Eli5: Why is deflation more difficult to fix than inflation?
In: Economics
This is an interesting question!
The main problem with deflation isn’t that it’s generally harder to fix, it’s that *it’s the bad thing you were trying to avoid*.
When deflation happens that means that the prices of things need to drop. People *hate* it when you cut their wages though, even if other things are cheaper. So businesses instead rely on layoffs. All at once. Unemployment spikes and the business is in more trouble because they are still overpaying for the employees they kept!
The economy suffers because lots of people that used to be doing useful work are now unemployed.
Fiscal stimulus seems to be key to fixing it, but when the economy is bad people usually feel the government should *save* money because that feels more conservative and the bad economic situation makes them want to vote for safety (see after the great recession).
Monetary policy is more limited when fighting deflation than inflation because you lower interest rates to fight deflation, and raise them to fight inflation.
You can raise interest rates to any number you like, but it is very, very hard to take interest rates below zero percent.
Tl;Dr — Once deflation occurs the badness has *already happened*. Monetary policy is weak vs deflation. Fiscal policy is constrained by politics.
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