It is more about currency deflation rather than price deflation. Without currency inflation the current system collapses.
Price inflation is from currency inflation - ie: more $ around today chasing approximately the same number of goods than yesterday. Agreed?
When currency deflates, there are less dollars chasing those goods so dollars are harder to come by and prices necessarily decrease to allow the remaining dollars to cover the goods being exchanged. Yes goods 'get cheaper' in dollars. That's just a side show and not the problem.
So what happens to debtors in a currency deflation? Dollars are harder to come by, debts cannot be repaid and debts default. Debt default is the destruction of currency. More deflation. Positive feedback.
Savers today save in dollar accounts which rely on debtors to pay back their debts. With debt collapse, so goes bank assets (debt) and now their liabilities (savings accounts) outweigh their assets which makes them insolvement.
If today's savers didn't save in bank accounts for the promise of more dollars tomorrow then we wouldn't have this problem. Save in fine art and collectibles, save the world.
When people know there's deflation they hoard money rather than spending - which can then push into further deflation. Currency ceases to be liquid because no one wants to sell - you're making a free profit by just holding onto your cash. In a world with only one currency you end up with the rentier class that has money capturing all economic productivity. Given that the Japanese have other options... I don't know. Interesting times to be sure.
It's a myth propagated by certain economists who believe there is an optimum inflation rate and that this optimumum is around 2%. They also predict a great calamity if inflation falls below zero. In practice, experimental evidence tells us that this theory is complete rubbish.
>In practice, experimental evidence tells us that this theory is complete rubbish.
Please, provide us with examples of a sustained deflation that didn't harm the economy.
The supply of money has to grow at the same rate as the real economy, otherwise you can end up with "problems" associated with having "too few dollars". In other words, we need to keep increasing the supply of dollars to buy the growing output of goods we produce. This is common sense. Because it's impossible to hit that growth target exactly, we err on the side of caution and produce some inflation, which has the side benefit of preventing the hording of currency, as it naturally diminishes in value over time. For whatever reason most governments have decided on ~2% to be a safe, stable target.
One of the common misconceptions of deflation is that the lower prices should be good for consumers. Which is true, if terms of consumer goods. But keep in mind that wages and debt are also affected, which is where the real pain from deflation for the average person stems from.
Currencies are government made artificial stores of value.
If money doesn't lose value fast enough, people, companies and banks invest in government sponsored fiat instead of the real economy. This distorts the markets.
Money should be there to allow transactions and contracts without having to do barter. It has no choice being a store of value to do so, but it should not artificially keep value at a rate that makes it desirable enough so that it replaces private markets for investments. To do so is a subsidy to economic idleness and a promotion of investment in fiat instead of the real economy.
Money doesn't have intrinsic value. It should not artificially be made to seem like it keeps so much value by governments. It should be made stably declining and just valuable enough to allow for low friction transactions and contracts. More than that and you are throwing a wrench in the gears of private markets.
I think because while average prices for individual devices go down, you make up for that with volume in an expanding market. Once you saturate the market, then you have to diversify, create new markets or consolidate (buy more market share).
A computer manufacturer doesn't need to increase their market share to keep the same profit when a process technology matures and therefore gets cheaper.
It is trivially possible to keep making money selling computers even if the total market share doesn't expand.
As an entity, yes, but overall as an economy this does not work. How will you be able to afford giving employees raises? Cut the workforce, and then what happens when everyone 'cuts the workforce'? what happens to total buying power?
Price-inflation means our purchasing power decreases. We're all better off if we get moar stuff for our money instead of less, but governments would like us to believe the opposite.
We ordinary people clearly don't benefit from inflation, but who does? -Might it be the same people who are telling us inflation is good?
Even if wages do fall, as long as your purchasing power increases more than your wage drops, you're just fine.
People take on massive loans exactly because prices have been inflated. That certainly doesn't mean deflation is bad.
Even if you're paying off a loan, price deflation is not a problem because though the loan is becoming more "onerous", you'll have more money left over for paying the loan after you've bought everything else you need.
