CodePsychology on Nostr: Usual argument why inflation is necessary: In case of deflation, if the price of ...
Usual argument why inflation is necessary:
In case of deflation, if the price of everything goes down, people won't spend their money, because they will rather wait, and that is bad for the economy.
Good response (idea came from TheGuySwann (npub1h8n…rpev) ):
Inflation is a result, not a cause.
The price of the things can be defined as:
Price = "Amount of money" / "Amount of goods"
So inflation occurs as a result if either the amount of goods decrease (gdp) or the amount of money increase (money supply).
If we fix the money supply (amount of money), deflation can only occur if the amount of goods increase, so when the economy grows. So deflation means the economy is growing.
Now what is the problem with deflation then?
In case of deflation, if the price of everything goes down, people won't spend their money, because they will rather wait, and that is bad for the economy.
Good response (idea came from TheGuySwann (npub1h8n…rpev) ):
Inflation is a result, not a cause.
The price of the things can be defined as:
Price = "Amount of money" / "Amount of goods"
So inflation occurs as a result if either the amount of goods decrease (gdp) or the amount of money increase (money supply).
If we fix the money supply (amount of money), deflation can only occur if the amount of goods increase, so when the economy grows. So deflation means the economy is growing.
Now what is the problem with deflation then?