Deflation is good, it means cheaper prices. A deflationary spiral due to insufficient money supply despite robust economic fundamentals can be really bad in theory sure, but it can't happen unless the monetary authorities are totally negligent and incompetent, as happened in the great depression. All you have to do is print more money and problem solved. We don't expect it to happen again because we learned from it.
Or if you do not have monetary policy flexibility, like when you're on the Gold Standard, as happened in the Great Depression (until FDR went off of it).
See Bernanke and James (1990):
> However, Temin (1989) argues that, once these destabiliz- ing policy measures had been taken, little could be done to avert deflation and depression, given the commitment of central banks to maintenance of the gold standard. Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individ- ual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this con- straint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the ab- sence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.
* https://www.nber.org/system/files/chapters/c11482/c11482.pdf
For a fuller treatment, see Eichengreen:
> This book offers a reassessment of the international monetary problems that led to the global economic crisis of the 1930s. It explores the connections between the gold standard--the framework regulating international monetary affairs until 1931--and the Great Depression that broke out in 1929. Eichengreen shows how economic policies, in conjunction with the imbalances created by World War I, gave rise to the global crisis of the 1930s. He demonstrates that the gold standard fundamentally constrained the economic policies that were pursued and that it was largely responsible for creating the unstable economic environment on which those policies acted. The book also provides a valuable perspective on the economic policies of the post-World War II period and their consequences.
* https://www.goodreads.com/en/book/show/775143
Following the rules of the gold standard is what caused the initial "negligent and incompetent" action. Of course later (1937) on they raised rates too soon (and the government dialled back deficit spending), which caused an economic slowdown.
It was not until the giant stimulus packaged often referred to as "World War Two" that the economy picked up again.
I look forward to minimum wage jobs being 25 dollars an hour, and still poverty wages - because then the debts I have will be roughly half what they are now in constant dollars.
Just a reminder for those not in-the-know: https://www.propublica.org/article/billionaires-tax-avoidanc...
I do think we should tax borrowing on securities though.
I think we should outlaw billionaires. The idea that a sole individual could hold so much economic, societal, and political power is totally fucking insane.
$5 million, to someone that rich, is like $50 dollars to us. It's chump change you might find laying around your house.
It can also unwind just as quickly if you need to pay those debts back in a hurry, causing your asset prices to tumble on the way down. But if you're big and have borrowed enough money, whole jobs and industries will be dependent on your continued solvency, and so you can sometimes maneuver to put the public on the hook.
You avoid taxes by not getting cash in a tax inefficient way (income, capital gains) and instead you get it in loans (which can be tax deductible!)
Then when an event happens that allows you to pull cash efficiently (capital losses, inheritance asset step up etc) you service the loan.
Your lender is happy to do this both because the loans are fully backed by real assets and they want to sell you or your businesses other services.
This also works out for unsecured debt too largely.
The '80s homebuyer did great on their purchase, but not because borrowing at 20% was such a steal. They profited because their home subsequently went up in price faster than inflation did.
See Japan for the last 3 decades!
But is that because of their economic policy or because of social norms?
> It might not look good according to metrics that optimize ploughing society's wealth into the hands of a few billionaires […]
Sweden also has a pretty good standard of living, less inequality than the US, decent economic growth (better than JP, lower than US), and has more billionaires on a per capita basis than the US:
* https://en.wikipedia.org/wiki/List_of_countries_by_number_of...
You think the distribution of living standards across a population could be a matter of social norms? How?
Taxation and social programs:
* https://en.wikipedia.org/wiki/Redistribution_of_income_and_w...
People choose to vote for / elect people who are willing to implement various policies to achieve it. What is acceptable to the population is (partly?) determined by the norms of that population and society, and the acceptance of various ideas will determine what politicians will campaign for.
Social norms come first, and they determine which economic policies you are willing to even consider (and then implement or not).
Japan's economic system has been under Japanese control and self-determined (for both good and ill) for decades:
* https://www.goodreads.com/book/show/16144575-how-asia-works
False. A monetary policy that prioritizes universal access to basic needs leads to less overall crime. It may not be sufficient, but it is a major factor[1].
Clearly, I am not a monetary policy buff, but certainly I've heard people talk about the US getting off of the gold standard in 1971. When the currency is by policy backed by something, you can't just print money (unless you dig a new mine, I suppose), right? When I google around for what our policy was in the 1920s, I see that it was a bit complicated in that many countries suspended the gold standard during WWI and in some cases there were pegged exchange rates, and the US intervened in gold imports.
They didn’t go together, the chart shows two severe episodes of deflation, one of which was the Great Depression, and the other was this:
https://en.m.wikipedia.org/wiki/Depression_of_1920%E2%80%931...
