While consumers can benefit from falling prices, persistent deflation can also lead to a downward spiral for spending and investment.
This seems like an absolute win.
this post was submitted on 30 Dec 2024
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Until your company, your salary and your job start deflating too.
The obsession with companies needing to post increasing profits every single year is frankly baffling. Let's say a company makes X amount in profits in 2024, and everyone—employees, shareholders, stakeholders—are happy and well-compensated. Why should the expectation be that profits must increase in 2025, even if the company is already performing well? The only explanation that comes to mind is greed. It seems like the focus is less on long-term sustainability or fairness and more about feeding the insatiable hunger of CEOs and executives who just want more—more profits, more bonuses, more power. It’s as if they’re modern-day dragons, hoarding wealth for the sake of hoarding, rather than for the health of the business or the people within it.
You can have inflation and lower profits, no issue there. The unit of account shifting in value has some, but ultimately little, impact on how much of the value-add companies keep for themselves, or how much their business expands or contracts. The same percentage of a less valuable unit of account is a larger number, but still the same percentage.
People like when if their rent is suddenly a lower percentage of their wages, they don't really care about the absolute numbers.
It's how the financial system works. Money is created out of loans that need to be paid back with interest, and the money for that interest comes out of other loans made by other people. It creates an ever increasing mountain of debt, and it pushes businesses to keep growing to stay ahead of their interest payments. The ones that don't are bought up by the ones that do. Naturally the most greedy and sociopathic float to the top in this system.
And so you get the eternal search for more things to exploit to keep growing and more profit. These things are baked in at a fundamental level.
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That would mean I need to work fewer hours, to buy the same things?
If so, how is that bad?
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Isn't it great that we also have people who do know about economics?
"The people are tired of experts" stupidity apparently knows no political borders.
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Up until the 20th century it wasn't uncommon to have cycles of inflation and deflation.
https://iamkate.com/data/uk-inflation/
The reason deflation is so highly feared is because it increases the value of debt. In particular, government debt. China owns large parts of the debt of the US. Deflation makes them stronger.
Not exactly. Deflation basically slows down the economy. If you think your money will worth more tomorrow, then you are less likely to invest/spend them.
But the whole purpose of money is to be used. Money is a tool, the oil that facilitates trade and keeps the economy going. And while too much money(oil) can overheat the economy(inflation), too little money can straight up bring the economy to a halt(deflation).
Deflation, even in small amounts, is more dangerous, thats why ideally you prefer having a small amount of inflation.
If you think your money will worth more tomorrow, then you are less likely to invest/spend them.
I see this argument being thrown around a lot. How does it work when a fair share of people are not doing investment at all, and are unable to spend the bare minimum to live, to begin with?
I ask this because the argument of "people will spend less" only works with people that spend extra money on unnecessary things, which is becoming less and less of a thing.
Because no matter what proportion of the population they are, many many businesses are kept afloat by discretionary spending. Be that TVs, laptops, clothing, grooming, beauty products, heath+fitness, cars, holidays, tourism, travel, even house moves.
These are all things that can be 'put off a little while' if there's serious prospect of your money going further. Which, as OP says, slows the economy and makes deflation worse.. The thing that suffers in the meantime is cash flow in these businesses (and dependent businesses) and an extended period of slow trade with no prospect of it ending would see many of them go to the wall. See: covid. Had governments not acted it would have naturally led to deflation. That's not the reason they acted though, they pumped money into the economy because long before deflation/inflation would have been a worry bankruptcy would have cut deep into thousands of regular 'good' businesses. (So they over inflated and then we had globally crap price inflation but still the risk of an economy wide shut down was that bad..)
"The economy" in this instance being a playground for the rich.
People won't stop paying for food or rent just because their money might be worth a little more tomorrow. They won't skip buying minor entertainments just because maybe their meager salaries might be worth a little more next week.
Deflation is poison for the owner class, not the working class.
"The economy" in this instance being a playground for the rich.
People won't stop paying for food or rent just because their money might be worth a little more tomorrow.
Indeed, people won't stop paying for everyday necessities, but the economy consists of more than just individual people: there's the state and there are businesses too. You conflate the latter with “the rich”, which is generally true for corporations, but corporations are not the only form of business; there are cooperatives, partnerships, and others which can distribute profits more fairly. In any case, deflation affects all businesses, including fair ones, and the state itself. As another commentator suggested, money is meant to change hands and should never become an asset worth holding.
money is meant to change hands and should never become an asset worth holding.
