If deflation was 1%, it means the prices of everything is dropping. It means that waiting to buy something means you’ll save money, so you wait and don’t buy. So they have to drop the price to sell more so they can restock. But then people wait more and buy less. So they start making less. So they need less workers. So they let people to. So people can afford less, so they buy less. So prices drop. So they let people go. Etc etc.
What you are talking about is a recession. It’s not favourable to rich or poor, but the poor will suffer more as the rich can afford their basic needs whether there is inflation or deflation.
Technology is deflationary, but you don’t see the tech industry crashing as people wait for steep discounts far exceeding 1% over a couple years or so. Deflation is made out to be a boogeyman because it means the peasants get a pay increase if they keep the same wage unlike the pay cuts they currently receive through inflation.
Tech is deflationary for the same technology, as it devalues due to newer technology coming to replace it. The overall cost of an up to date computer, or camera, for instance is inflationary.
The newer technology costs more than the old, but, barring ridiculous price pumps like the kind from nvidia, they’re priced around what the old technology was when it was new, thus it’s cheaper given the effect of inflation. Either way, it doesn’t negate the point that people don’t forego new technology purchases because they’ll be cheaper in a couple years or so. That goes against the argument that deflation-haters love to claim, that somehow people will wait because it’ll be cheaper. People don’t actually seem to operate like that in practice.
You think people will wait indefinitely to buy the things they need because it will be slightly cheaper? If you need an oil change you have to change your oil. Maybe for construction that holds true and a lot of consumer products, but 1% isn’t a big deal for most necessities as they are routine and hard to put off.
But like… if the guy making cars can’t sell cars because prices keep dropping now he can’t afford to buy the basics. It’s not a big deal for necessities to drop, but if we experience deflation then things get really bad.
There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.
If deflation was 1%, it means the prices of everything is dropping. It means that waiting to buy something means you’ll save money, so you wait and don’t buy. So they have to drop the price to sell more so they can restock. But then people wait more and buy less. So they start making less. So they need less workers. So they let people to. So people can afford less, so they buy less. So prices drop. So they let people go. Etc etc.
What you are talking about is a recession. It’s not favourable to rich or poor, but the poor will suffer more as the rich can afford their basic needs whether there is inflation or deflation.
Technology is deflationary, but you don’t see the tech industry crashing as people wait for steep discounts far exceeding 1% over a couple years or so. Deflation is made out to be a boogeyman because it means the peasants get a pay increase if they keep the same wage unlike the pay cuts they currently receive through inflation.
Tech is deflationary for the same technology, as it devalues due to newer technology coming to replace it. The overall cost of an up to date computer, or camera, for instance is inflationary.
The newer technology costs more than the old, but, barring ridiculous price pumps like the kind from nvidia, they’re priced around what the old technology was when it was new, thus it’s cheaper given the effect of inflation. Either way, it doesn’t negate the point that people don’t forego new technology purchases because they’ll be cheaper in a couple years or so. That goes against the argument that deflation-haters love to claim, that somehow people will wait because it’ll be cheaper. People don’t actually seem to operate like that in practice.
You think people will wait indefinitely to buy the things they need because it will be slightly cheaper? If you need an oil change you have to change your oil. Maybe for construction that holds true and a lot of consumer products, but 1% isn’t a big deal for most necessities as they are routine and hard to put off.
But like… if the guy making cars can’t sell cars because prices keep dropping now he can’t afford to buy the basics. It’s not a big deal for necessities to drop, but if we experience deflation then things get really bad.
There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.