Eli5: why can’t we just “deflate” money, and why is it bad?
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It’s bad in the Big Picture, not on the small scale.
A little of deflation is good on the individual level, if I have $1000 that can buy 100 apples today, but 200 apples tomorrow, that’s great for me…. until….
But what happens when you a bit larger and multiply the effect up the economic food change.
Company X did the math and knows it needs to sell 100 widgets a day to cover it’s expenses, like loans, payroll, materials, etc. Suddenly the price for widgets at the store goes down (deflation) now it needs to sell 200 widgets to make the same profit. But deflation doesn’t mean people’s needs change, the demand is still only for 100 widgets. So the company is in trouble, it needs to cut down expenses to stay in business. That means not taking on debt (like loans to buy new factories, or expand it’s production) that means maybe laying off employees, and that means cutting back on things like employee travel, lunches, parties, etc.
So that means the construction company (who would have built the new factory), the travel agents, the caterers, the party planners, all don’t get that revenue and they start going out of business. Employees start getting laid off too, that’s obviously bad for the employees.
In short, the deflation triggers a decline in the economy that eventually hurts everyone.
It all comes down to supply vs. demand. At the start of deflation you have more supply than demand (the company can produce 200 widgets, but only 100 are needed by the market) so the reaction is supply needs to decrease (the company lays people off, factories close etc) until it meets up with demand again.
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