(I’m American) Inflation is the rising cost of goods and services. Inflation constantly goes up by varying degrees. When economists say “inflation is decreasing”, that just means that the rate of inflation has slowed, not that inflation reversed.
If inflation is causing money to be less valuable over time, why would it be bad to have deflation? Would that not make my money more valuable? I’ve been told it would be very bad, but not in a way that I understand
In: Economics
It wouldn’t. Someone will come in and say how deflation will cause people to hoard their money, nobody will buy anything, and the economy will grind to a halt.
*They are wrong*.
Their argument ignores the most simple thing: people want stuff. Deflation would lower people’s time preference, making them more willing to defer consumption until a later time, but nobody has a time preference of zero. The key is people will *defer* consumption, they will still consume, just later, when a more useful, or durable product is available.
In the meantime, deflation will encourage saving (and future-oriented thinking), and will reduce the desire to mindlessly consume cheap plastic crap that you don’t need. It will also reduce the need to invest in assets just to maintain your wealth, which in turn will lower asset prices and make things more affordable for the people who want them for their utility, instead of just wanting them as a wealth storage mechanism (in case it’s not obvious, I’m referring mainly to property here).
Edit: to everyone saying how this would cause businesses to collapse due to lack of income, and jobs to be lost, you’re forgetting that all of the newly unemployed will be able to support themselves for a while, since they’ve all been hoarding money. they would be forced to spend, since they have no income and immediate needs, which would in turn keep open the businesses that you say will close. as always, an equilibrium will be reached, which is startlingly obvious after considering the problem for any length of time whatsoever.
Edit 2: I’ll stop replying now that the inflation-loving brigade has arrived. to anyone actually listening instead of regurgitating what central bankers make you swallow, check out the mises institute and read some books by Austrian economists (the Austrian school of economics, not the country). to everyone else, see you in fifty years when your money is worth 98% less than today.
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