Indeed. Ok the opposite then, where nobody buys anything or hires people. I just don’t see how a working economy could fail because economic activity — sales and employment — drops so low by people choosing not to spend money (as opposed to people not spending money because they’re broke) that it just collapses.
But I admit that I might have been simply making the argument that deflation by itself can’t wreck an economy. I suppose the current situation, where the economy is already on the ropes, is where the question of deflation matters. And on that question, I’m of the opinion that it’s a boogie-man. As somebody mentioned earlier, people still buy electronics knowing that they can get something fancier shmancier for the same money next year. The brief illusion that individuals had to keep themselves at maximum debt in order to live a good life is over, and that’s what I think is scaring the economists.
Obviously necessities (food, etc) will still be purchased. But those are just a small part of the economy.
So in theory at least, it can get quite bad indeed.
In practice, of course, cash is king and debt sucks.
“As somebody mentioned earlier, people still buy electronics knowing that they can get something fancier shmancier for the same money next year.”
Not if they simply don’t have the money. Deflation also brings falling wages. Want to bet whether prices or wages fall faster or further?
During Carter’s stagflation, I was on unemployment for a time. I got $380 per **month**.
That represents more purchasing power than a person working 40 hours per week at $9.25 today.
That shows wages not keeping up with inflation. It works the other way too. The only people who do well during deflation—and the article does touch on this—are people who have substantial cash assets and few or no deflating assets.
Perhaps it benefits the economy in the long run—perhaps—but if you want to see what it does to ordinary people, have a look at Great Depression I.