Too many people don’t understand that deflation is worse than inflation. But I agree tariffs can be beneficial when done right. Is this administration doing it right? It seems to me they’re using tariffs for political goals, not economic goals.
Nope.
Deflation can be,
sometimes,
under some circumstances
worse than inflation.
It can also be a good thing.
But it is not always and everywhere worse than inflation
(Too many people don’t understand this.)
Tell me how deflation can be a good thing. I’m not talking about the price of a single product going down, but widespread deflation. Describe a scenario where that’s beneficial.
Because it results in higher net incomes.
Here look at the chart below. It’s not just one item
Tell me “Phew! It’s a good thing the prices of those other thigs rose. Otherwise cheaper TVS and cheaper xell phones would have been a bad thing.”
How do falling prices, less economic activity, depressed asset values, and fewer jobs lead to “higher net incomes”? Just saying it and posting an unrelated infographic isn’t much of an argument.
Deflation does not always mean those things.
Deflation sometimes and somewhere means those things.
Oh good I get to use this again. 
– In 1825 the Erie Canal opened making it a LOT cheaper to transport grain from farms in the Midwest to markets in the East.
– In 1837 Cyrus McCormick perfected the mechanical harvester.
This was big! It was AI big! It was big as the automobile or the lightbulb.
As a result of those two things the price of wheat dropped 43%.
Over time it dropped even more (like 85%)
This is very very different than
“Terrorists fly planes into buildings. Americans become too scared to spend. Cyclical exogenous deflation results in depression and job losses.”
You’re talking about technology lowering the price of a specific product. That’s not deflation.
Deflation is measured by a reduction in CPI.
Because that is how it is an identity.
A reduced CPI can several sources (five come to mind but they have some overlap.)
Three of them include:
- Government builds sensible fact-driven infrastructure (Erie Canal, Francis Scott Key Bridge, etc.) → beneficial
- New technology is developed and deployed.–> beneficial
- No new technology is developed, but capital is deployed to buy employees a hand truck etc.–> beneficial
Any time an everywhere you read “Inflation is 2%” what that really means is "Inflation is a lot higher than 2%. It is so high it completely destroyed the beneficial price effects of all of the above plus also resulted in a 2% detectable cost increase.
It is absolutely wrong to say deflation is always and everywhere a bad thing.
It is absolutely wrong to say inflation is better than deflation.
Each ofthose statments if factually incorrect.
You’re still focusing on individual products/services. Widespread deflation is always a bad thing. Widespread inflation above the target rate of a healthy economy is always a bad thing. Yes, AI could make the production of a particular product more efficient, thereby lowering its market price, which is a good thing. But when AI is deployed in a widespread manner and prices fall across the board, people suffer. Tariffs are no different.
No it is not.
You completely misunderstand the indicator we use to measure deflation with deflation.
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When ten items (or 10,000) cost less, deflation would be measured and unspent cash would build up as “cash on the sidelines,” for use when and where the free market deems fit.----> Only net gain and no net loss to anyone anywhere.
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When we spend SOME of that money on other items SOME of that measured deflation (net gain) would be offset.
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When the Fed declares "What?? The free market is piling up cash on the sidelines? Free markets are stupid. We must stop that"
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It then adopts policy to thwart the free market, forcing that money back into play until prices rise so high it offsets 100% of the positive price effect of technology, of capital deployment of infrastructure etc. plus 2% or plus 3% and declares “Haaaa, now our job is done.”
Hopefully, this and cutting govt. spending will allow the fed to drop interest rates…
In the longer term picture the economy needs higher interest rates not lower. That would be a return to the free-market equilibrium.
However, after decades of intervention, the pace of our return matters. If the Fed suddenly adopted this saner better approach that would be like a rug-pull
Broke ass Americans don’t care that prices on goods they need to buy will go up?
Um…OK…
But that’s the problem- over long periods of time, with the economic system we currently have, the “piling up of cash” would be a bad thing.
Technological improvements or efficiencies that lead to lower cost also must be accompanied by a diversification into other goods/services being produced that can “eat into” that excess cash…otherwise the deflationary cycle will grow and discourage spending (if people think costs are going to continue to fall, they will wait to buy anything that isn’t absolutely necessary because it will be cheaper to buy those goods later).
Deflation is usually the impact of “baby economies” growing into more mature ones…as long as that is possible, then deflation might not be a bad thing.
There’s no evidence that in our economy, it would be a good thing over the long haul.
PS An economy that long term requires higher interest rates by necessity requires some inflation. This is because we create the money for a new loan by fiat, but we don’t create the interest payments for that loan.
What you are asking for requires an overhaul of how our money and finance system works.
Interested in how you think that happens.
It sounds like you’re lecturing an economics class. When prices go down economic activity slows. I know this from my own business. When we receive less money for our products, we make fewer of them, we hire fewer people, we avoid spending money on improvements, etc.
Like I posted, the only time this doesn’t happen is if there is some new sector of huge growth where the “excess dollars” can go.
Gaius’ example of the Erie Canal only worked because of the huge investment in the canal itself drove the economy…and the US was a baby economy as well.
That’s how our economic system works.
PS this phenomenon is also a HUGE reason “drill baby drill” will not lead to substantially decreased oil prices…because of the huge cost of drilling oil today, and of the weakness of the entire oil supply chain (so many parts of which are filled with zombie companies that require the price of oil to be above a certain level, or they can’t function).
No it would not be a bad thing.
A ->SUDDEN<- switch from “buying” to “piling up cash on the sideline” would be a bad thing. That is what happened or nearly happened after the 9-11 attacks. The 9-11 attacks are a prefect example of the fact that sometimes and somewhere deflation can be a bad thing.
It is wrong however to assume that it is always and everywhere a bad thing. It would be wrong to assume that the one example from above applies always and everywhere. It does not.
No.
The opposite happens.
Do yourself a favor and go down to the ‘Hood and ask them. You’ll be amazed at what you learn.
"Life is full of tough choices, and managing expenses wisely is crucial. Prioritizing essentials like food, shelter, and transportation while balancing other needs is a challenge many face.
