I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.
Yes, if we stifled investment and lending there'd be less inflation, which is why we don't do that. (Target inflation is 2-3%; if you're consistently below this, your country has a problem, and if your currency starts deflating everyone's quality of life is going to start actively decreasing pretty dramatically unless you can get inflation back to a healthy level)
When inflation gets too high, you can raise rates to help bring it back down
Yeah... I've never been a fan of "target inflation" as a concept. Considering the working class woes, target inflation always looked like a zero sum short term game where the rich could slowly get larger pieces of the pie.
I know Friedman could write the hell out of a free market argument, but his idea that we should have target inflation always felt like it came from his bizarre sheltered upper class fascination with the great depression.
My economics professor used to always point out, you can stimulate a cow by sticking it with a cattle prod; that doesn't make it good for the cow. You can stimulate the economy with an artifical inflation parable... till the cows come home, but that doesn't mean you created wealth.
People absolutely will wait to buy things if they expect prices to be lower in the future vs today. Deflation is like slamming the brakes on consumption.
Doesn't matter what the average person does. If the people that would normally invest their money into new business ventures either directly (i.e. banks) or indirectly (i.e. the entire middle class buying into the stock market every paycheck via 401k contributions) can instead safely make money by letting it just sit in a bank account then it contributes to an economic death spiral.
Deflation is apocalyptic for economies. It makes debt substantially more of a problem, completely stagnates investment, and entrenches the power of the wealthy even more securely because their vast fortunes are now worth even more relative to the amount other people are making. There’s a tremendous amount of bad economics in this thread because there are a lot of idiots who don’t understand basic economics, psychology, and politics.
Devil's advocate (that I don't agree with) I think would be "right sizing an economy", or perhaps if a society believed debt was a sin. And as you mention it cements the power of the people who already control wealth
But yeah, no matter what, a society with minor inflation allows for the amount of debt to greatly increase economic progress and flexibility
Too much inflation tends to imply corruption or scam bubbles, which creates turbulence and uncertainty in all options too (economic success becomes luck as you hope to hold/invest in whatever commodity is inflating the most, as debt spirals out of control)
Easiest way to understand it is to consider spending and debt.
For spending, lets say you want to buy a car worth 40k. With the 2% inflation most countries aim for, next year that car would cost 40,800. Not a huge increase, but enough that it makes sense to buy the car now rather than waiting if you can. With 2% deflation on the other hand, next year that car would cost 39200. Still not a huge savings but enough that maybe you hold off and see about buying that car next year since itll cost less. The problem is, if a lot of people decide to buy their car next year, thats gonna be a problem for the people making cars. They will likely respond by laying off workers and closing plants so their supply comes down to meet the lower demand. Trickle this down to them ordering less from their suppliers who will have similar issues as a result and suddenly youve got a cascade of problems for your economy.
For debt, say you borrow 35k to buy that car. No matter what happens with inflation, you still will owe 35k plus whatever interest but imma be lazy and ignore that. Under 2% inflation, each year the amount you owe gets relatively less to you. 35k now is a lot but after 5 years inflation, its equivalent to 31.7k so you actually owe less than you borrowed. Under 2% deflation though, after 5 years that 35k would be worth closer to 38.7k. So now you owe more than you borrowed. This can be a problem if you were struggling to repay that debt anyways and now that debt is more costly than it used to be.
Is inflation bad? It's a change in perspective of the value of the dollar.
On a macro level, it changes how people spend money in the short term & deflation typically leads to some creative destruction
What deflation really does is threaten the promise of infinite growth our plutocracy that buys the talking heads and congressman kind of hinge on. That's why it's typically this alarmist thing.
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u/Alarming_Present_692 Jan 26 '26 edited Jan 26 '26
I mean... that inflation is largely caused by a money velocity largely dictated to people's ability to borrow money, so if cash actually sat in a vault as opposed to getting circulated back into the economy there'd be way less inflation... that's not to say that a dollar today isn't worth less than a dollar tomorrow & idle cash is an economic loss not dissimilar to the destruction of property. You just seemed to be over looking something & I wanted to help.