5 ms·

This is just stupid IMO, but I'm not any economist. You worked X time: got 1000€ Day 1: You can buy 1000 candies at 1€ each. Day 2: Inflation, prices +100%:

by ttty 12y ago

This is just stupid IMO, but I'm not any economist. You worked X time: got 1000€ Day 1: You can buy 1000 candies at 1€ each. Day 2: Inflation, prices +100%: you can only buy 500 at 2€ each This means that you just lost 500 candies or 500€. This means that what you worked 50% for nothing! You just lost 50% of your money, just like that! So who has my money? not me of course. Let's think about deflation: Day 1: You can buy 1000 candies at 1€ each. Day 2: Deflation, prices -50%: you can buy 2000 at 0.5€ each Now if you would only buy 1000 candies you would still have 500€ to spend on other stuff. You might save it or buy other stuff. Let's think about none of them: Day 1: You can buy 1000 candies at 1€ each. Day 2: You can buy 1000 candies at 1€ each. Today is the same as yesterday, I've worked X hours I buy Y candies, everyday. Why should it change? I know many factors change the price but why? Well, if you can see inflation is good for the banks. They inject more money in order to make your money less valuable. So in other words you lose money (your hard earned money) while they are just printing easy money! So who is the dumb one? We can do nothing. Again why deflation is bad? I would buy to eat even if inflated or deflated, maybe less and more, depending by inflation or deflation. I might even buy higher quality meals. If I need a new phone do you wait until the prices fall to 100€? No some people still buy them at 1000€. Some not, but is not inflation that will make that change. For example the same people that don't wait a few months for the price of Iphone to fall from 1000€ to 300€ will not wait for deflation to decrease the price from 1000€ to 800€. He just want the Iphone and it will buy it. This is just a big lie thrown in my face! please correct me if I'm wrong!!!

