I hear this all the time, and I see little evidence that it's as strong an effect as everyone says.
Cars, computers, and phones are all deflationary (at last in normal times). And people seem to buy them just fine.
A $25,000 car becomes a $20,000 car the moment you drive it off the lot due to depreciation.
But the purchasing power of $25,000 cash becomes $26,500 after a year of 5% deflation, which means you _gained_ purchasing power by doing nothing (aka not spending money) as the result of deflation.
But no, I don't mean depreciation.
A 2019 vehicle that sits on a dealer lot slowly loses value over time. That has nothing to do with depreciation and everything to do with newer, better vehicles coming out over time. The same thing applies to computers and phones.
> Deflation is terrible for debtors. Prices and wages fall, but the value of your debt does not. So you’re forced to cut spending. This applies to consumers and to governments, and it is one of the biggest issues in Europe right now. As Yale University economist Irving Fisher wrote decades ago, debtors are likely to cut spending more than creditors increase it, and this can turn into a really bad downward spiral. (The experience of Japan, though, proves that an economy can have a prolonged period of moderate deflation without falling into that downward spiral.)
* https://www.brookings.edu/opinions/5-reasons-to-worry-about-...
The Great Depression is an extreme example of high deflation:
> Interest rates dropped to low levels by mid-1930, but expected deflation and the continuing reluctance of people to borrow meant that consumer spending and investment remained low.[13] By May 1930, automobile sales declined to below the levels of 1928. Prices, in general, began to decline, although wages held steady in 1930. Then a deflationary spiral started in 1931. Farmers faced a worse outlook; declining crop prices and a Great Plains drought crippled their economic outlook. At its peak, the Great Depression saw nearly 10% of all Great Plains farms change hands despite federal assistance.[14]
* https://en.wikipedia.org/wiki/Great_Depression
* https://en.wikipedia.org/wiki/Great_Depression#Debt_deflatio...
There are some arguments for good versus bad deflation:
* https://www.nber.org/digest/apr04/good-versus-bad-deflation-...
2. Most/all of the benefit of inflation to consumers is captured by lenders in the form of higher interest rates - there's a reason why so many rates are quoted as "prime + x".
3. Addressing your japan/great depression examples:
I get that the transition from an inflationary economy to a deflationary one can be horrendous for consumers. Sure. But that doesn't say anything about how consumers would fare under a steady state deflationary economy.
People consume cars, computers, and phones; the primary intent is to use the product. You might sell it used at some point, but that's not the primary intent, and you're almost certainly going to take a loss on resale.
People invest in companies, governments, and individuals; the primary intent is to provide a loan that will be repaid with interest.
A physical object could be considered an investment, but only if that object is rare or somehow naturally limited (e.g. real estate).
So with inflation, you're rewarded for making investments, because otherwise your money will lose value sitting in fat stacks under your mattress. With deflation, you're rewarded for keeping those stacks hidden away, because it's a risk-free way for it to gain value.
US economy experienced massive growth through periods of deflation 1815 and 1860, and 1865 to 1900, as a result of industrialization and increased international trade.
I think people greatly overestimate the impact of monetary policy. Consumer demand and technological improvement drive growth more than anything. Climate change and rising oil prices drive investment in renewables for example. Consumer demand for computing drove technological improvements, which drove investment and falling prices. In my view, this would happen regardless of monetary policy.
You forget that in a deflationary economy prices would go down. Most of Wall Street, of course, is not their own money. It's borrowed money. Borrowed from pensioners, from central banks, from every bank in existence.
Deflation would not only make it in the banks interest never to loan a cent again, it would suck something like 95% of the money out of the stock market (so no, it definitely wouldn't be in your interest to still own profitable firms).
Wall Street is mostly smoke and mirrors, to convince people to work to pay pensioners and banks, and siphon off a healthy percentage for themselves. It just wouldn't work in a deflationary economy and it's the source of most of the money in the US economy. Without it we'd have to do something crazy like have the government run ~50 moonlanding-sized projects at the same time to make up for it.
Why's deflation different from e.g. sitting on treasury bonds? The money was originally printed by the government, the bonds are issued by the government, so sitting on bonds does nothing except pays you for taking money out of the economy temporarily, same as deflation.
If e.g. nobody would ever buy a computer because it'd be 2% cheaper if you wait a year, you could just as well argue that if bonds yield 2% above inflation you could park your money in them and wait a year and have 2% more money so nobody would ever buy anything.
And similarly, somebody stuffing money under their mattress would be removing 20x the amount from circulation as they gain, with 5% deflation. So while one can easily imagine the 5% is financially equivalent to interest, the effect on the circulation isn't.
"Remove money from circulation" seems different than simple funding of services, though. It's not even obvious there should be any difference there, if the money were infinitely subdivisible. I don't think using personal finance equivalents like funding goods and services is sufficient to explain the effect.
An economist has probably written something in excruciating detail, making sure there's no shell games being played with the terms. So it's probably on me for not reading that instead of commenting here.
I think it's bad for greedy corporations who would see their their profit margin shrink, but periods of temporary deflation every once and a while feels like it could be healthy for society.
This is the conventional wisdom, but it's rooted in propaganda put out by the government. Deflation isn't any worse (or better) for the economy than inflation. It's the yin vs the yang, so to speak.
According to the government, inflation comes from profiteers, speculators, greedy capitalists, Putin, and any number of boogeymen. In reality, it comes from the government printing and spending excess cash. The government then tries to sell the idea that 2% inflation is good for you.
Now, government does need to raise money to fund its operations in one way or another. Inflation is arguably a reasonable (and fair) way to do it. But let's be honest about it.
That can cause the prices of some assets to go up, but others will correspondingly go down, making it a net zero effect.
And inflation is equally bad if you have cash or any assets denoted in cash. It's also bad because taxes don't necessarily index with inflation. For example, much of capital gains are illusory because of inflation, yet you get taxed on that inflated value, not the real value.