[kristianbrigman]

Is there an example where you can explain how the deflation actually led to economic success? The above feel like very distant correlations more than a result.

'prices dropping' often includes labor as well, since currency is primarily a medium of exchange.

[roenxi]

I'm not arguing that deflation leads to economic success. I'm arguing the evidence that it is bad is nonexistent. Although it has some interesting interactions with the tax system and government policies.

If you go through the arguments, inflation/deflation are both mostly neutral because people just adjust their expectations by whatever they think the rate will be. In practice though inflation policy is typically masking money printing projects or policies that destroy wealth. And by reversing that, deflation is usually positive but only because it suggests that the political leadership at the time was interested in honest market signals rather than seizing an opportunity to conduct handouts.

> 'prices dropping' often includes labor as well, since currency is primarily a medium of exchange.

Inflation or deflation, by definition, doesn't impact how much someone can buy in real terms. Because wages and goods are theoretically changing at the same rate.

[amrocha]

Deflation is bad because it’s literally your economy shrinking. It’s not prices dropping, it’s less spending across the board. Depending on your demographics you end up with huge unemployment numbers or a standard of living for the older generation that can’t be sustained by the new generation.

If you’re arguing a fringe point of view please make that clear up front. If I knew you think deflation is good I wouldn’t have ever replied.

And by the way, you say Japan is an economic success story because of deflation, but I guess you never bothered looking up their 300% debt ratio that they have been running for decades, exactly because they didn’t want deflation to ruin their economy.

[roenxi]

> Deflation is bad because it’s literally your economy shrinking.

Well, this comment is off to a bad start. What about a very small economy of 1 widget that can be produced and sold for $2 per unit time, then a technological change that causes the equilibrium to move to 2x widgets for $1 apiece in over the same time? The real production of the economy has doubled, and experienced 50% price deflation. The same basic scenario can be developed at any economic size and complexity. No unemployment. No standard of living drop. Just people affording more stuff.

Deflation, in fact, is literally not the economy shrinking. It is a systemic reduction in prices.

> And by the way, you say Japan is an economic success story because of deflation, but I guess you never bothered looking up their 300% debt ratio that they have been running for decades, exactly because they didn’t want deflation to ruin their economy.

This is pretty typical of anti-deflation comments in my experience - what are you trying to say here? Countries manage to overwhelm themselves with high debts with inflationary monetary policy too; the problem - if there is one - is the borrowing of money. It is hard to end up in debt without borrowing money and investing it unproductively. That decision is independent of monetary policy.

And I didn't say Japan was an economic success because of deflation. There wasn't a "because".

[kristianbrigman]

> Inflation or deflation, by definition, doesn't impact how much someone can buy in real terms. Because wages and goods are theoretically changing at the same rate.

From your earlier post: > Frankly I suspect that if prices go down all else equal most people will be better off and able to afford more stuff. Wild take, I know.

As you mention above, this isn't likely to actually be that different.

But:

>In practice though inflation policy is typically masking money printing projects or policies that destroy wealth

Inflation rewards moving money into goods, and deflation rewards moving money out of goods. Generally, an economy where money moves around is better than one where it sits idle. Yes, it does penalize saving cash (), which offends many puritan mindsets (including mine), but it rewards risk-taking and committing your currency towards capital, both of which tend to make the economy more productive.

() - So, if your 'wealth' is in currency, then inflation does devalue your wealth. But if your wealth is in capital, that capital should fluctuate with the currency, and inflation doesn't devalue that.

[roenxi]

Heh, you noticed. I was being a bit sneaky in my word choice [0] there - the commonly used measure is the CPI [0] which doesn't include wages - so in practice it would often measure "deflation" which is really just prices going down due to technology improvements and people becoming better off. Think what has been happening in the tech world for however long. If not for pro-inflationary policy the overall economy would tend to stable prices except for massive drops in the cost of tech goods, leading to measured "deflation" (not really deflation but error in the measure) and people getting wealthier.

That was why I said "prices go down" instead of "deflation" - because the measure in practices is a price basket which doesn't directly include wages.

> But if your wealth is in capital, that capital should fluctuate with the currency, and inflation doesn't devalue that.

In the abstract, yes. In practice, after you factor in the interactions with capital gains tax it actually means there is a wealth tax (transaction tax? Extra tax on the principle, anyway) which is relatively punishing to anyone trying to save for their old age.

EDIT [0] With benefit of 24 hours hindsight, it would have been more proper to say "consumer prices" to distinguish the CPI from inflation.