BSousa 12y ago
Not an economist either. But the way I see it (ignoring food and other things you can't live without) Inflation Day 1: you can buy 1000 candies, and you suspect tomorrow you will only be able to buy 500, so you buy 1000 candies and store them/eat them. You 'inject' money into the economy, give the government tax money, etc. Deflation: Day 1: you can buy 1000 candies, but suspect that tomorrow you can buy 2000 candies, you don't buy Day 2: you can buy 2000 candies, but suspect that tomorrow you can buy 3000, you don't buy, or buy just enough for your sweet tooth today (lets say 100) Day 3: you can buy 3000 candies, but again... etc etc Again, this is based on needs and wants. If you have 1000 euros. If your phone breaks and you need one to work, you will buy today, no matter if we are in deflation or inflation, but if your old one still works, you may very well buy it today (in case of inflation, since it will will cost more of those 1000 euros tomorrow, or you will wait if you are in deflation since it will cost less of those 1000 euros. Of course, if you need rice to not starve, it doesn't matter! And for average folks, deflation tends to be good since most of expenses are from needs and not wants but this causes issues to business and (possibly) to the economy as well. If you want a smaller example, I've personally waited for weeks and months to import some goods due to the falling EUR->USD rate, saving me between 5-6% of the cost, so I don't see why others won't do the same if they expect the costs to be less in the future.
- facepalm 12y ago
  What if you really want some candy? I think that's what the theory misses. You can only hold out for so long with certain things. If you are hungry, eventually you'll have to buy something to eat. An extreme example: I have bought a lot of computers in my life, even though I knew their value would be close to zero within two years. And maybe there are also benefits if people only buy the stuff they actually need.
  - mikeash 12y ago
    What qualifies as "really need," and how much of the modern economy is involved in producing that stuff? If people only buy the stuff they actually need, we on HN would all be out of jobs tomorrow. Computers, smartphones, nice cars, high-end food, good booze, entertaining movies, all of this goes away. I don't want to live in that world, personally.
    - facepalm 12y ago
      So you need those things, an ongoing deflation is only a factor in your evaluation. It doesn't mean you'll never buy them. You will think "is it worth for me to hold out a little longer before buying" and there will be a threshold where you think "no" and you buy. You could just as well argue that inflation leads to a spiral of death because people won't be able to afford things. Therefore they won't buy things, nobody will produce things, and there will be no things. Sounds just as logical.
      - mikeash 12y ago
        I'm sorry, I have no idea how your reply relates to my comment.
        facepalm 12y ago
        Well "really need" is in the eye of the beholder. Except for staying alive. Do you honestly believe because of Deflation people would only buy the barest minimum of things to keep them alive? And when would you buy a sleeping bag. Maybe it is Minus 5 degrees outside but you can survive that. After all, tomorrow the sleeping back will be 1$ less tomorrow, and after all you'll only die if it's minus 10 degrees?
collyw 12y ago
Deflation is only bad if you are in debt (it effectively increases what you owe rather than reduce it). The governments of most western nations are in debt, hence their fear of deflation.
lottin 12y ago
You're 100% right. If prices fall faster than wages, it means that gradually people have more real income and you'd expect that their consumption would increase, not decrease. While in specific circumstances some purchases might be postponed temporarily due to falling prices, it's extremely dubious that the end result would be less consumption in the economy.
jmesserly 12y ago
> This is just a big lie thrown in my face! > please correct me if I'm wrong!!! You're wrong. Deflation is basic economics. If you take a college macroeconomics course it will be covered. It's hard to summarize in a way that will convince you in an internet debate. Sort of like trying to argue electromagnetism with someone that never learned about Maxwell's equations. An econ textbook would be ideal, but another place to start would be: http://en.wikipedia.org/wiki/Deflation http://en.wikipedia.org/wiki/Deflation (By the way, no offense intended with that. It's hard for anyone to comment on a scientific subject if they didn't learn the background, even super smart folks.) There are several things wrong with your story, but the first one that jumps out is that some prices are more sticky than others. For example, wages are likely to not go down much, instead firms tend to cut employment. There's a lot of evidence for this: http://en.wikipedia.org/wiki/Nominal_rigidity http://en.wikipedia.org/wiki/Nominal_rigidity. Another big factor is the effect of debts, which are not reduced: http://en.wikipedia.org/wiki/Debt_deflation http://en.wikipedia.org/wiki/Debt_deflation Here's another summary on deflation, intended for a popular audience: http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
Jtsummers 12y ago
Inflation is good for borrowers, employers and sellers. Deflation is good for lenders, employees and buyers. Borrowing - Inflation: I borrow $1000.00 today at 3% with an inflation rate of 2% (per year). At the end of this year I pay the loan back in full at $1030.00. I have spent a larger nominal value, however the real value of the loan is now $1030.00 * 0.98 = $1009.40. Meaning my effective interest rate was around 1%. Borrowing - Deflation: Let's take the same numbers, but now it's 2% deflation. I pay back the loan, $1030.00 nominal value. The real value is $1030.00 * 1.02 = $1050.60. My effective interest rate is around 5%. Salary - Inflation: I am paid $100,000 this year for my work, inflation rate of 2%. Without a pay raise my nominal salary remains the same next year, but my real salary becomes $98,000. This is a pro for employers, I am a cheaper employee. It's a con for me, my time is worth less. Salary - Deflation: I am paid $100,000 this year for my work, deflation rate of 2%. Without a pay raise my nominal salary remains the same next year, but my real salary becomes $102,000. This is the reverse. I cost my employer more, but without changing nominal salaries my time has become more valuable. Purchasing - Inflation: You want a widget worth $1000.00 today and face 2% inflation. If you purchase it at the start of the year, ignoring depreciation on the widget, it's worth $1020.00 at the end of the year. So if you resell it at that point you've made 2% (nominal), though the real value is the same. Purchasing - Deflation: Using the same widget, price and 2% deflation. If you purchase it at the start of the year for $1000.00, and sell at the end for $980.00 you end with the same real value, but you've lost 2% of the nominal value. Barring a need to purchase an item within a particular time, it makes sense for purchasers to delay purchasing as long as possible. On the other hand, vendors want to sell as early as possible because the nominal value of their goods are decreasing (and this ignores other costs of holding inventory).

by ttty 12y ago

BSousa 12y ago

Not an economist either. But the way I see it (ignoring food and other things you can't live without) Inflation Day 1: you can buy 1000 candies, and you suspect tomorrow you will only be able to buy 500, so you buy 1000 candies and store them/eat them. You 'inject' money into the economy, give the government tax money, etc. Deflation: Day 1: you can buy 1000 candies, but suspect that tomorrow you can buy 2000 candies, you don't buy Day 2: you can buy 2000 candies, but suspect that tomorrow you can buy 3000, you don't buy, or buy just enough for your sweet tooth today (lets say 100) Day 3: you can buy 3000 candies, but again... etc etc Again, this is based on needs and wants. If you have 1000 euros. If your phone breaks and you need one to work, you will buy today, no matter if we are in deflation or inflation, but if your old one still works, you may very well buy it today (in case of inflation, since it will will cost more of those 1000 euros tomorrow, or you will wait if you are in deflation since it will cost less of those 1000 euros. Of course, if you need rice to not starve, it doesn't matter! And for average folks, deflation tends to be good since most of expenses are from needs and not wants but this causes issues to business and (possibly) to the economy as well. If you want a smaller example, I've personally waited for weeks and months to import some goods due to the falling EUR->USD rate, saving me between 5-6% of the cost, so I don't see why others won't do the same if they expect the costs to be less in the future.

