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Deflation doesn't eliminate the demand curve, it just shifts it a bit to the left. It reduces consumption. It reduces investment. It increases savings. It d
by hbags 13y ago
Deflation doesn't eliminate the demand curve, it just shifts it a bit to the left. It reduces consumption. It reduces investment. It increases savings. It does not cause a 100% reallocation from consumption and investment to savings.
- runeks 13y agoSo people get wealthier, because they save more and consume less?
- hbags 13y agoNo. You failed to recognize two key points: 1) Savings erodes investment. Savings is the non-productive hoarding of cash. Investment is when one takes cash and deploys it in a way that creates value. In a slightly inflationary economy, a wealthy person can only remain wealthy if they deploy their capital in a way that creates more value for the entire economy. In a deflationary economy, they can get wealthier by doing literally nothing. The net effect of this is a reduced pace of innovation for the whole economy. 2) My consumption is your income. Thus, if I spend less money, you make less money. The net effect of this is a huge pile of pernicious effects (reduced economic mobility, reduced productivity gains, reduced innovation, reduced opportunity, reduced incomes for all, etc...).