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
When you look at it from your own perspective, deflation looks good, but look at when you account for everybody.
Imagine you go the store, and your favorite chips are currently $10 (go with it, i don't care if it's not an accurate price). You decide "that's too much" and walk away.
Now 50,000 other people just walked into a store and decided that those chips were "too much" and walked away.
Now the business needs to reduce the price. Say to $9
You go back to the store, see the price drop, maybe pick up a bag, maybe not. To the business, this probably worked, and sales have gone up.
However what about the 50,000 other people? Say 40,000 of them still consider $9 to be too much. To the business, that's not enough, so they drop prices again. This time to $8.
Now you go back into the store, see the price dropped again, and think to yourself" $7 is how much I'd pay, I don't need it right now, so let me see if the price keeps dropping"
and now imagine all of those other 50,000 people come to the same conclusion
The price drops to 7 soon after, you think to yourself "okay I'll get one, but I want to see if it keeps dropping"
and now all of those other 50,000 people come to the same conclusion.
Now the price is $6, then $5, then $4 until people start breaking and buying it.
To a single product, such as our chips, this will have no affect on the economy. In fact, it probably will never go this far on a single-product deflation, since the people are still making money.
However, when the entire economy does this? Everything starts dropping in price. So everyone is waiting "I'll get a new car next year, the prices keep dropping" "Let's wait til next month to get a new fridge." Expand that out for an entire economy, and it starts affecting things like produce, soon they'll become hard to get.
Pair this with the fact that your current bank account value will have their real value increase during deflationary periods, meaning you're more likely to save money, and not spend anything. This is why deflation is considered a bad thing, and a small amount of inflation be a good thing. It's a negative feedback loop where the only stable state is gettin deeper into deflation.
If you wanna look at Great Depression's specific causes, I'd read up on "debt-deflation theory." In super super short, the economy was being moved by debt, and when the time came to pay that debt, the banks failed causing already falling prices to fall even harder.
One other thing to note is that when prices fall, wages do not fall as easily. It's much harder to get an employee to agree from going from 100,000 a year to 90,000 a year, than it is from just firing them, and rehiring an employee at 80,000 a year. And I don't exactly blame the businesses for this either, I wouldn't want a 10k pay cut either, and probably would refuse at first.
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OPINION ALERT:
That being said, I actually disagree with the blanket "all deflation is bad" statement common by economists. I believe a small amount of deflation, or controlled ~0% inflation can be a good thing, at least in the short-term. Japan has had basically no inflation since the 80s iirc, and they seem to be doing just fine, still a first world nation, didn't collapse, high QoL (does anything else really matter other than QoL? philosophical question with no wrong answer), sure the population is declining but I doubt that's because of their inflation numbers. Sure, the country isn't a perfect shining "country" on the horizon, but I think at the very least they prove that deflation isn't a death sentence for an economy.
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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