“Although lower prices may seem like a good thing,’’ Banco de España, the Spanish central bank, says on its website, “deflation can in fact be highly damaging to the economy.’’
How so? Mainly because falling prices tend to discourage consumers from spending. Why buy now, after all, if you can purchase what you want — cars, furniture, appliances, vacations — at a lower price later?
We’re not going to buy that stuff now anyway because it’s too expensive you twits
The reality is that the economy’s health depends on steady consumer purchases. In the United States, household spending accounts for around 70% of the entire economy. If consumers were to pull back, en masse, to await lower prices, businesses would face intense pressure to cut prices even more to try to jump-start sales.
We can’t pull back en masse on purchasing groceries
In the meantime, employers might have to lay off waves of employees or cut pay — or both.
They’re already doing that! They’ve been doing that!
We’re not going to buy that stuff now anyway because it’s too expensive you twits
And when you have deflation, no one buys stuff, and everyone gets laid off. Then you have Great Depression Pt II. I don’t mean 1-2% RIF, I mean things like entire industries shutting down, and millions of people out of work. Right now we have very, very low unemployment overall. At the height of the great depression, unemployment rates were around 25%. Right now, we’re at about 4%. In 2020, at the worst of the pandemic, we briefly hit 15%. In the great depression, it was over a decade where it was all above 15%.
We’re not going to buy that stuff now anyway because it’s too expensive you twits
We can’t pull back en masse on purchasing groceries
They’re already doing that! They’ve been doing that!
Exactly!
And when you have deflation, no one buys stuff, and everyone gets laid off. Then you have Great Depression Pt II. I don’t mean 1-2% RIF, I mean things like entire industries shutting down, and millions of people out of work. Right now we have very, very low unemployment overall. At the height of the great depression, unemployment rates were around 25%. Right now, we’re at about 4%. In 2020, at the worst of the pandemic, we briefly hit 15%. In the great depression, it was over a decade where it was all above 15%.