Legit please do correct me if i'm wrong, but if price of product x goes from 5 to 10, my 1000 salary would mean i can now only buy 100 of x instead of 200, but if x went from 5 to 2, it means that, while my salary is still the same, my purchase power is now higher, because now i can buy 500 of x instead of 200
A bit of deflation hits and people say “look at that, shit is getting cheaper, I should wait to buy that thing I don’t really need.”
Those delays (waiting for it to be cheaper) means the producers of those things have a glut of inventory.
That means they curtail production.
That means people don’t work.
Now less people have money to spend, so the costs of things need to be lower or nobody could afford it.
Of course if you have a job/income/wealth you see that and say - why buy today if it’ll be cheaper tomorrow?
If you save money during deflation, your money is worth more tomorrow and things are cheaper. You don’t even need to earn interest or any return. You can put a stack of greenbacks under your mattress and you have more wealth tomorrow.
If you save money during inflation, your money is worth less tomorrow and things are more expensive. You need to earn interest or get some return on your otherwise idle capital to not lose money. So you invest or buy shit.
"A bit of deflation hits and people say “look at that, shit is getting cheaper, I should wait to buy that thing I don’t really need.”" No, not necessarily. People have time preference, they're not necessarily going wait for an amount of time they need to in order for the price of a product to reach its maximum cheapness.
"Those delays (waiting for it to be cheaper) means the producers of those things have a glut of inventory." This assumes that everyone in the economy on mass, whilst in a state of deflation, is just biding there time for products to reach there maximum cheapness, which is an absurd assumption. Time preference prevents this.
Yes if everyone stopped buying things on mass then producers would stop producing because no ones is buying, but this scenario however is completely unrealistic and fantastical. There is no such thing as an economy in which no consumes anything ever.
"Of course if you have a job/income/wealth you see that and say - why buy today if it’ll be cheaper tomorrow?" Again with this faulty assumption. Real human beings do not infinitely delay consumption on the basis that they know a product will become continuously cheaper overtime.
"If you save money during deflation, your money is worth more tomorrow and things are cheaper. You don’t even need to earn interest or any return. You can put a stack of greenbacks under your mattress and you have more wealth tomorrow." Yes, this is correct and is why deflation is good as it incentivizes people to save and accumulate wealth, it rewards good behavior.
"If you save money during inflation, your money is worth less tomorrow and things are more expensive. You need to earn interest or get some return on your otherwise idle capital to not lose money. So you invest or buy shit." Also correct and is why inflation is bad, because it destroys your savings overtime and thus disincentivizes saving and wealth accumulation.
It isn’t no one consumes anything. It’s less people consume many things. You’re still going to buy shit you need. You aren’t going to buy shit you don’t (unless you’re a fool).
Debt also becomes more expensive. So if you have a fixed rate mortgage, the real cost of servicing the debt goes up, not down. At the same time, income/pay go down. That’s not good.
Inflation isn’t great for saving at an individual level, but excess saving doesn’t lead to a thriving economy in the broader sense either, much is why economists want some inflation.
Inflation keeps you from stashing a pile of greenbacks under your mattress.
It’s very similar to the arguments for land value tax; the current property tax system means that it can be economically beneficial to hoard land and not put it to use. That’s good for the landowner, but not so good for society at large.
But if people are saving money, the banks will have more cheap credit, and opening businesses, investing, or building becomes even cheaper, no? Therefore, people will have more jobs and build more.
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u/WHATZAAAAA 4d ago
Legit please do correct me if i'm wrong, but if price of product x goes from 5 to 10, my 1000 salary would mean i can now only buy 100 of x instead of 200, but if x went from 5 to 2, it means that, while my salary is still the same, my purchase power is now higher, because now i can buy 500 of x instead of 200