It’s not clear why the chart lumps them into one period.
And canals:
* https://en.wikipedia.org/wiki/Canal_Mania
And railroads:
* https://en.wikipedia.org/wiki/Railway_Mania
And a whole bunch of other things:
* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...
Getting overly excited about things seems to just be a thin humans tend to do.
That doesn't mean anything. People talk about god/gods all the time, it doesn't mean they are real or exist.
Inflation/Deflation are meaningless without linking them to the system in question. Growth also, in my opinion, has little to do with inflation/deflation and more about the positive inflow of energy into the economy.
So we mostly kept the same system, but tried to tweak them to make deflation 1) much rarer and 2) less destructive.
Look at the Panic of 1893, the Panic of 1907, and the Great Depression. If that's not enough, there are several others.
a) It was a correction to the very unusual war years, which saw unprecedented levels of government investments, price controls, and money printing
b) It also led to a lot of money getting invested in dubious overseas markets, which directly led to the Great Depression
When your money becomes more valuable if you don't spend it, people spend less, which depressed prices further, so people spend even less, which even further depresses prices.
That said, the fact that austerity has been tried recently suggests the perverse impulse to respond to deflation with belt tightening instead of expanding credit is still with us. But all we have to do is just print money to match the deflation. The 1990s through 2019 are a great example, there was constant economic deflation because of new technology and the fed just printed credit like crazy to match said deflation and keep the inflation at 2pct.
The pie was getting bigger, so eroding the value of each slice to make it a smaller portion of the pie kept slice sizes stable while not making anyone lose pie.
They had an easy time with that. Now that the pandemic caused real eocnomic inflation due to supply shocks, dealing with excess inflation is a lot harder. The only way to keep pie slice size stable is to take away pie from someone and nobody wants be the loser, so capital and labor are in a game of chicken to see who blinks first and has to eat more of the inflation.
There's no rational basis for the 2pct inflation target [1], it's entirely baseless, in some sense it's now a matter of conservatism, mere tradition from a random fad decision in the 90s.
And the point is that monetary expansion directs the energy of the economy and effectively steals savings, forcing the economic energy of people into consumerism and CEOs pockets.
Except that it seems to work.
Hitting an inflation rate of exactly 0% is practically impossible: you're going to be either a little high, or a little low. So the option is: do you want "too high" or "too low" (negative)?
In the last little while how we've all seen how painful high(er) inflation is for people. Lessons from periods of the 1930s (and others in the linked-to PDF) show how bad deflation is.
A "little" high seems to have been a pretty good compromise.
Any common person realizes their ability to lead a dignified life is being squeezed out by monetary expansion gone amok, with those closest to the govt spigot getting the benefits and none of the costs (cantillon effect).
And it brings up a good point which no one answers satisfyingly: why shouldn't the average person just enjoy price savings produced by technology?
The 1930s were nothing special when it comes to wild swings in prices (as the article show), speculation was not new (see canal mania, railroad mania, etc)
* https://en.wikipedia.org/wiki/Canal_Mania
* https://en.wikipedia.org/wiki/Railway_Mania
What is special is the post-WW2 era (where there was no deflationary bust, especially after a major war), and the decades that followed (when there was no gold standard to handcuff monetary policy, and when Keynesian economics allowed for fiscal flexibility).
> And it brings up a good point which no one answers satisfyingly: why shouldn't the average person just enjoy price savings produced by technology?
There's a difference between deflation through innovation, and deflation through economic turmoil (e.g., mass unemployment, collapse of aggregate demand).
One of my favourite examples of 'invisible deflation' that no one notices (often while they're complaining about inflation) is a 1991 Radio Shack ad:
* https://www.huffpost.com/entry/radio-shack-ad_b_4612973
* Via: https://awealthofcommonsense.com/2021/01/inflation-truthers/
I realize that the two manias were forms of speculation, and that getting overly excited about things seems to just be a thing humans tend to do.
* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...
human nature is to avoid discipline when they're comfortable and set the stage for a bubble & contraction, exactly what happens with artificially low interest rates and speculations like the manias you brought up
What you're describing wasn't their goal, they have been keeping interest rates at ~0% since the late 90s to avoid deflation and to stimulate the economy (and therefore increase inflation) with limited success.
It is been their policy and their desire to get out of the situation that you describe, and not to be living in it:
* https://en.wikipedia.org/wiki/Abenomics
They want(ed) to hit higher inflation:
> Under Kuroda, the BOJ deployed a huge asset-buying programme in 2013, originally aimed at firing up inflation to a 2% target within roughly two years.
