I think it is called a deflationary spiral.

When your money becomes more valuable if you don't spend it, people spend less, which depressed prices further, so people spend even less, which even further depresses prices.

https://web.mit.edu/krugman/www/spiral.html

This mixes up the reason and the cause. A deflationary spiral occurs when you have a financial crisis, e.g. due to a debt-based asset bubble, and the economy is not strong enough to stimulate growth through policy changes, e.g. interest rates are already zero etc. This then in turn leads to reduced spending to ensure liquidity, that is reduced demand, which leads to lower prices, which is deflation. Deflation is the result, not the cause. From that point onward, yes, it is possible for the situation to spiral in a feedback loop, but deflation is not why the spiral started.

Yes, but this is easy to avoid. It's only happened when the governmental authorities foolishly believed they should respond to deflation with austerity, which is now obvious to us that this is backwards. See https://en.m.wikipedia.org/wiki/Bernanke_doctrine

That said, the fact that austerity has been tried recently suggests the perverse impulse to respond to deflation with belt tightening instead of expanding credit is still with us. But all we have to do is just print money to match the deflation. The 1990s through 2019 are a great example, there was constant economic deflation because of new technology and the fed just printed credit like crazy to match said deflation and keep the inflation at 2pct.

The pie was getting bigger, so eroding the value of each slice to make it a smaller portion of the pie kept slice sizes stable while not making anyone lose pie.

They had an easy time with that. Now that the pandemic caused real eocnomic inflation due to supply shocks, dealing with excess inflation is a lot harder. The only way to keep pie slice size stable is to take away pie from someone and nobody wants be the loser, so capital and labor are in a game of chicken to see who blinks first and has to eat more of the inflation.

> the fed just printed credit like crazy to match said deflation and keep the inflation at 2pct

There's no rational basis for the 2pct inflation target [1], it's entirely baseless, in some sense it's now a matter of conservatism, mere tradition from a random fad decision in the 90s.

And the point is that monetary expansion directs the energy of the economy and effectively steals savings, forcing the economic energy of people into consumerism and CEOs pockets.

[1]: https://archive.ph/5abTC

> There's no rational basis for the 2pct inflation target [1] […]

Except that it seems to work.

Hitting an inflation rate of exactly 0% is practically impossible: you're going to be either a little high, or a little low. So the option is: do you want "too high" or "too low" (negative)?

In the last little while how we've all seen how painful high(er) inflation is for people. Lessons from periods of the 1930s (and others in the linked-to PDF) show how bad deflation is.

A "little" high seems to have been a pretty good compromise.

This is not true though? Japan had interest rates around zero for decades and likewise inflation which bounced around the zero mark, sometimes over, sometimes under. It is both possible and feasible, it's simply a matter of policy. See [0] and [1], choose "max" as the date range to see what I mean.

[0] https://tradingeconomics.com/japan/interest-rate

[1] https://tradingeconomics.com/japan/inflation-cpi

> It is both possible and feasible, it's simply a matter of policy.

It is been their policy and their desire to get out of the situation that you describe, and not to be living in it:

* https://en.wikipedia.org/wiki/Abenomics

They want(ed) to hit higher inflation:

> Under Kuroda, the BOJ deployed a huge asset-buying programme in 2013, originally aimed at firing up inflation to a 2% target within roughly two years.

> The central bank introduced negative rates and YCC in 2016 as tepid inflation forced it to tweak its stimulus programme to a more sustainable one.

* https://www.reuters.com/markets/asia/japan-poised-end-negati...

Yes and Japan's economy has been stuck in the 90s for the past 30 years with very little growth.

What you're describing wasn't their goal, they have been keeping interest rates at ~0% since the late 90s to avoid deflation and to stimulate the economy (and therefore increase inflation) with limited success.

But few people seem to find Japan’s past decades a desirable example because they had no growth either.

> Except that it seems to work.

I'd still like to know according to who. Practically everyone agrees the economy is worsening for average people during many decades of nearly universal control by "mainstream" economists, advisors and bureaucrats.

> Practically everyone agrees the economy is worsening for average people during many decades of nearly universal control by "mainstream" economists, advisors and bureaucrats.

Look at the chart that this story is about: when things go negative, what do you think happened to people's employment opportunities? What do you think happened to their debts (deflation makes it worse)?

Do you want to perhaps look at the economic historical record of the ~80 years before 1945:

* https://en.wikipedia.org/wiki/Panic_of_1910–1911

* https://en.wikipedia.org/wiki/Panic_of_1901

* https://en.wikipedia.org/wiki/Panic_of_1896

* https://en.wikipedia.org/wiki/Panic_of_1896

* https://en.wikipedia.org/wiki/Panic_of_1893

* https://en.wikipedia.org/wiki/Panic_of_1873

There have not been as near as many widespread economic collapses post-WW2 as there were pre-WW2. 2008 is probably the only one that came even close.

