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Comment by cjensen | Hacker News Reader

Deflation means that rather than buy a car this year, maybe buy it next year when it's cheaper. It's a massive encouragement to buy nothing and save as much money as possible.

Manufacturing capacity which was keeping up with demand suddenly has too much capacity. Factories shut down. People get laid off. New jobs aren't created.

How do you make a profit in a world where people won't buy a new thing because they think it'll be cheaper in a few years? And you can't compete in the market for old things because there is already too much excess capacity.

It's a giant snowball of bad for everyone involved: both business and for the everyday working guy.

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There's only so much purchasing as can be deferred.

People as a whole need water, food, shelter, and clothing. Even under deferred purchase, other infrastructure eventually wears out and needs replacing.

In this circumstance, particularly with lower levels of income falling below living wages, a simple transfer payment from rich to poor will increase trade markedly.

If your real rate of return remains negative, that's another problem, but a somewhat tractable one at modest scales.

I have heard this line of reasoning before, but I'm skeptical.

I don't think I have ever once said to myself "i should hurry up and buy X before inflation makes it more expensive." It doesn't seem like people will reason like this unless the price changes are observable from day to day, or maybe week to week.

And people already spend so irrationally. Is a little bit of extra delayed gratification is incentive enough to change spending patterns that much?

It typically doesn't work much for individuals as the frequently lack good data, disposable cash or credit, and stockpiling capabilities.

Businesses can do this through warehousing or futures contracts -- going long or short on a commodity (price rise or fall respectively). Especially fuels (Southwest Airlines has famously done this to good effect repeatedly during oil price spikes).

I also think that this may affect business investment more than consumer spending. I remain hazy on this element of economics.

Thank you for being the only reasonable person in this thread.

That argument -- that people would defer consumption forever -- is the craziest thing in the world, and every economist and wannabe economist seem to take it without question.

It's nice to be regarded as reasonable.

My question, one to which I have not been able to find an answer, is:

   Is this questionable premise (I'm not quite willing to call it crazy, 
   but it is non-obvious) the entire basis for all of monetary policy?

Approachable texts about why and how the money supply should be controlled seem hard to find. In conversation, this is the only reason I've ever been given for us to need the Fed to ensure that the money supply grows with the economy.

I've also been looking at and for texts on money. Adam Smith and William Stanley Jevons are two of the earlier significant works. Reading Milton Friedman probably has value. Keynes as well.

Niall Ferguson's The Ascent of Money is a well-received popular work on money, trade, and exchange.

(NB: I'm not particularly well-disposed toward either Friedman or Ferguson.)

The answer is yes, and the lack of clear statements confirming it shows that economists feel that it is a stupid idea but they go a long way to hide that from themselves.

>How do you make a profit in a world where people won't buy a new thing because they think it'll be cheaper in a few years?

I don't know, but this isn't the world we live in. For this to work, deflation should be at least 10% (for consumers).

Would postpone buying a smartphone for 5 years, because it will be 5% cheaper then?

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