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Comment by ajmurmann | Hacker News Reader

Yeah, prices should stop increasing quickly, but not fall. Nobody wants deflation.

> Nobody wants deflation.

I hear this argument regularly, but I’ve never understood why. Hyperinflation is historically a bad thing, but whenever I ask about deflation, I just get hand-waving about the Great Depression. Is there any reading that lays out the dangers of deflation?

Deflation throws on the breaks in the economy, because X is cheaper if you postpone it. With X representing essentially all economic activities like buying a new phone / hiring a programmer / going on vacation / etc

This would be great for the environment, but absolutely terrible for the economy

To add to this, it's also very hard to get out of as we've seen for decades in Japan. Some countries get stuck in recurring waves of inflation as well, as we set with Argentina, but that's arguably more sure to avoidable policy choices.

> Deflation throws on the breaks in the economy, because X is cheaper if you postpone it. With X representing essentially all economic activities

Sometimes I think about this as promoting investment in cash. Deflation over time means cash yields a profit.

But since cash doesn't actually do anything, investing in cash instead of something else is harmful.

One implication of both of our comments is that unanticipated deflation is good. What causes problems is the reaction people take to anticipating that deflation will occur -- they wait it out -- not the fact that things are cheaper.

The necessary refinement would be that unanticipated deflation that comes from an increase in the amount of stuff is good, and unanticipated deflation that comes from a reduction in the amount of money is [?].

Introducing that dimension asks us to fill out the grid:

- anticipated deflation from an increase in the amount of stuff: [?]

- anticipated deflation from a reduction in the amount of money: bad

> not the fact that things are cheaper

In these discussions it's easy to forget that it's not only things that get cheaper or more expensive. Services and people's salaries also adjust the same way. With deflation your salary will also go down.

That's the point of what I called "the necessary refinement". If there is more stuff, stuff gets cheaper without a matching decrease in your salary. If there is less money, stuff gets cheaper and there is also a matching decrease in your salary.

But in either case, the problems associated with deflation come from the actions people take to prepare for it, not from the consequences of it having already happened.

The benefit of having X now rather than later can still be more valuable than the price drop.

No, because it's a boogeyman.

The world should get richer, and things should get cheaper. Creating wealth is good.

Making those with money able to buy more tomorrow than today will make all sales plummet... all real needs go unmet and all efficient loaning of money cease.

Holding your breath will leave more oxygen for whoever survives .... but there won't be as many who need it left alive.

Deflation is deadly unless you worship coins as the only valid measure of economics.

Tell me more about the spectre of the nonsense world where everyone sits around starving to death because they're too wealthy and food is too cheap.

Or don't, I've heard it hundreds of times, and it's still nonsensical, and it's unbelievable that people are being constantly harmed by inflationary monetary policy on such a ridiculous justification.

It's not only things that you will get for a lower amount of currency, but also labor.

Deflation has a natural tendency to spiral; things will be cheaper in the future, so people put off spending, which brings prices down further and so on. You create an incentive to hoard cash rather than consuming or investing, and that is also self-reinforcing, so money stops functioning as money with all the trouble that implies.

This is obviously not how things generally work in the real world. Prices for personal computers have been deflating for years. The computing power in a $1000 laptop today would have probably cost at least $3000 a decade ago. And yet customers keep buying them instead of putting off spending because they want to have stuff today.

People buy computers when they want or need them, yes. But they absolutely do put off buying them because a better model is coming. Whereas people rush to buy e.g. a house as quickly as they can, because the price of houses keeps going up.

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