The main contributor to the working class getting a raw deal since the ~1970s is (IMHO) the idea of shareholder value (primacy):

* https://en.wikipedia.org/wiki/Friedman_doctrine

the dominance of equities is something precisely caused by the shift in the monetary system in the 1970s, which ushered in devaluation of money and forced ordinary people to seek yields from investments in businesses

The 1930s show the consequences of inflation, speculation and credit expansion, and then bungled government response that dragged out economic contraction which is needed to clear out malinvestment.

Any common person realizes their ability to lead a dignified life is being squeezed out by monetary expansion gone amok, with those closest to the govt spigot getting the benefits and none of the costs (cantillon effect).

And it brings up a good point which no one answers satisfyingly: why shouldn't the average person just enjoy price savings produced by technology?

> The 1930s show the consequences of inflation, speculation and credit expansion […]

The 1930s were nothing special when it comes to wild swings in prices (as the article show), speculation was not new (see canal mania, railroad mania, etc)

* https://en.wikipedia.org/wiki/Canal_Mania

* https://en.wikipedia.org/wiki/Railway_Mania

What is special is the post-WW2 era (where there was no deflationary bust, especially after a major war), and the decades that followed (when there was no gold standard to handcuff monetary policy, and when Keynesian economics allowed for fiscal flexibility).

> And it brings up a good point which no one answers satisfyingly: why shouldn't the average person just enjoy price savings produced by technology?

There's a difference between deflation through innovation, and deflation through economic turmoil (e.g., mass unemployment, collapse of aggregate demand).

One of my favourite examples of 'invisible deflation' that no one notices (often while they're complaining about inflation) is a 1991 Radio Shack ad:

* https://www.huffpost.com/entry/radio-shack-ad_b_4612973

* Via: https://awealthofcommonsense.com/2021/01/inflation-truthers/

You realize Canal Mania & Railway Mania happened during eras where interest was artificially low below the historical rate of 7~8%?

> You realize […]

I realize that the two manias were forms of speculation, and that getting overly excited about things seems to just be a thing humans tend to do.

* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...

> that getting overly excited about things seems to just be a thing humans tend to do

human nature is to avoid discipline when they're comfortable and set the stage for a bubble & contraction, exactly what happens with artificially low interest rates and speculations like the manias you brought up

While deflation sounds good, its is definitely bad. When prices are falling, this provides an incentive to firms and consumers to delay purchases since prices are expected to be cheaper in the future. This reduces aggregate demand, which means goods get cheaper due to less demand, causing firms to have to fire people due to lower, causing greater economic decline that spirals out of control. We now know that deflation was a primary cause of the Great Depression.

Neither one of those is true. So long as it is not extreme, a decline in the price of goods means consumers have greater purchasing power, more financial security and hence more flexibility in their spending and saving. All of these are good for the economy as an aggregate.

Except your debts start increasing even while you're continuously paying them off and investment becomes much more lucrative.

Deflation benefits those who have a lot of capital and can invest it into ~ zero risk instruments like government bonds the most (e.g. that's basically how the rentier/aristocratic class in the 19th Britain were able to maintain their lifestyle without doing anything productive, government bonds were yielding 4-5% while the value of their capital was going up due to near continues deflation throughout much of the century).

On the other hand if you're a heavily mortgaged farmer you were basically screwed if the price food went down (that's why free-silver/loose monetary policy was so popular amongst farmers back in the 1800s in the Midwest and in much of US).

> So long as it is not extreme, a decline in the price of goods means consumers have greater purchasing power, more financial security and

Deflation means that people's debt becomes more of a burden. I'd hazard to guess that poor people have more debt that rich, and so deflation would be worse for the poor.

but debt actually having a bite cuts both ways and bad businesses should be on the hook for their debts, and middle class people who carefully save over their entire life deserve to not have their savings inflated away or otherwise forced to invest in businesses to preserve or grow the purchasing power of savings

Let's say the price of everything goes down. And let's say you owe money when it does. Now everything is cheaper (including your labor, because the price of everything went down), but you still owe the same number of dollars. That hurts.

And if you say "wages won't go down", then you're expecting that everything else goes down (including the price of whatever your employer makes), but your wages magically won't? It would be nice... but don't hold your breath.

This logic doesn't work. The past few decades have seen steady to strong inflation, while purchasing power after adjusting for inflation, depending on the country, has either not kept up with it or has straight up gone downwards. So in other words, the price of everything has gone up, but not wages. So I don't really see how the price of everything going down would mean wages going down either.

