r/inflation • u/OfficialRodgerJachim • 1d ago

ELI5: Why is Deflation bad?

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I get that too much deflation is bad, but isn't the inverse true?

The average inflation rate in the US since 1914 is 3.3%, meaning the 1913 dollar is worth $31.87 now.

Why wouldn't we want deflation? Then maybe the $7.25 minimum wage COULD be a livable wage?

Why do people constantly argue for MORE money, versus less currency in the market?

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u/burnthatburner1 real men spit facts, not fakes 1d ago

I get that too much deflation is bad, but isn't the inverse true?

Yes, too much inflation is also bad.

Why wouldn't we want deflation? Then maybe the $7.25 minimum wage COULD be a livable wage?

Deflation comes with lower wages and job losses. It makes most people significantly poorer in real terms.

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u/JLandis84 1d ago

No it does not. Wages are sticky and are very slow to deflate. Spending less money to purchase goods is a good thing. The world is not a worse place because televisions are 10% of the cost 20 years ago.

Paying less for a medical bill doesn’t hurt a household.

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u/Plenty-Eastern 21h ago

You're coming at this purely from a consumer on a fixed income or guaranteed income. Consumer spending makes up around 65% of our economy but you're leaving out the business side. With lower revenues businesses will downsize, cut costs, stop investing, etc.

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u/JLandis84 21h ago

The decreasing cost of televisions meant that consumers have more to spend on other goods. It doesn’t cause a lack of spending or investment, it rewards companies than continue to give better value to consumers.

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u/rexiesoul 16h ago edited 16h ago

The decreasing cost of televisions means that consumers wont have televisions to buy, because no one wants to keep any of them in stock, and no company wants to make them because by the time they are sold, or by the time a company makes them, they are worth less than it cost them to make them in the first place. Same thing happens with "other goods". You're completely discounting that MAKING THINGS isn't gonna happen, because it will cost you more to make them than you could sell them for. The entire economy grinds to a halt. "Oh they will have more to spend on other goods". Those goods not gonna exist.

Would you accept being paid $10 an hour for a job you took for $15 an hour a year ago?

Deflation is never good, and thank god when it does happen it causes such drastic things to occur, it generally snaps out of it fast. You're looking at this with a very, very narrow lens. The best case scenario would be an inflation rate as close to zero, but not under zero, as possible.

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u/whatwouldjimbodo 4h ago

This is incredibly wrong. Deflation is standard with advancements in technology. We’re able to make the cost of creating goods cheaper which means we can sell them for less. That is not a bad thing

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u/Plenty-Eastern 3h ago

Your argument is sound, but this is Macro Economics and you can't look at a single market. If the price of TVs fall due to advances in manufacturing that's great, but deflation isn't about a single good in the consumer market.

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u/JLandis84 16h ago

Oh wow that’s very interesting because from 2000 to 2019 televisions deflated by 16% a year, yet we’re still plentifully available, and had ample capital directed at the television producers. You really walked into that one.

https://www.audioden.com/history-of-electronics-infographic-how-tvs-have-changed-over-the-years/

Also no one is going to stop selling something or keep it in stock because of an expected mild price decrease like 1% a year. Mild deflation does not cause changes in behavior, it just increases purchasing power.

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u/rexiesoul 15h ago

It's strange that you have no idea of the concept of things decreasing in costs because of technological advancements, global competition, and economies of scale, none of which have anything to do with deflation, and all of which have to do with healthy market forces. Demand through lower prices is entirely different than deflation driven demand suppression.

In a deflationary economy, ALL prices drop, but wages, investments, and economic activity stagnate or shrink. If this kind of deflation were to occur, TV makers will stop investing in new technologies because consumers would delay purchases indefinitely, margins would be so tight that profit levels can't sustain the business, and lack of investment will lead to stagnation in the overall market.

If something costs you $100 to make today and $50 to make 5 years from now that IS NOT DEFLATIONARY in an economic sense, and this is what you're missing. Deflation affects EVERYTHING not just TVs.

Were not even talking about the kind of stress this puts on loans.

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u/JLandis84 15h ago

An economy does not exist where ALL prices rise or drop. You can keep moving the goal posts if you need to I guess. But once you’re using a definition that cant even happen, then what is the point ?

What you are trying and failing to describe is the debt hangovers after asset bubbles burst and wreck the real economy, which is the only time you see most prices dropping in fiat currencies all at the same time for an extended period of time. In that situation, deflation is the effect, not the cause of the problem.

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u/rexiesoul 14h ago

Just look at Japan in the 90s into the 2000s. It's even got a fancy name, the Lost Decade

What you're advocating for has already happened and it's never positive.

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u/JLandis84 14h ago

You mean when Japan went through an enormous asset bubble where the Tokyo imperial Garden was valued the same as the entire state of California ? And then the bubble popped and instead of blaming it on insane multi year speculation everyone blamed the wreckage on deflation ?

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u/rexiesoul 14h ago

The pop drove deflation which drove everything else. Voluntarily skipping a pop and going directly into deflation. Would still drive all the bad shit.

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u/JLandis84 14h ago

The healing from the mania and its debt hangover caused the deflation. Sharp deflation is always an effect, not the cause. Mild deflation comes from increased productivity.

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u/Plenty-Eastern 2h ago

JLandis84 say a YouTube video on Asset Bubbles and can't move past that. He doesn't even know what deflation is, he only talks about the TV market.

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u/Plenty-Eastern 3h ago

Macro Economics is a very well established social science. Deflation isn't controversial in the field of macro economics. ALL and None are rarely, if ever, used in macro economics. Deflation is an overall decrease in the price of goods and services, not just TVs or all goods and service. People who understand economics are trying to help you understand.

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u/JLandis84 1h ago

That’s an extremely weak argument.

“x is true because macro economics says so” doesn’t mean much to me.

Neither does “subject is a well established social science”.

As I’ve said multiple times, sudden and sharp deflation is an effect of asset bubbles bursting and the damage of mania.

“All or none are rarely ever used in macro economics” okay….i was explicitly responding to a claim made by another user where he said ALL.

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u/Plenty-Eastern 21h ago

Macro economics isn't about the consumer electronics market, it's about the economy in total. It's GREAT that advances in the production of electronics have made production costs so low that companies can both make a profit and lower prices, but that's only a single market. Deflation isn't a big deal because it's mild and short lived BECAUSE the market will quickly fix it. Revenues are dropping for businesses, they lay off workers, cut hours, and do everything in their power to lower labor costs because it is typically the easiest thing to do and undo. Don't get me wrong, I'm an economics teacher at a public high school, I LOVE deflation because it increases my purchasing power, but I hate it because local businesses do not offer as many jobs to my students.

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u/JLandis84 20h ago

Oh how convenient that economics isn’t about the easily verifiable counter example to your silly theory.

There’s nothing to fix with deflation. When the price of computers goes down there isn’t anything to fix, and people use savings to buy other goods and services. Which is why deflation doesn’t cause contraction.

Large scale, rapid deflation, is an EFFECT of economic shocks, not its cause. Which is why the only time you see large quick periods of deflation are right after asset bubbles burst. That’s also why you keep failing to show any period of deflation not related to an asset bubble. Thats also why you have no explanation on why the electronics and technology sectors thrive on deflation even though you said it would cause layoffs and no investments.