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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
by 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 agoBut why would their income be down (in real terms) in the first place?
- Amezarak 12y agoBecause 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.