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Something tells me the average HN commenter living in Silicon Valley making six figures doesn't represent the average American. While there are certainly fixed

Something tells me the average HN commenter living in Silicon Valley making six figures doesn't represent the average American. While there are certainly fixed costs to being alive (like toilet paper), most people do cut back and this behavior is observed. And when it gets very bad, even those "fixed costs" start being cut - cheaper toilet paper, moving in with mom and dad, etc. Not because they want to save now to buy more TP later, but because when discretionary spending falls, people lose jobs, which further reduces discretionary spending, and more people lose jobs, wages fall (because of the surplus of labor), and eventually it all starts affecting you.

icebraining 12y ago
While there are certainly fixed costs to being alive (like toilet paper), most people do cut back But why, if things are getting cheaper?
- deleted 12y ago
  [deleted]
- Retric 12y ago
  It's not cheaper right now, it will be cheaper tomorrow. EX: http://buyersguide.macrumors.com/ http://buyersguide.macrumors.com/ note the 'don't buy' recommendations.
  - icebraining 12y ago
    Yes, but Amezarak said it was "not because they want to save now to buy more TP later", which is what you're describing.
    - Retric 12y ago
      The gap between getting a new phone every 18 months vs 2 years is fewer purchases over the long term. (~1 fewer phones every 8 years.) The same thing works for durable goods not just improving goods like PC's. Consider if you wait 1 month when buying a chair it's 1 month newer so you’re likely to wait an extra month before replacing it. Multiplied by 100 million a people and even just 1 month becomes significantly lower consumption. 'This' starts a vicious cycle where fewer durable goods are produced so make fewer goods and thus have less money which reduces consumption of durable goods and non-durable goods. Using the TP example if your broke you can slightly cut back on TP use.
- Amezarak 12y ago
  Because by the time people are looking at cutting TP costs, it's because their household income is down probably substantially, or they're afraid it will be in the near future.
  - icebraining 12y ago
    But why would their income be down (in real terms) in the first place?
    - Amezarak 12y ago
      Because someone in the household lost their job. Deflation makes employees more expensive even as demand slows. Even in some kind of ideal economy without downward nominal wage rigidity (which leads to people getting outright fired instead(, their wages get cut. But that can end up being almost as bad: almost everyone has mortgages, student loan debt, car notes, or credit card debt, and suddenly that debt is consuming more of their annual income, forcing them to cut back. It's a problem with aggregate behavior and feedback loops. As long as you're zoomed in on the individual level, it doesn't make sense. This is exactly what happened during the 2008 recession. Once triggered (in that case by the housing bubble, subprime mortgages, etc) it spreads through the economy and it's hard to break out of - we still haven't really done so. The Fed is still failing to meet the target inflation rate despite extraordinary monetary measures.
msandford 12y ago
I'm not the average HN commenter then because I don't live in Silicon Valley nor do I make six figures. Does that mean my rebuttal carries more weight then?
- Amezarak 12y ago
  If you better represent the average American and what you would actually do in a deflationary economy, yes. Most Americans even in boom times don't just buy new flatscreens and computers on a whim, because they can't afford to. But since the average American (or, well, citizen of any country) has been consistently observed over centuries not to behave in the manner described by that rebuttal, it doesn't matter. To be fair, the article is simplistic and almost encourages that kind of rebuttal. Your edit essentially addresses that and I don't disagree with it - anyone who is saying that spending "stops" is clearly being silly. It begins as a marginal effect that worsens over time, and TV purchases are the first to go while TP and rent takes a while longer.

icebraining 12y ago

While there are certainly fixed costs to being alive (like toilet paper), most people do cut back But why, if things are getting cheaper?

deleted 12y ago
[deleted]
Retric 12y ago
It's not cheaper right now, it will be cheaper tomorrow. EX: http://buyersguide.macrumors.com/ http://buyersguide.macrumors.com/ note the 'don't buy' recommendations.
- icebraining 12y ago
  Yes, but Amezarak said it was "not because they want to save now to buy more TP later", which is what you're describing.
  - Retric 12y ago
    The gap between getting a new phone every 18 months vs 2 years is fewer purchases over the long term. (~1 fewer phones every 8 years.) The same thing works for durable goods not just improving goods like PC's. Consider if you wait 1 month when buying a chair it's 1 month newer so you’re likely to wait an extra month before replacing it. Multiplied by 100 million a people and even just 1 month becomes significantly lower consumption. 'This' starts a vicious cycle where fewer durable goods are produced so make fewer goods and thus have less money which reduces consumption of durable goods and non-durable goods. Using the TP example if your broke you can slightly cut back on TP use.
Amezarak 12y ago
Because by the time people are looking at cutting TP costs, it's because their household income is down probably substantially, or they're afraid it will be in the near future.
- icebraining 12y ago
  But why would their income be down (in real terms) in the first place?
  - Amezarak 12y ago
    Because someone in the household lost their job. Deflation makes employees more expensive even as demand slows. Even in some kind of ideal economy without downward nominal wage rigidity (which leads to people getting outright fired instead(, their wages get cut. But that can end up being almost as bad: almost everyone has mortgages, student loan debt, car notes, or credit card debt, and suddenly that debt is consuming more of their annual income, forcing them to cut back. It's a problem with aggregate behavior and feedback loops. As long as you're zoomed in on the individual level, it doesn't make sense. This is exactly what happened during the 2008 recession. Once triggered (in that case by the housing bubble, subprime mortgages, etc) it spreads through the economy and it's hard to break out of - we still haven't really done so. The Fed is still failing to meet the target inflation rate despite extraordinary monetary measures.

msandford 12y ago

I'm not the average HN commenter then because I don't live in Silicon Valley nor do I make six figures. Does that mean my rebuttal carries more weight then?

Amezarak 12y ago
If you better represent the average American and what you would actually do in a deflationary economy, yes. Most Americans even in boom times don't just buy new flatscreens and computers on a whim, because they can't afford to. But since the average American (or, well, citizen of any country) has been consistently observed over centuries not to behave in the manner described by that rebuttal, it doesn't matter. To be fair, the article is simplistic and almost encourages that kind of rebuttal. Your edit essentially addresses that and I don't disagree with it - anyone who is saying that spending "stops" is clearly being silly. It begins as a marginal effect that worsens over time, and TV purchases are the first to go while TP and rent takes a while longer.