facepalm 12y ago
What if you really want some candy? I think that's what the theory misses. You can only hold out for so long with certain things. If you are hungry, eventually you'll have to buy something to eat. An extreme example: I have bought a lot of computers in my life, even though I knew their value would be close to zero within two years. And maybe there are also benefits if people only buy the stuff they actually need.
- mikeash 12y ago
  What qualifies as "really need," and how much of the modern economy is involved in producing that stuff? If people only buy the stuff they actually need, we on HN would all be out of jobs tomorrow. Computers, smartphones, nice cars, high-end food, good booze, entertaining movies, all of this goes away. I don't want to live in that world, personally.
  - facepalm 12y ago
    So you need those things, an ongoing deflation is only a factor in your evaluation. It doesn't mean you'll never buy them. You will think "is it worth for me to hold out a little longer before buying" and there will be a threshold where you think "no" and you buy. You could just as well argue that inflation leads to a spiral of death because people won't be able to afford things. Therefore they won't buy things, nobody will produce things, and there will be no things. Sounds just as logical.
    - mikeash 12y ago
      I'm sorry, I have no idea how your reply relates to my comment.
      - facepalm 12y ago
        Well "really need" is in the eye of the beholder. Except for staying alive. Do you honestly believe because of Deflation people would only buy the barest minimum of things to keep them alive? And when would you buy a sleeping bag. Maybe it is Minus 5 degrees outside but you can survive that. After all, tomorrow the sleeping back will be 1$ less tomorrow, and after all you'll only die if it's minus 10 degrees?

collyw 12y ago

Deflation is only bad if you are in debt (it effectively increases what you owe rather than reduce it). The governments of most western nations are in debt, hence their fear of deflation.

lottin 12y ago

You're 100% right. If prices fall faster than wages, it means that gradually people have more real income and you'd expect that their consumption would increase, not decrease. While in specific circumstances some purchases might be postponed temporarily due to falling prices, it's extremely dubious that the end result would be less consumption in the economy.

jmesserly 12y ago

> This is just a big lie thrown in my face! > please correct me if I'm wrong!!! You're wrong. Deflation is basic economics. If you take a college macroeconomics course it will be covered. It's hard to summarize in a way that will convince you in an internet debate. Sort of like trying to argue electromagnetism with someone that never learned about Maxwell's equations. An econ textbook would be ideal, but another place to start would be: http://en.wikipedia.org/wiki/Deflation http://en.wikipedia.org/wiki/Deflation (By the way, no offense intended with that. It's hard for anyone to comment on a scientific subject if they didn't learn the background, even super smart folks.) There are several things wrong with your story, but the first one that jumps out is that some prices are more sticky than others. For example, wages are likely to not go down much, instead firms tend to cut employment. There's a lot of evidence for this: http://en.wikipedia.org/wiki/Nominal_rigidity http://en.wikipedia.org/wiki/Nominal_rigidity. Another big factor is the effect of debts, which are not reduced: http://en.wikipedia.org/wiki/Debt_deflation http://en.wikipedia.org/wiki/Debt_deflation Here's another summary on deflation, intended for a popular audience: http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...

Jtsummers 12y ago

Inflation is good for borrowers, employers and sellers. Deflation is good for lenders, employees and buyers. Borrowing - Inflation: I borrow $1000.00 today at 3% with an inflation rate of 2% (per year). At the end of this year I pay the loan back in full at $1030.00. I have spent a larger nominal value, however the real value of the loan is now $1030.00 * 0.98 = $1009.40. Meaning my effective interest rate was around 1%. Borrowing - Deflation: Let's take the same numbers, but now it's 2% deflation. I pay back the loan, $1030.00 nominal value. The real value is $1030.00 * 1.02 = $1050.60. My effective interest rate is around 5%. Salary - Inflation: I am paid $100,000 this year for my work, inflation rate of 2%. Without a pay raise my nominal salary remains the same next year, but my real salary becomes $98,000. This is a pro for employers, I am a cheaper employee. It's a con for me, my time is worth less. Salary - Deflation: I am paid $100,000 this year for my work, deflation rate of 2%. Without a pay raise my nominal salary remains the same next year, but my real salary becomes $102,000. This is the reverse. I cost my employer more, but without changing nominal salaries my time has become more valuable. Purchasing - Inflation: You want a widget worth $1000.00 today and face 2% inflation. If you purchase it at the start of the year, ignoring depreciation on the widget, it's worth $1020.00 at the end of the year. So if you resell it at that point you've made 2% (nominal), though the real value is the same. Purchasing - Deflation: Using the same widget, price and 2% deflation. If you purchase it at the start of the year for $1000.00, and sell at the end for $980.00 you end with the same real value, but you've lost 2% of the nominal value. Barring a need to purchase an item within a particular time, it makes sense for purchasers to delay purchasing as long as possible. On the other hand, vendors want to sell as early as possible because the nominal value of their goods are decreasing (and this ignores other costs of holding inventory).