When prices rise, we'd expect revenues to rise, which is not necessarily given back to workers in the form of buying power. (See grocery stores having record profits as prices have rised, for instance - that increase in profits is probably in part the gap between prices and wages showing up.)

However, no company is going to do that the other way around - if their revenues fall, they will either cut wages or fire people in order to still be profitable, so deflation should show up faster in loss of buying power too. Companies don't generally just accept lower profits, and shareholders especially do not accept this.

but that would only happen under monetary contraction, and the norm now is monetary expansion which siphons off money from savers and redirects it into the pockets of asset holders and "Cantillionaires", and this also means you get paid less with a static wage unless you get raises which for many people is hard unless they're constantly job searching which sucks anyway

Regardless of what one thinks about deflation in general, deflation TODAY in the United States would be extremely bad(due to the debt load). That said, you should obviously want the "cost per unit of X" to be deflating. dollars per teraflop should always be falling. dollars per kilowatt hour should always be falling.

Except we really need deflation. A dollar today is 2.6x less than a pre-2021 dollar. People can't afford homes anymore, and it's not entirely because of the interest rate, but because everyone's home has doubled in price since 2020.

The market is locked up. How many families are making 133k+ a year to make the 3x rule for a 400k tiny townhome? The US Census reports the average household income is 75k.

The Feds and Deep State have played with people's lives for too long, pretending like they can offer security and order. In reality, they've screwed over the middle class.

Economics 101, deflation is very bad. Basically it is because it directly leads to economic contraction. Why produce something if you're not sure you're going to make the necessary money if you sell it, or wait if you can buy it for cheaper.

This is fundamentally flawed, I'll rather refer you to a thorough article on the subject [0]:

> Most of the time, deflation is unambiguously a positive trend for the economy, but it can also under certain conditions occur along with a contraction in the economy.

[0] https://www.investopedia.com/articles/personal-finance/03091...

The heading even leads with "why is deflation bad for the economy".

Obviously there are situations where it is good and for certain people, say a right sizing of an overheating economy/sector but on the whole, and more generally, it is bad, not something you look to as fine or alright.

It would be helpful if you could actually read the article. Then you'd see that the article outlines some specific situations where deflation is bad for the economy, but concludes that it is good in general. You'd even take away as much if you only read the key takeaways section, but sadly that seems to be a tall order.

I've read it before my prior response and it ends off with:

"A little bit of deflation is a product of, and good for, economic growth. But, in the case of an economy-wide, central bank-fueled debt bubble followed by debt deflation when the bubble bursts, rapidly falling prices can go hand-in-hand with a financial crisis and recession."

This is what I'm saying.

Saying an economy-wide, central bank-fueled debt bubble followed by debt deflation is bad is very different to saying that deflation is very bad in general. This is simply trying to reframe your argument after the fact. Deflation isn't the cause of economic contraption as you said, it is the result.

I'm pointing out the article you referenced is saying its bad, the reason it says is exactly what I'm saying. It's fine short term but it's bad overall.

They're just saying in our debt fueled world, you can't merely print money to get out of jail free in a deflationary scenario as eventually the debt obligation gets too large relative to your shrinking economy size. We live in this world unfortunately where it's bad, in a hypothetical world without all the debt, it's still bad in the long term for the other reasons I've mentioned.

There is plenty of empirical evidence from the ~130 years or so prior to the Great Depression which shows why deflation (or rather restrictive monetary policy) was bad, stifled economic growth and lead to permanent boom and bust cycles and generally very high price volatility.

> Most of the time, deflation is unambiguously a positive trend for the economy

It depends on how deflation comes about. Technological innovation? Pretty good as the 1991 Radio Shack ad illustrates:

* https://www.huffpost.com/entry/radio-shack-ad_b_4612973

Through a collapse of economic activity and mass unemployment? Not so good.

Why is this an odd statement to make who educated you to think it’s not?

I have heard what OP is talking about referred to on econ podcasts like Planet Money and Freakonomics.

> It is mostly when deflation is coupled with an asset bubble

Isn't it usually? Such as the housing price deflation of 2008-2011.

People have a strong and well-founded attachment to nominal values in the economy. You pay your rent or mortgage with a fixed quantity of dollars, so as a salaried employee certain pay cuts are intolerable, so employers balance their falling nominal revenues with layoffs instead of pay cuts.

These nominal agreements are significantly less flexible than real-valued ones; people are much more able to buy fewer steak dinners when they're $20 instead of $15, and much less able to stay in their house when their paycheck is $1500 instead of $2000.