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Comment by xnx | Hacker News Reader

I still hold that a huge part of the frustration with price changes over the past four years is people hearing news about inflation and thinking it means prices.

Inflation has returned to normal levels, but I don't think most economists expect prices to broadly decrease. Decreasing prices can be a (very) bad thing.

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Inflation is quite a misunderstood little number. It is actually a measure of the rate of increase in prices i.e. it's a velocity, not a position.

When inflation is low, prices grow slowly over time. When it is high, they grow quickly over time. High inflation over a sustained period of time leads to a meteoric increase in prices.

For prices to decrease, the inflation rate would have to be negative. For them to decrease to pre-pandemic levels, inflation would have to be negative for a sustained period of time.

When inflation is positive but low, prices grow exponentially, but the time it takes to hit the "knee" of the exponential curve is long.

When inflation is negative, it's deflation, and prices drop exponentially.

>> hearing news about inflation and thinking it means prices

Well the article does start with "Wholesale prices in October posted their biggest decline in 3½ years, providing another indication that the worst of the inflation surge may have passed".

I don't think anyone expects prices to go down, just to stop going up so fast.

A little deflation can be fine, good even. Inflation oscillated around 0 for most of American history and our economy did great.

Most gut aversion to deflation comes from great depression PTSD.

Our economy did great, except for the:

- Panic of 1785

- Copper Panic of 1789

- Panic of 1792

- Panic of 1796–1797

- 1802–1804 recession

- Depression of 1807

- 1812 recession

- 1815–1821 depression

- 1822–1823 recession

- 1825–1826 recession

- 1828–1829 recession

- 1833–1834 recession

- 1836–1838 recession

- 1839–1843 recession

- 1847–1848 recession

- 1853–1854 recession

- Panic of 1857

- 1860–1861 recession

- 1865–1867 recession

- Panic of 1873 (which lasted until 1879)

- Depression of 1882–1885

- 1887–1888 recession

- 1890–1891 recession

- Panic of 1893

- Panic of 1896

- 1899–1900 recession

- 1902–1904 recession

- Panic of 1907

- Panic of 1910–1911

- Recession of 1913–1914

But besides that we did fine.

1. Many of those economic events were due to many factors, deflation not being one of them

2. Nearly all of them were relatively minor and recovered on their own

3. Now make a list of all the economic disasters that have happened under fiat money / central bank / pro-inflation policies.

Ideally the economy oscillates between periods of low inflation and low deflation. This would reflect natural business cycles.

The Long Depression (what GP refers to as the Panic of 1873), and which was popularly known as the Great Depression until the later one stole the name, was also deflation-related. Some of the others, too.

Sure, I'll list every single time unemployment broke 10%.

- 1981-1982 recession, caused by the oil crisis a few years before, had 10.8% peak unemployment

- The Great Recession (again, there was deflation here) with 10% peak unemployment.

- COVID, which had a 14.7% peak unemployment for a few months before the US made a smooth landing.

That's it.

Now do the post war era.

What exactly is your point?

Is it that the American ascent to becoming the richest economy on earth wasn’t perfectly smooth and therefore not “fine”?

When you have deflation, people save more money, or delay spending it, because their dollars will be worth more tomorrow; but this reduction in spending just causes more deflationary pressure ("Undercut our competitors or we won't make any sales!").

This process is self-perpetuating and can get out of hand very quickly.

>Inflation oscillated around 0 for most of American history and our economy did great.

I've heard it said that the British pound was worth the same in 1914 as in 1614.

People know that, that's not the issue. The issue is that wages over 4 years have not kept pace, which means that not only did they go in the hole (debt) during this time, but they're still either adjusting what they purchase or continuing to slide.

Debt has skyrocketed if anyone's had their head under a rock.

> wages over 4 years have not kept pace

That's a feature of the system, not a bug.

Could you please let grocery stores know this, because they think prices are going to the moon.

> people hearing news about inflation and thinking it means prices

Does it not mean prices? Anyway, prices are up. A lot of people are frustrated. I believed inflation was a measure of that, but if inflation is actually something else, it wouldn't make people any less frustrated.

Inflation is the change in prices. We ideally want a little bit of it to get money moving around the economy. With stimulus checks and low interest rates, there was too much money chasing too little goods, causing prices to rise and YoY inflation went up to 10%. Rising interest rates brought inflation back down to where it should be. But the prices themselves aren't going to go down. That would be deflation, which causes money to stop moving around in the economy.

Money has to move around the economy for it to be a good one. Every single dollar you earn, someone else spent. Every dollar you spend, someone else earns. Deflation gets people to stop spending, which means people stop earning, which means people stop spending (since they have to tighten budgets or don't have money), which means people stop earning, and soon enough the economy goes in the shitter.

We've had extended periods of deflation exactly two times since we've had the means to start tracking it. The first time was called The Great Depression. The second time was called The Great Recession.

Deflation is not bad and is in fact good for savers. Moreover, deflation encourages less consumption which is good for the planet. I see you've been brainwashed into thinking the government needs to steal 2% of your wealth every year lest the economy will blowup.

> Moreover, deflation encourages less consumption

Where do you think your income comes from?

> With stimulus checks and low interest rates, there was too much money chasing too little goods, causing prices to rise and YoY inflation went up to 10%.

At least half the run-up in inflation was on the supply-side of things:

* https://www.frbsf.org/economic-research/publications/economi...

Or have people forgotten oil and food/wheat prices spiking (thanks Russia!)? (Clogged ports for goods didn't help earlier in the pandemic either.)

It doesn't mean prices in the same way that velocity doesn't mean position. We stopped moving North as fast, back near the speed we usually move North. That doesn't put us back where we were - we have to actually go South (deflation) for that, and there are reasons that's likely to be a bad idea even if people are mad about how far North we've recently come.

Huh. I never considered the possibility that people might think that prices would ever go back down to old nominal levels.

That is BS mantra by economist that failed as entrepreneurs. 1990 to 2010 American booms largely help by lower production prices from China. Your average laptops and computers from the 90s tend to drop prices bigly from $10K mac to somewhere around $2K. Let me know how bad Apple did. Let le know how worst off Americans during those low gas prices and cheap GPUs.

Also, prices in some instances increased drastically, let's say something went up 15%-25% in price, and now is going to only go up 3%. That 3% gain is MUCH more than it was before the 15%-25% price increase. Like interest, inflation compounds. This is one reason people are still feeling the pinch of inflation even as it has slowed.

It's hard to explain to people as you've said that prices aren't going to decrease in 95% of instances. Prices are sticky and outside of some goods with high volatility, the prices of 2019 are never coming back. That's a tough position politically too, and one reason I feel despite the economy having done pretty well that Biden is underwater on the economy as a whole. Especially coupled with interest rates rising.

It's about a buck on $100 extra for food (over regular inflation) - so not much more, but significant.

long term deflation is bad, but a house going from $400k to $1m back to $600k in a few years isn't "a bad thing". same with rents decreasing.

well, it's bad if you bought at $1m.

That's because people don't care about the academic definition, they care about direct impact on their lives.

There shouldn't be anything academic or contentious about the meaning of "inflation". Prices are what floor of the building you're on, inflation is how fast the elevator is going.

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