The idea of deflation being worse than inflation always pops up as a gotcha when i hear economists in interviews, i remember once someone used it against me as an argument once when i was trying to bash an anti-bicoiner in a Facebook comment debate.
Anyway, it's always the same, you think inflation is bad! well deflation is even worse!
Then they roll out the Japan example like the trusted gimp and then explain why 2% is the golden inflation number.
So what do stacker economists think of deflation? Jeff Booth is always saying deflation is the natural state of the market
Worse for who?
Those benefiting from fiat printing, including those who made long-term investments based on continued printing, would get wrecked by deflation.
For ordinary wage earners and savers, deflation is generally better.
One of the reasons mainstream economists can be goofy on this is the association of deflation with recessions and depressions. They’re getting cause and effect confused through. Demand reduction causes prices to fall but falling prices don’t cause a drop in demand.
Reminds me of a recent WBD episode with Jeff Ross where he said, "China is having severe deflationary problems right now"
I had to ask for clarification in the comments and maplebar722 came up with a response that made sense to me.
i mean i understand that the US, for example, might smash people with hyperinflation becuase they inflate their own debt away, but it wouldn't work for other countries with USD-denominated debt
... but we're not in a natural market
In this debt-based fiat system, deflation doesn't just mean prices on things go down as production becomes more efficient... like consumer electronics
Since every dollar is debt, and every debt is someone else's asset... deflation in this system cascades until there is no money. If there was no debt, there would be no dollars. And you can't taper a ponzi.
This is why they have to print so that deflation doesn't hit stall speed and everything just falls from the sky. Actual deflation of the monetary supply would literally be an uncontrolled collapse of the entire global economic system.
It's also why what seems like endless printing doesn't end in run-away inflation, because there is a natural deflation of dollar supply every time a debt payment is made. A debt payment made is dollars destroyed. They're constantly walking a line between inflation and collapse, so obviously have to err towards inflation.
The only way out of it is to re-collateralize the currency, slowly over time, such that a thing backs it that isn't tied to real-world assets and doesn't just disappear if the music stops and doesn't require new borrowing to generate velocity. The financialization of Bitcoin is the only way to land the plane.
how bad do things need to get before the various govs of the world would come to that conclusion and start doing something other than can kicking?
US is really all that matters since the dollar underpins every other capital market
US is fortunately already well on the way, NSA created Bitcoin for this very reason... the dollar Triffin Dilemma has cost the US it's national security. Bessent's plan to replace offshore dollar with stables is Act II.
I think one of core issues in trying to talk about inflation/deflation is that the term has been conflated with rising or lower prices for stuff.
Whereas, initially, it was used to describe monetary supply only and by making that distinction recognizing that other factors can cause rising prices even if monetary supply deflates (and vice-versa.)
The "deflation is bad" real-life examples basically always include a dramatic drop in demand. At times despite expansion (inflation) of the monetary base.
Long story short, I don't think the interactions between market forces and monetary supply are obvious enough to have a good, neutral discussion about the topic with laymen. And I include myself in that group.
yeah, the argument is usually just simplified as when prices drop, people stop buying, waiting for the item to get cheaper and a spiral ensues
although from all the things i have read about inflating or hyper inflating currencies, people usually rush to get whatever tangible thing they can, before the currency shits itsself again
Deflation is what happens when human ingenuity outpaces money printing. Inflation is what happens when governments print to cover stupidity.
One encourages saving and efficiency, the other debt and misinvestment.