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Isn't the problem with deflation that it de-incentivizes investment (why accept risk when you can just stuff your mattress with money and grow your wealth risk-

Isn't the problem with deflation that it de-incentivizes investment (why accept risk when you can just stuff your mattress with money and grow your wealth risk-free), which tanks the economy? Lowering prices sounds nice, but my understanding has always been that it would come at the cost of less actual wealth overall.

sethammons 2y ago
which should disproportionately affect the wealthy. Another way of saying that: we pay higher prices with inflation so the wealthy are more wealthy. That money goes somewhere.
_DeadFred_ 2y ago
And hence we had the destruction of the entire tech industry because people never buy computers because tomorrow you can get a better one for cheaper.
SuperNinKenDo 2y ago
That's the macroeconomic argument I alluded to. Of course, what this argument amounts to is that economic growth should be fueled in part by devaluing the money of the working and lower-middle class, who earn their money through wages and have limited means of preserving its value through capital investment, while the wealthy, who have more opportunity to invest in capital and use leverage, are largely shieled from, or on the extreme end even benefit from, its effects. Hence, a regressive tax. The most obvious argument against this notion is that many things are effectively deflationary anyway, such as computers, which at least until recently were deflationary in the extreme. Not only did they tend to get ever cheaper over time, but while getting cheaper they have and continue to become more powerful, at times by miles in the space of a few years. And yet, people still buy computers, and firms still engineer and manufacture them, because at some point it doesn't matter that if you wait 6 months you can get a vastly better computer for half the price, at some point you have to actually buy a computer.
- cyberax 2y ago
  > That's the macroeconomic argument I alluded to. Of course, what this argument amounts to is that economic growth should be fueled in part by devaluing the money of the working and lower-middle class You have it literally backwards. Like 100% backwards. In a normal healthy economy, salaries grow faster than inflation. So workers living on their wages are not affected. Transient periods of high inflation might even benefit them, as they also devalue their fixed _debts_. It's the rich people who are affected by the inflation, they are forced to invest money, rather than just leave them sitting in a risk-free account. Conversely, deflation primarily causes pain for the working class (that's how Hitler came to power!), because it slows down the economy and makes their debts grow. While rich people can just enjoy having a risk-free real income growth.
  - SuperNinKenDo 2y ago
    I don't have it literally backwards, because that's not what happens. You do have your Hitler argument completely backward though. Weimar Germany was undergoing runaway _hyper-inflation_, not deflation. Interest rates move in the same direction as inflation with some lag, so the idea that poor people benefit due to reduction in debt is weak at best, but given that the rich rely on debt so heavily themselves, any positive effect on the poor would be even greater for the rich barring some special reason I can't think of. As for rich people being the ones affected by inflation, it does in fact change their incentives dramatically, so that's true as far as that goes, however it doesn't actually result in loss of wealth for them as again, they are the ones with the capacity to invest it in assets to protect or grow its value, and the ability to use leverage to use money now that they don't even have yet, in exchange for devalued money in the future. It might have some effect of weeding out the truly incompetently or indigently rich, but of that group the ones who don't have smarter family around to save them from themselves will be those who probably come from lower class backgrounds anyway.
    - nrdvana 2y ago
      Its true that rich people often (always?) "have debts", but not true that they are "in debt" overall, otherwise they wouldn't really be rich anymore. Poor and middle-class people are often in debt in the sense that they have borrowed against their future earnings. For things like a house, borrowed over 30 years, the inflation on that amount really does benefit them. By the end of the loan, people who stayed in one house barely notice the cost of the mortgage, and if the intrest rate is low enough they may choose to deliberately not pay it off as they invest their current cash elsewhere. For things like a credit card, no the inflation doesn't really help anyhing. If deflation were expected, rich people really would just leave money in a bank account (as long as investing gave smaller returns, or seemed too risky.) The inflation is an incentive for cash-rich people to put that cash to use instead of sitting on it. This can be a huge driver for the economy.

sethammons 2y ago

which should disproportionately affect the wealthy. Another way of saying that: we pay higher prices with inflation so the wealthy are more wealthy. That money goes somewhere.

_DeadFred_ 2y ago

And hence we had the destruction of the entire tech industry because people never buy computers because tomorrow you can get a better one for cheaper.

SuperNinKenDo 2y ago

That's the macroeconomic argument I alluded to. Of course, what this argument amounts to is that economic growth should be fueled in part by devaluing the money of the working and lower-middle class, who earn their money through wages and have limited means of preserving its value through capital investment, while the wealthy, who have more opportunity to invest in capital and use leverage, are largely shieled from, or on the extreme end even benefit from, its effects. Hence, a regressive tax. The most obvious argument against this notion is that many things are effectively deflationary anyway, such as computers, which at least until recently were deflationary in the extreme. Not only did they tend to get ever cheaper over time, but while getting cheaper they have and continue to become more powerful, at times by miles in the space of a few years. And yet, people still buy computers, and firms still engineer and manufacture them, because at some point it doesn't matter that if you wait 6 months you can get a vastly better computer for half the price, at some point you have to actually buy a computer.

cyberax 2y ago
> That's the macroeconomic argument I alluded to. Of course, what this argument amounts to is that economic growth should be fueled in part by devaluing the money of the working and lower-middle class You have it literally backwards. Like 100% backwards. In a normal healthy economy, salaries grow faster than inflation. So workers living on their wages are not affected. Transient periods of high inflation might even benefit them, as they also devalue their fixed _debts_. It's the rich people who are affected by the inflation, they are forced to invest money, rather than just leave them sitting in a risk-free account. Conversely, deflation primarily causes pain for the working class (that's how Hitler came to power!), because it slows down the economy and makes their debts grow. While rich people can just enjoy having a risk-free real income growth.
- SuperNinKenDo 2y ago
  I don't have it literally backwards, because that's not what happens. You do have your Hitler argument completely backward though. Weimar Germany was undergoing runaway _hyper-inflation_, not deflation. Interest rates move in the same direction as inflation with some lag, so the idea that poor people benefit due to reduction in debt is weak at best, but given that the rich rely on debt so heavily themselves, any positive effect on the poor would be even greater for the rich barring some special reason I can't think of. As for rich people being the ones affected by inflation, it does in fact change their incentives dramatically, so that's true as far as that goes, however it doesn't actually result in loss of wealth for them as again, they are the ones with the capacity to invest it in assets to protect or grow its value, and the ability to use leverage to use money now that they don't even have yet, in exchange for devalued money in the future. It might have some effect of weeding out the truly incompetently or indigently rich, but of that group the ones who don't have smarter family around to save them from themselves will be those who probably come from lower class backgrounds anyway.
  - nrdvana 2y ago
    Its true that rich people often (always?) "have debts", but not true that they are "in debt" overall, otherwise they wouldn't really be rich anymore. Poor and middle-class people are often in debt in the sense that they have borrowed against their future earnings. For things like a house, borrowed over 30 years, the inflation on that amount really does benefit them. By the end of the loan, people who stayed in one house barely notice the cost of the mortgage, and if the intrest rate is low enough they may choose to deliberately not pay it off as they invest their current cash elsewhere. For things like a credit card, no the inflation doesn't really help anyhing. If deflation were expected, rich people really would just leave money in a bank account (as long as investing gave smaller returns, or seemed too risky.) The inflation is an incentive for cash-rich people to put that cash to use instead of sitting on it. This can be a huge driver for the economy.