> The central bank introduced negative rates and YCC in 2016 as tepid inflation forced it to tweak its stimulus programme to a more sustainable one.
* https://www.reuters.com/markets/asia/japan-poised-end-negati...
I'd still like to know according to who. Practically everyone agrees the economy is worsening for average people during many decades of nearly universal control by "mainstream" economists, advisors and bureaucrats.
Look at the chart that this story is about: when things go negative, what do you think happened to people's employment opportunities? What do you think happened to their debts (deflation makes it worse)?
Do you want to perhaps look at the economic historical record of the ~80 years before 1945:
* https://en.wikipedia.org/wiki/Panic_of_1910–1911
* https://en.wikipedia.org/wiki/Panic_of_1901
* https://en.wikipedia.org/wiki/Panic_of_1896
* https://en.wikipedia.org/wiki/Panic_of_1896
* https://en.wikipedia.org/wiki/Panic_of_1893
* https://en.wikipedia.org/wiki/Panic_of_1873
There have not been as near as many widespread economic collapses post-WW2 as there were pre-WW2. 2008 is probably the only one that came even close.
The main contributor to the working class getting a raw deal since the ~1970s is (IMHO) the idea of shareholder value (primacy):
Deflation benefits those who have a lot of capital and can invest it into ~ zero risk instruments like government bonds the most (e.g. that's basically how the rentier/aristocratic class in the 19th Britain were able to maintain their lifestyle without doing anything productive, government bonds were yielding 4-5% while the value of their capital was going up due to near continues deflation throughout much of the century).
On the other hand if you're a heavily mortgaged farmer you were basically screwed if the price food went down (that's why free-silver/loose monetary policy was so popular amongst farmers back in the 1800s in the Midwest and in much of US).
Deflation means that people's debt becomes more of a burden. I'd hazard to guess that poor people have more debt that rich, and so deflation would be worse for the poor.
And if you say "wages won't go down", then you're expecting that everything else goes down (including the price of whatever your employer makes), but your wages magically won't? It would be nice... but don't hold your breath.
However, no company is going to do that the other way around - if their revenues fall, they will either cut wages or fire people in order to still be profitable, so deflation should show up faster in loss of buying power too. Companies don't generally just accept lower profits, and shareholders especially do not accept this.
The market is locked up. How many families are making 133k+ a year to make the 3x rule for a 400k tiny townhome? The US Census reports the average household income is 75k.
The Feds and Deep State have played with people's lives for too long, pretending like they can offer security and order. In reality, they've screwed over the middle class.
> Most of the time, deflation is unambiguously a positive trend for the economy, but it can also under certain conditions occur along with a contraction in the economy.
[0] https://www.investopedia.com/articles/personal-finance/03091...
Obviously there are situations where it is good and for certain people, say a right sizing of an overheating economy/sector but on the whole, and more generally, it is bad, not something you look to as fine or alright.
"A little bit of deflation is a product of, and good for, economic growth. But, in the case of an economy-wide, central bank-fueled debt bubble followed by debt deflation when the bubble bursts, rapidly falling prices can go hand-in-hand with a financial crisis and recession."
This is what I'm saying.
They're just saying in our debt fueled world, you can't merely print money to get out of jail free in a deflationary scenario as eventually the debt obligation gets too large relative to your shrinking economy size. We live in this world unfortunately where it's bad, in a hypothetical world without all the debt, it's still bad in the long term for the other reasons I've mentioned.
It depends on how deflation comes about. Technological innovation? Pretty good as the 1991 Radio Shack ad illustrates:
* https://www.huffpost.com/entry/radio-shack-ad_b_4612973
Through a collapse of economic activity and mass unemployment? Not so good.
Isn't it usually? Such as the housing price deflation of 2008-2011.
These nominal agreements are significantly less flexible than real-valued ones; people are much more able to buy fewer steak dinners when they're $20 instead of $15, and much less able to stay in their house when their paycheck is $1500 instead of $2000.
Because most modern economists are state-funded and the state benefits handsomely from the ability to print money. If you look back before economics got institutionalised you'll see a consensus that inflation is far worse than depression; plenty of states have been destroyed by debasement of the money supply (as far back as the Roman Empire artificially devaluing its currency leading up to its collapse), but there hasn't been a single one destroyed by the value of its people's money increasing.
Because deflation can only be transitionary; people need food and housing and other necessities, so there's a limit to how much they can reduce spending, and once that limit is reached the economy has just shifted to a new equilibrium, one with less spending and more savings than before. Inflation on the other hand (when it's caused by printing money/defacing the currency) has the power to destroy 100% of the populace's wealth, as we saw in Weimar Germany and Zimbabwe.