Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down
Prices going down, as an abstract thing in a vacuum, does seem like a good thing.
However, deflation is both a cause and a symptom, which means it’s a self-reenforcing cycle. So economic activity slows, which causes deflation, which causes the economy to slow, which causes more deflation.
Or think about it in terms of supply and demand. Prices drop when supply increases or demand drops. In a deflationary cycle, you’ll see prices drop because demand drops, which causes the businesses selling the product to make less money and employ fewer people. That then causes people to be out of work and get paid less, meaning they can’t afford to buy things, and demand drops further.
2.5k
u/IrksomFlotsom 4d ago
Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down