If you think your money will worth more tomorrow, then you are less likely to invest/spend them.
I see this argument being thrown around a lot. How does it work when a fair share of people are not doing investment at all, and are unable to spend the bare minimum to live, to begin with?
I ask this because the argument of “people will spend less” only works with people that spend extra money on unnecessary things, which is becoming less and less of a thing.
Because no matter what proportion of the population they are, many many businesses are kept afloat by discretionary spending. Be that TVs, laptops, clothing, grooming, beauty products, heath+fitness, cars, holidays, tourism, travel, even house moves.
These are all things that can be ‘put off a little while’ if there’s serious prospect of your money going further. Which, as OP says, slows the economy and makes deflation worse… The thing that suffers in the meantime is cash flow in these businesses (and dependent businesses) and an extended period of slow trade with no prospect of it ending would see many of them go to the wall. See: covid. Had governments not acted it would have naturally led to deflation. That’s not the reason they acted though, they pumped money into the economy because long before deflation/inflation would have been a worry bankruptcy would have cut deep into thousands of regular ‘good’ businesses. (So they over inflated and then we had globally crap price inflation but still the risk of an economy wide shut down was that bad…)
Technology is inherently deflationary in that superior versions come out for the same or even less money all the time yet people still regularly buy TVs, phones, laptops, etc.
I see this argument being thrown around a lot. How does it work when a fair share of people are not doing investment at all, and are unable to spend the bare minimum to live, to begin with?
I ask this because the argument of “people will spend less” only works with people that spend extra money on unnecessary things, which is becoming less and less of a thing.
Because no matter what proportion of the population they are, many many businesses are kept afloat by discretionary spending. Be that TVs, laptops, clothing, grooming, beauty products, heath+fitness, cars, holidays, tourism, travel, even house moves.
These are all things that can be ‘put off a little while’ if there’s serious prospect of your money going further. Which, as OP says, slows the economy and makes deflation worse… The thing that suffers in the meantime is cash flow in these businesses (and dependent businesses) and an extended period of slow trade with no prospect of it ending would see many of them go to the wall. See: covid. Had governments not acted it would have naturally led to deflation. That’s not the reason they acted though, they pumped money into the economy because long before deflation/inflation would have been a worry bankruptcy would have cut deep into thousands of regular ‘good’ businesses. (So they over inflated and then we had globally crap price inflation but still the risk of an economy wide shut down was that bad…)
Technology is inherently deflationary in that superior versions come out for the same or even less money all the time yet people still regularly buy TVs, phones, laptops, etc.
True, they’re poor examples. But discretionary spending, on the whole, is not on depreciating items.
Humans are not rational actors. We never have been and we never will be. There are different gradations of “necessary”.