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by Psyonic
5982 days ago
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"The lower prices leads to lower revenue which leads to less money to cycle back into the economy." How so? The customer still has that money, and will likely spend it on something else. Either by going out to eat more often, buying that new HDTV, or taking the kids to a sports game. I fail to see how that money doesn't end up cycling back into the economy. Unless we are to presume the money saved is hidden under a mattress... |
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Yes, consumers will be paying less for goods, this is true, and on the surface seems good, but dig a little deeper. When deflation strikes an economy, almost all businesses are affected. That is why economists worry so much about it and are willing to use inflation to combat deflation.
Think about it: The beef bowl restaurant has lower prices, so they make less money. They will be unable to keep on as many employees, they won't have the excess capital to use for expansion, they will have less money to give suppliers, might not be able to pay rent... employees who are fired will be without incomes so they wont be able to take advantage of lowered prices. These are the ripple effects you need to look at.
The reason people fear deflation is because it is able to rapidly spread throughout the economy and infect almost any business.
http://en.wikipedia.org/wiki/Deflation#Deflation_in_Japan
^ you can read more about the deflation problem in Japan.