4 ms·

This is part of the issue. The other part is that no one has any incentive to spend money, which can cause a recession. You can either 100 units of something to

by teebs 14y ago

This is part of the issue. The other part is that no one has any incentive to spend money, which can cause a recession. You can either 100 units of something today, or buy 110 units of it tomorrow. This gives you a very strong incentive to wait and not spend money. This means that no one buys anything, so no one needs to make or manufacture anything. People lose their jobs, so they don't have money, so they can't buy things... and so on. Of course, inflation can be very bad, too.

aneth4 14y ago
I can buy a 2014 Cadillac or iPhone 5 next year for 30% less than I can this year. People seem to be buying these things. In a deflationary environment, people buy less stuff they don't need today, which leads to a higher quality of economic growth.
- teebs 14y ago
  What do you mean "higher quality"? Almost everything everyone buys is something they don't need. I would guess that almost everyone using Hacker News produces things people don't need. No one needs Google or Amazon or whatever your favorite tech company is.... The economy is built on things people don't need. The problem is that if I won't buy it for $100 today because I can buy it for $50 tomorrow, I won't buy it for $50 tomorrow because I can buy it for $25 the next day, so you NEVER buy an iPhone
  - Judson 14y ago
    I just have a hard time believing deflation leads to perfect demand inelasticity at $0.
    - brc 14y ago
      Because it is completely unrealistic and total rubbish. That's why you have a hard time believing it. Of course, all those who insist that inflation is a superior state can't explain the economic effects of everyone deciding to purchase today before the prices go up, leading to much weaker demand and production in the future. Bringing forward spending excessively is just as problematic as send it backward into the future.
  - aneth4 14y ago
    Except I do buy an iPhone. Because I want one. Today. Technology always gets cheaper rapidly. Lots of people seem to buy it. A 4% annual deflation rate would stop unhealthy debt expansion, which only stimulates short term growth and long term pain. Higher quality growth comes when real economic value is created through transactions rather than speculation or inefficient investment.
Judson 14y ago
>You can either 100 units of something today, or buy 110 units of it tomorrow. People make this kind of tradeoff all the time. I can either purchase a product for $100 from Best Buy, or, I can wait for two days and get the same product for $80 from amazon (or $83.99 and get it the next day). There are times when I choose to be prudent and save the extra cash and wait 48 hours until the amazon package shows up. Other times, I would prefer the product sooner, rather than later and spend more money for the item.
deelowe 14y ago
Which is why everyone in Washington was freaking out and throwing cash out the window in 2009. Crony capitalism aside, they were terrified of deflation(and rightly so).
- Eliezer 14y ago
  They weren't throwing nearly enough cash out the window to make up for everyone suddenly wanting to hold more money. NGDP still crashed. Inflation dropped. The spread on inflation-indexed Treasury bonds warned that monetary policy was far too tight and the market knew it and was signalling this well in advance. Low interest rates do not mean loose money... oh, never mind, everyone just needs to go read The Money Illusion.
csense 14y ago
> no one has any incentive to spend money > This means that no one buys anything Think about technology. Every day, the cost of a new computer drops by $0.27 on average, let us say, or about $100 per year. Last year's models have a $100 discount, three-year-old machines have a $300 discount, five-year-old or older machines are bargain basement or even negative value (you have to pay someone to haul them away for recycling). Every day, your money increases relative to the value of computers. Every day, when you wake up, you face an economic choice: You could buy that new machine today, and have it today, or you could buy it tomorrow, and have the new machine and $0.27 left in your pocket. By your logic, everyone would always choose to postpone buying a computer. Yet people buy new computers all the time, and have for several decades. How can you explain that? It's a real deflationary market that doesn't have this problem.

by teebs 14y ago

aneth4 14y ago

I can buy a 2014 Cadillac or iPhone 5 next year for 30% less than I can this year. People seem to be buying these things. In a deflationary environment, people buy less stuff they don't need today, which leads to a higher quality of economic growth.

teebs 14y ago
What do you mean "higher quality"? Almost everything everyone buys is something they don't need. I would guess that almost everyone using Hacker News produces things people don't need. No one needs Google or Amazon or whatever your favorite tech company is.... The economy is built on things people don't need. The problem is that if I won't buy it for $100 today because I can buy it for $50 tomorrow, I won't buy it for $50 tomorrow because I can buy it for $25 the next day, so you NEVER buy an iPhone
- Judson 14y ago
  I just have a hard time believing deflation leads to perfect demand inelasticity at $0.
  - brc 14y ago
    Because it is completely unrealistic and total rubbish. That's why you have a hard time believing it. Of course, all those who insist that inflation is a superior state can't explain the economic effects of everyone deciding to purchase today before the prices go up, leading to much weaker demand and production in the future. Bringing forward spending excessively is just as problematic as send it backward into the future.
- aneth4 14y ago
  Except I do buy an iPhone. Because I want one. Today. Technology always gets cheaper rapidly. Lots of people seem to buy it. A 4% annual deflation rate would stop unhealthy debt expansion, which only stimulates short term growth and long term pain. Higher quality growth comes when real economic value is created through transactions rather than speculation or inefficient investment.

Judson 14y ago

>You can either 100 units of something today, or buy 110 units of it tomorrow. People make this kind of tradeoff all the time. I can either purchase a product for $100 from Best Buy, or, I can wait for two days and get the same product for $80 from amazon (or $83.99 and get it the next day). There are times when I choose to be prudent and save the extra cash and wait 48 hours until the amazon package shows up. Other times, I would prefer the product sooner, rather than later and spend more money for the item.

deelowe 14y ago

Which is why everyone in Washington was freaking out and throwing cash out the window in 2009. Crony capitalism aside, they were terrified of deflation(and rightly so).

Eliezer 14y ago
They weren't throwing nearly enough cash out the window to make up for everyone suddenly wanting to hold more money. NGDP still crashed. Inflation dropped. The spread on inflation-indexed Treasury bonds warned that monetary policy was far too tight and the market knew it and was signalling this well in advance. Low interest rates do not mean loose money... oh, never mind, everyone just needs to go read The Money Illusion.

csense 14y ago

> no one has any incentive to spend money > This means that no one buys anything Think about technology. Every day, the cost of a new computer drops by $0.27 on average, let us say, or about $100 per year. Last year's models have a $100 discount, three-year-old machines have a $300 discount, five-year-old or older machines are bargain basement or even negative value (you have to pay someone to haul them away for recycling). Every day, your money increases relative to the value of computers. Every day, when you wake up, you face an economic choice: You could buy that new machine today, and have it today, or you could buy it tomorrow, and have the new machine and $0.27 left in your pocket. By your logic, everyone would always choose to postpone buying a computer. Yet people buy new computers all the time, and have for several decades. How can you explain that? It's a real deflationary market that doesn't have this problem.