[TheFlyingFish]

Isn't the problem with deflation that it de-incentivizes investment (why accept risk when you can just stuff your mattress with money and grow your wealth risk-free), which tanks the economy?

Lowering prices sounds nice, but my understanding has always been that it would come at the cost of less actual wealth overall.

[SuperNinKenDo]

That's the macroeconomic argument I alluded to. Of course, what this argument amounts to is that economic growth should be fueled in part by devaluing the money of the working and lower-middle class, who earn their money through wages and have limited means of preserving its value through capital investment, while the wealthy, who have more opportunity to invest in capital and use leverage, are largely shieled from, or on the extreme end even benefit from, its effects. Hence, a regressive tax.

The most obvious argument against this notion is that many things are effectively deflationary anyway, such as computers, which at least until recently were deflationary in the extreme. Not only did they tend to get ever cheaper over time, but while getting cheaper they have and continue to become more powerful, at times by miles in the space of a few years. And yet, people still buy computers, and firms still engineer and manufacture them, because at some point it doesn't matter that if you wait 6 months you can get a vastly better computer for half the price, at some point you have to actually buy a computer.

[cyberax]

> That's the macroeconomic argument I alluded to. Of course, what this argument amounts to is that economic growth should be fueled in part by devaluing the money of the working and lower-middle class

You have it literally backwards. Like 100% backwards. In a normal healthy economy, salaries grow faster than inflation. So workers living on their wages are not affected.

Transient periods of high inflation might even benefit them, as they also devalue their fixed _debts_. It's the rich people who are affected by the inflation, they are forced to invest money, rather than just leave them sitting in a risk-free account.

Conversely, deflation primarily causes pain for the working class (that's how Hitler came to power!), because it slows down the economy and makes their debts grow. While rich people can just enjoy having a risk-free real income growth.

[SuperNinKenDo]

I don't have it literally backwards, because that's not what happens. You do have your Hitler argument completely backward though. Weimar Germany was undergoing runaway _hyper-inflation_, not deflation.

Interest rates move in the same direction as inflation with some lag, so the idea that poor people benefit due to reduction in debt is weak at best, but given that the rich rely on debt so heavily themselves, any positive effect on the poor would be even greater for the rich barring some special reason I can't think of.

As for rich people being the ones affected by inflation, it does in fact change their incentives dramatically, so that's true as far as that goes, however it doesn't actually result in loss of wealth for them as again, they are the ones with the capacity to invest it in assets to protect or grow its value, and the ability to use leverage to use money now that they don't even have yet, in exchange for devalued money in the future. It might have some effect of weeding out the truly incompetently or indigently rich, but of that group the ones who don't have smarter family around to save them from themselves will be those who probably come from lower class backgrounds anyway.

[nrdvana]

Its true that rich people often (always?) "have debts", but not true that they are "in debt" overall, otherwise they wouldn't really be rich anymore. Poor and middle-class people are often in debt in the sense that they have borrowed against their future earnings. For things like a house, borrowed over 30 years, the inflation on that amount really does benefit them. By the end of the loan, people who stayed in one house barely notice the cost of the mortgage, and if the intrest rate is low enough they may choose to deliberately not pay it off as they invest their current cash elsewhere. For things like a credit card, no the inflation doesn't really help anyhing.

If deflation were expected, rich people really would just leave money in a bank account (as long as investing gave smaller returns, or seemed too risky.) The inflation is an incentive for cash-rich people to put that cash to use instead of sitting on it. This can be a huge driver for the economy.

[SuperNinKenDo]

I didn't say that rich people are "in debt", I said they rely on debt and leverage.

A mortgage on a single home seems kind of like a special case, they tend to have unusual rules that insulate borrowers from the effect of interest rates to a certain extent, which otherwise work to cancel out the time-preference effect on money. Otherwise the working classes have their wealth tied to the sale of their labor, something (wages) which is notoriously sticky, hence a greater effect on them.

I don't disagree that the macroeconomic argument does incentivise rich people to use their wealth productively, but it is precisely this argument that relies on the idea that the wealthy have means available to them to protect the value of their wealth. You can't have the former and not the latter.

[cyberax]

> I don't have it literally backwards, because that's not what happens. You do have your Hitler argument completely backward though. Weimar Germany was undergoing runaway _hyper-inflation_, not deflation.

That's a common misconception, propagated by people who want the economy to stagnate (goldbugs earlier, crypto bros now).

Germany experienced actual _deflation_ in 1929-1932 as a result of the governmental austerity. It's exactly what put Hitler in power. Deflation rose up to 12% in 1932!

Here's the table: https://www.gabriel-zucman.eu/files/capitalisback/T271 (sidenote, seeing scientific notation on the CPI chart is scary).

Hitler then immediately started an expansionist fiscal policy, using state funds to build up the infrastructure and military. This immediately resulted in the GDP growth.

> but given that the rich rely on debt so heavily themselves

Rich people are not in debt. Their net worth is not negative. That's not the case for poor people.

Unlike microeconomics, macroeconomics is pretty simple. The total amount of debt held equals to the total amount of debt owned.

[SuperNinKenDo]

I don't think minor deflation after a period of hyper-inflation is much of an argument that deflation was the cause of Germany's woes.

I never said rich people are "in debt", I said that they use and rely on debt. In the sense meant in the argument about why inflation helps the poor, the advantage also comes to the rich, if I even concede that it's true, which I do not, because rising interest exists specifically to counteract the long term effect of inflation.

Rich people's wealth is protected from inflation, while the working classes' wealth is not, that is the key difference. That is precisely inflation's alleged reason detre, that it incentivises people, in effect, those with more wealth, to use their money in ways that protect its value.

You can't have the macroeconomic argument for inflation driving growth and then simultaneously allege that rich people are just as affected by inflation as wage earners, the former relies on the idea that there is a way to use excess wealth through investment that will protect its value.

You can claim that wages should grow with inflation, but not only is that self-evidently not what happens when you look around, but the stickiness of wages is so well recognised that it's treated as almost apriori in macroeconomics, which is why I take it to be a either a feature or accepted consequence of inflation that it is regressive, depending on the specific policymaker.

[cyberax]

> I don't think minor deflation

There's no such thing as a "minor deflation". And yes, it was the proximate cause. And keep in mind, it was not a month, it was 4 years.

Quite simply: you can't have noticeable economic growth with deflation. You _can_ have robust economic growth even during hyperinflation.

I lived through one myself.

> I never said rich people are "in debt", I said that they use and rely on debt.

It mostly means that they _own_ debt (usually indirectly), not that they are _in_ debt.

> Rich people's wealth is protected from inflation, while the working classes' wealth is not, that is the key difference.

That is the opposite of the actual history. Rich people are the ones who suffer the most from inflation. Hyperinflation wipes all debts nominated in the currency, and more importantly, it forces people to invest in risky enterprises.

Workers, in general, simply don't have a lot of savings and instead rely on the constant stream of income from salary.

That's why the ruling classes are so obsessed with the inflation.

[sethammons]

which should disproportionately affect the wealthy. Another way of saying that: we pay higher prices with inflation so the wealthy are more wealthy. That money goes somewhere.

[_DeadFred_]

And hence we had the destruction of the entire tech industry because people never buy computers because tomorrow you can get a better one for cheaper.