3 ms·
> when prices go down instead of up. It is generally considered harmful: both because it is usually brought on by something really bad (like a severe economic c
by Joker_vD 11mo ago
> when prices go down instead of up. It is generally considered harmful: both because it is usually brought on by something really bad (like a severe economic contraction)
Or, you know, technological improvements that increase efficiency of production, or bountiful harvests, or generally anything else that suddenly expands the supply at the current price level across the economy. Thankfully, we have mechanisms in place that keep the prices inflating even when those unlikely events happen.
- marcosdumay 11mo agoDeflation is about all prices going down. Just a few decreasing is normal. Anyway, WTF, economics communication has a huge problem. I've seen the article's explanation repeated in plenty of places, it's completely wrong and borderline nonsense. The reason deflation is bad is not because it makes people postpone buying things. It's because some prices, like salaries or rent just refuse to go down. That causes rationing of those things.
- jdasdf 11mo ago>It's because some prices, like salaries or rent just refuse to go down. a common argument, but one that doesn't bear out in the absence of regulation enforcing that.
- gus_massa 11mo agoI agree. It's super common that the price of vegetables goes up and down arround the year, in particular due to the harvest season.
- HPsquared 11mo agoRent and salaries don't like going down because of debt. Debts are denominated in currency units and go up with inflation (interest rates have a component to correct for inflation) but they don't decrease if the currency gains value over time (this would need negative interest rates). I suppose that's something that could be done with regulation.
- marcosdumay 11mo agoYes. And even if people could refinance, debt values going down causes further deflation.
- HPsquared 11mo agoDoes it? Debt repayments are money deletion, so if debt is nominally written-off, less has to be paid back. That is, there will be less "anti-money" in the system but the "money" is still there. That increases the money supply, therefore inflationary.
- marcosdumay 11mo agoDebt write-off is also money destruction. Money is debt.
- anonymouskimmer 11mo agoYou're forgetting what people do if deflation is expected to continue indefinitely, and can also expect for their notes to be written off: They stick that extra money under the mattress. This is basically what a bunch of people did during and following the Great Depression. Deflation was continuing and the money they had lent to the banks was being written off in bank defaults. And so an entire generation learned to just stick it under the mattress (or stick it in T bills, which reliably didn't default). Also, it's not just a literal increase of money that causes inflation, an increase in money velocity also increases inflation. Debt write-offs decrease velocity, while debt issuance increases velocity. IANAE.
- pjc50 11mo agoSee "price stickiness" and what is simplified as "menu reprinting costs"; there's usually a cost associated with changing prices, and a cost associated with renegotiating prices for everything that's not being sold on a spot market. People cannot buy housing at spot, and while spot-labour pricing is definitely a thing for some services it's so socially destabilizing for anything skilled that most workforces operate on salary. The reverse of this is that high inflation tends to cause a lot of strikes, because salaries refuse to go up and very high levels of inflation need salary repricing every month or even week.
- igleria 11mo agoIn Argentina I've learned from a young age that prices take the elevator, but salaries take the stairs. It got old really quick having to negotiate with the boss every 6 months.