Well srsly folks, deflation is a natural outcome of economies of scale and efficiencies. Take programmers - 20 years ago, rock star cash. Now - 10 a penny.
Capitalism has an underpinning constant built into its equation: numerical value growth. At this level, we’re looking at GDP and other macro KPIs.
It’s an illusion. Money is a means of exchange, but is also used as a proxy for value, on the assumption that because society agrees to us money to transact, the. It is the best measure. It’s not - it’s actually fairly rubbish - but the alternatives are complex (eg valuing by labor hour input - but so many differentiating factors between types of labor, location, etc).
Any ways - what we’re doing now - basically democratising business through faster, easier access to the means of production of goods (eg 3D printing) or provision of services (eg productive software) means that GDP measure of value has an enormous downwards pressure - a deflationary impulse.
So negative interest rates - someone is bearish, and bets that there is a market out there that believes they can maximise the return on investment by parking in these bonds, whether through minimising loss, or maximising security.
But we will see more of this. Maybe we’ve seen peak GDP for the globe.
I am not an economist, but I’m pretty sure this is not an example of deflation. This is just normal supply/demand. Rock star cash encourages a greater proportion of people to move into that occupation, which increases the supply and lowers the price. Increasing supply/decreasing demand for particular goods or types of labor can be consistent with inflation or deflation, depending on the circumstances. In this case, if the total amount of “programmer money” being spent is the same or greater but just spent by more people, then there is no tendency towards deflation.
Ah, I thought this was not correct for a moment, but having taken a moment to think it through it’s a great way to make sense of the current economic situation.
Deflation (very roughly) is too little money chasing too many goods (so sellers sell at fire sale prices). Inflation is too much money chasing too few goods (so buyers bid each other up).
In the last few decades, productivity has increased (in part for the reasons you stated) – which means the goods and services available to be purchased have increased relative to previous years. But wages have stagnated while capital earnings are up, so the money available to purchase those goods and services tend to be saved or invested instead of spent on goods.
Which results in…too little money chasing too many goods. Great observation.
Yeah, we need to figure out how to maintain a decent standard of living without a constantly growing population and ecologically destructive and wasteful consumer economy. Unfortunately, that’s a pretty big nut to crack.
A disease dreaded by economists because they think negative numbers are magic. Right now I can earn 1.5% interest on a savings account. If we had 2% deflation then my incentive to hold onto my money would be about 3.5% a year. If instead we had 2% inflation and 5.5% interest then again, my incentive to hold onto my money would be about 3.5% a year.
But zero is magic, right? When you cross zero something happens.
There is no way that low deflation is worse than hyperinflation. Inflation and deflation may be mildly different, but the magnitude is going to tell you how disruptive they are, not the direction. I could make the exact same spiral argument for inflation - people will be incentivized to not save (curious they use “not spend” instead of “save” in that description) money, so they’ll keep pushing prices up! But in the minds of economists people “not spending” money is the worst of all disasters.
God damn it. Why do we listen to these morons who can’t fucking add numbers?!?
Yeah I know where you were coming from in the first bit!
Economists have this tendency to ignore the true human aspect of life. Weird presumptions like the ‘rational’ economic person are simply askew - they’re old, invented when calculating required written ledgers and so on.
So economics has traditionally isolated itself from, say, psychology and philosophy, which can give valuable pointers to the future. So the economics theory people learn is riven with structural assumptions and inexactitudes.
Deflation, and inflation, reflect the overall willingness of an entire group of people to transact. They can change by shock (eg OMG! Running out of oil!) or simply gently over time (MPGs have been steadily improving - don’t need to buy so much gas).
I love economics, but boy, the way it’s taught, no wonder we get into messes. You’d almost think it was on purpose!
