occur -- they wait it out -- not the fact that things are cheaper. The necessary refinement would be that unanticipated deflation that comes from an increase in the amount of stuff is good, and unanticipated deflation that comes from a reduction in the amount of money is [?]. Introducing that dimension asks us to fill out the grid: - anticipated deflation from an increase in the amount of stuff: [?] - anticipated deflation from a reduction in the amount of money: bad

ajmurmann 3y ago
> not the fact that things are cheaper In these discussions it's easy to forget that it's not only things that get cheaper or more expensive. Services and people's salaries also adjust the same way. With deflation your salary will also go down.
- thaumasiotes 3y ago
  That's the point of what I called "the necessary refinement". If there is more stuff, stuff gets cheaper without a matching decrease in your salary. If there is less money, stuff gets cheaper and there is also a matching decrease in your salary. But in either case, the problems associated with deflation come from the actions people take to prepare for it, not from the consequences of it having already happened.

mjan22640 3y ago

The benefit of having X now rather than later can still be more valuable than the price drop.