Forgive my admitted ignorance. If money should never become an asset worth holding, how can inflation be better than deflation for the working class?
Proportionately, the rich hold a lot more money assets than the poor, who generally don’t hold any or very little.
If you have debt, inflation eats away at that debt. If you're paying 5% per year on that debt, but inflation goes up 3%, you're actually only paying 2% on that debt. That's good for people who have debt, and bad for the people who invested the initial money for that debt. With deflation, it's the opposite.
This assumes your wages go up with inflation, though. Over the long term, that does tend to happen, but there are certainly periods where that is not true.
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If money should never become an asset worth holding, how can inflation be better than deflation for the working class?
It's deflation that turns money into an asset worth holding and thus slows down economies. Too much inflation isn't good either, for different reasons. A slight and stable inflation is the sweet spot.
Proportionately, the rich hold a lot more money assets than the poor, who generally don’t hold any or very little.
Indeed, the rich do proportionately hold a lot more money than the poor, but it isn't much. The rich mostly have shares in corporations, bonds and real estate.
Inflation is generally worse for workers than for the rich because the latter have more pricing power. If both your living expenses and your income after taxes increased by 20%, you'd even end up with more money than before, assuming your living expenses were a fraction of your income. Unfortunately, prices haven't risen equally; the cost of living increase has generally outpaced real wage growth. The rich have been able to set higher prices; workers haven't been able to extract high enough wage raises.
Neither high inflation nor deflation are good for workers. What workers need is pricing power through strong unions and political support.
A slight and stable inflation is the sweet spot.
Only if you enjoy living on debt.
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Deflation, even in small amounts, is more dangerous, thats why ideally you prefer having a small amount of inflation.
This is only accurate if you measure economic success by "Corporate profits".
Deflationationary phases are very helpful for the working class, as their dollar now buys MORE things. Like food. And housing. And health care.
Deflationary periods may be helpful to those with large amounts of cash or cash equivalents, which generally isn't the working class. Wage growth outpacing inflation helps the working class more.
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Yes and no. If deflation is at 1% or 2% investing your money should have significantly higher returns. What it does is make people more risk adverse.
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China owns large parts of the debt of the US. Deflation makes them stronger.
I don't follow you here. How does deflation in China make the debt of the US stronger? Am I understanding you wrong?
If the renminbi appreciated over time against the US dollar, dollar-denominated debt held by the People's Republic would yield less and less, wouldn't it?
I'm glad this got press.
Such slowdowns tend to be good for the average person.
They're bad for speculators, investors, shareholders -- mostly rich people who are too moneyblind to see that endless growth is untenable. To those people, I say: fuck you.
I think the usual issue with deflation that people will wait for prices to keep going down and therefore keep buying less which feeds the deflation.
It's one of those vicious cycles - it's really hard to stop once it starts.
Also, bear in mind that China's recent economic growth has been mainly internal consumer driven (external infrastructure investments have slowed down noticeably as belts are tightened) so while they aren't as fucked as America would be they could see a dramatic rapid decline.
People buying less, ie being more risk averse, and not wanting to take on debt, is a net benefit for everyone. Buying less means less ecological impact. Being more debt averse means fewer wage slaves.
The only people who suffer from "buying less" are corporate owners.
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I mean, it's a fair question for a political leader to ask his economic advisors, no? Pretty sure Obama would have asked his advisors the same question back in 2009.
The issue, by the way, is a lot less settled than a lot of people think. Macroeconomics still seems to do a surprisingly bad job at understanding the links between inflation, interest rates, and economic activity, beyond giving some rough guidelines.
Obama would have been president for one year in 2009 and I still would hope he understood the problem with deflation.
Xi Jinping has been in power for over 12 years now.
Fears about persistent deflation in China are relatively recent. It's come up now because of the live question of whether the government should engage in a big fiscal stimulus (the same debate the US went through in 2009).
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Jesus Christ.
Deflation has a good chance of forcing a stop to endless consumerism - and that will at least be good for the climate. It will cause havoc to the current economic system though, and that in turn could make things worse for investments into green tech.
So ... yeah.
I can tell you what. States like Japan and USA running budget deficit for decades managed to build 120-260% debt to GDP ratio. This will collapse the entire economies if currency starts deflating
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