If the deflation is just a market correction after exaggerated inflation (retailers raising their prices more than general inflation to increase their short term subs) then it’s no big deal. Prolonged deflation can be bad, as that causes too much saving and not enough spending, which can really hurt the economy and people because of how it takes money out of circulation.
In an economy, the more money can circulate, the more good it can do. I use my salary to pay for for and things, that money then pays the employees of the businesses I went to, and those employees also spent that money, and so on. At each step, both participants normally get a net benefit: I can eat, and the employee can also spend the money they get from me to eat, etc. As long as the money circulates, it keeps doing good. When it stops circulating, due to being put into savings, investments or real estate, it stops doing good (or it does less good). The cycle slows down or stops.
That’s why a small amount of inflation (maybe 1-2% ? Not sure what’s optimal) is actually healthy, because it puts pressure on people with money to spend it before it loses its value, instead of hoarding it.
This is the opinion of most macro economists today, but it’s not universally accepted. Macro-economics is not nearly as scientific as micro-economics, and some people will say that its models are just about who can tell the most convincing story (or the story that’s the most convenient for those in power)
There are some people who point out that things like electronics have been undergoing rapid deflation for decades and this has not caused people to stop purchasing them. The economy is a chaotic system and anyone who claims to be able to predict it’s outcomes is selling something
If the deflation is just a market correction after exaggerated inflation (retailers raising their prices more than general inflation to increase their short term subs) then it’s no big deal. Prolonged deflation can be bad, as that causes too much saving and not enough spending, which can really hurt the economy and people because of how it takes money out of circulation.
In an economy, the more money can circulate, the more good it can do. I use my salary to pay for for and things, that money then pays the employees of the businesses I went to, and those employees also spent that money, and so on. At each step, both participants normally get a net benefit: I can eat, and the employee can also spend the money they get from me to eat, etc. As long as the money circulates, it keeps doing good. When it stops circulating, due to being put into savings, investments or real estate, it stops doing good (or it does less good). The cycle slows down or stops.
That’s why a small amount of inflation (maybe 1-2% ? Not sure what’s optimal) is actually healthy, because it puts pressure on people with money to spend it before it loses its value, instead of hoarding it.
This is the opinion of most macro economists today, but it’s not universally accepted. Macro-economics is not nearly as scientific as micro-economics, and some people will say that its models are just about who can tell the most convincing story (or the story that’s the most convenient for those in power)
There are some people who point out that things like electronics have been undergoing rapid deflation for decades and this has not caused people to stop purchasing them. The economy is a chaotic system and anyone who claims to be able to predict it’s outcomes is selling something