The popular idea that prices should fall to previous lows gives most economists chills. Deflation is bad for everyone, they say.
All I read is, “We’ve enjoyed record profits for these past few years, and we want to continue to enjoy record profits for years to come. Any change to that is bAd FoR eVeRyOnE.”
The prospect of falling prices encourages consumers and businesses to put off purchases because they will be cheaper if they wait, sucking money out of circulation in the economy.
LOL, what??? You mean to shop sensibly, rather than buy on impulse, is a bad thing?
The gaslighting going on by economists and corporations is out of this world.
Financial planner here. Deflation is bad for “everybody” that wants to talk to you about it. It’s bad for financial planners because it makes the stock market go down, so we make less money. It’s bad for politicians because everybody that votes seems to think the economy consists of however high the Dow Jones gets. It’s bad for companies because it’ll cut into their profits. The more these entities can convince you that deflation is bad, the more likely people are to campaign against it.
The real truth of it is that deflation is good for PEOPLE. People are not the economy. The concern I have is that during a deflationary period companies tend to do more layoffs and cut corners on quality control. As long as income & unemployment stay the same then deflation would be a very welcome reprieve from these last couple of years.
This is why the union strikes are so important right now. If people see that the current union strikes work, then they’re far more likely to unionize when companies start to do layoffs. Really the only way for companies to protect themselves from deflation is to screw over the workers, and unions stand in direct opposition to that move.
> The real truth of it is that deflation is good for PEOPLE
Deflation encourages businesses and people to hold on to their money instead of spending it. One person’s spending is another person’s income, so when spending goes down so do incomes. When people’s incomes go down, they reduce their spending in response. This is a vicious cycle that leads to a lower standard of living.
Don’t believe me? It is what happened to Japan since the 1990s after their real state bubble exploded. It is called “the lost decades” and it was very much felt by the population.
Fair. The 2% inflation that the FED is pursuing by raising rates is because that’s the economic sweet spot. If we end up in a 10 year deflationary period then that would be catastrophic. I was moreso referencing a short term “return to 2019 numbers” type of deflation that I believe could be a good thing for people.
Since the FED is focused on a 2% inflation hedge and we’ve raised interest rates so much, they would just lower them again to prevent a repeat of Japan. They’re predicted to lower them next year because of this.
If we end up in a 10 year deflationary period then that would be catastrophic I was moreso referencing a short term “return to 2019 numbers” type of deflation that I believe could be a good thing for people
Are you saying that a 2%-ish deflation rate sustained for ten years would be catastrophic, but a return to 2019 prices would be a good thing? On what sort of time period would that be beneficial?
Because the accumulated inflation since 2019 is somewhere around 20%, and if we correct it over ten years that would approximately match the scenario you deemed as catastrophic earlier.
Since the FED is focused on a 2% inflation hedge and we’ve raised interest rates so much, they would just lower them again to prevent a repeat of Japan
Well, that is what Japan tried to do and it wasn’t enough. The problem is that in the real world you can’t lower interest rates beyond a certain point, because as interest rates approach zero or even negative values (ZIRP), banks find it very difficult to make a profit from lending, which leads them to bankrupcy, which in turn slows the economy down, which is the opposite of what you are trying to achieve. Not to mention that on the way to ZIRP private debt balloons and when interest rates eventually revert to their mean the debt burden becomes unbearable, which leads to a recession.
In other words, macroeconomics is a tricky unstable system and simplistic takes have poor outcomes.
Always pointing the finger at people, consumers, average citizens, middle class individuals and governments about what they should or shouldn’t do about the economy … and the expert never addresses the big fat white elephant in the room … CORPORATE GREED and how companies basically took the opportunity of a world in panic to raise prices, make profit and tell people it was due to a global emergency.
Now it’s the same old sales job as old as time … a loaf of bread originally costs $1 … company raises price to $5 … people complain … company lowers price to $4 and everyone thanks the company for lowering prices.
Just skimming off CEO bonuses and cutting those profits to their shareholders would probably be enough to bring back prices to what they were before … but no one ever wants to talk about what companies are paying themselves or giving to their shareholders … in political talk and talking points from economists and financial professionals - that’s sacrilegious
Im not worried about falling prices.
Was this article written by an insane person?
the current Goldilocks state of the North American economy
What?!
Much of this conflicts with the view, widely expressed in some form by commentators and political leaders of all stripes, that Canadians will benefit if the prices of things like groceries and houses would only go back to the levels they were at in the good old days, say, before the pandemic, so that people could afford them.
…
so that people could afford them.
🤯🤯🤯
No shit?
Most of these worries are of long term deflation. If deflation is temporary and is perceived as “prices going back to normal”, as it is with cars and GPUs, I don’t think most of these worries would manifest. People aren’t holding off on buying a car because they think car prices will continue to fall long term.
It should be noted, however, that there are many ways in which deflation actually helps the rich more than the poor. Since money is worth more over time, it favours those who already have money. Conversely, inflation can surprisingly help the poor by making debt worth less.
But this assumes that rich people aren’t the very ones profiting off of inflation by price gouging, rent seeking, and manipulating the market, which they absolutely are. So I very strongly doubt that short term deflation hurts the poor and working class.
