Why is an economic depression bad for consumers even though prices are cheaper?
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In simple ELI5 terms there is less money going around, which affects everyone. Less money moving means fewer jobs, which means higher unemployment, fewer raises, etc.
For a person who maintains their job and continues to get raises at the same level as they were before a depression, it could be a good thing. But this is not the experience most people have during a depression.
Lower prices = less profit for company.
Less profit for company = layoffs/firings/company closures.
Layoffs/firing/closure = I don’t care how cheap it is, I can’t afford it with my $0.
The lower prices are happening as an attempt to draw consumers back to the business because it is operating at a loss. A business operating at a loss soon doesn’t operate at all. Then there are less goods and services to purchase since nobody is purchasing anything due to not having a job, and nobody is hiring because nobody is buying anything which means more closures and layoffs and suddenly everyone has no idea how they’re gonna afford that pressing need to eat sometime this month.
Stuff cheaper sounds amazing, until you realize that company can no longer employ people due to lower profit, which means people loses their job.
And since more people loses their job, they have less money to spend on things.
Which means business makes even less money, so they lay off more people.
You see how this cascades? Eventually it can results in multiple corporation going under, this could mean millions becoming unemployed, and monkey wrenching the entire economy. This is why Government steps in for bail outs, because you CANNOT afford to have so many people go out of job at the same time.
Supply and demand.
Supply = how many of the same stuff is around for sale.
Demand = how many people want to buy that stuff.
Low supply + high demand = high prices
High supply + low demand = low prices
What happens in an economic depression? There are less jobs (high unemployment), in short, there’s less money in general.
This means: high supply, but less demand. There’s a lot of stuff, but less people buying.
Lowering prices is pretty much a way for companies to cut their losses.
If a company is operating at a loss, they are most likely not hiring people, they might be even cutting positions and in turn contributing to more unemployment.
Because unemployment is really high and you cannot exploit the lower prices if you don’t have a steady job that allows you to buy stuff.
In conjunction with others have said, during a recesion, people are afraid to spend what money they do have which exacerbates the business loss cycle.
The very word recession is describing the strength of an economy, which itself is defined by the willingness of a population to spend money. When a population is willing to spend money its because they have all their needs met, they’re not afraid of the future, and they have excess cash to acquire their luxury desires.
A recession means that the willingness to spend money has literally receded, ie the basic needs are not being met or afraid of not being met, they’re worried for what’s next going to come around the corner, and they don’t have the money for non-essentials.
Most businesses, ESPECIALLY in a tertiary economy like the USA, are in fact not selling essential goods and services which means the majority of the employment sector is hit when people don’t want to spend money on the luxuries which make up so much the american economy, and thus we’re particularly hard hit by recession.
It’s great for the incredibly rich or very wealthy corporations. They can obtain assets for fire sale prices. It’s terrible for pretty much everyone else.
Most of the answers here have missed the point. We must first ask WHY prices are low. Prices are determined by supply AND demand. Meaning that prices can be low because of low demand or because of high supply.
In a depression, prices are low because there is low demand. People are poor, therefore are spending less, which causes prices to drop. The lower prices are nice, but by definition can’t make up the difference.
>…bad for consumers even though prices are cheaper?
The shortest answer is that low prices aren’t the primary metric of what is good or bad for the consumer, nor are they by themselves a good metric for how good or bad the state of the economy is.
If the prices are low because nobody can afford anything, the fact that they are low doesn’t matter. During depressions, unemployment is high, so people generally afford less, so it is irrelevant that prices are cheaper because unemployed people or people with very restricted incomes can’t afford the lower prices anyway.
Economic depressions come from contractions in the money supply, especially long-term contractions. This is what ultimately forces prices to decrease. You also need to take into account people’s level of income and the rates of unemployment and the rates of inflation and the price of housing and food and the levels of debt. Fixating on any one metric will lead you to misleading conclusions.
Spending money is really just moving money around, and money moving around is generally required for resources and goods to move around. If money stops moving then it means fewer goods are moving, which is a problem for the people who need them.
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