this post was submitted on 05 Sep 2026
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Deflation (lemmy.world)
submitted 2 days ago by q4chin@lemmy.world to c/memes@lemmy.world
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[–] NateNate60@lemmy.world 41 points 1 day ago* (last edited 1 day ago) (7 children)

What people think living in a deflationary economy looks like: Groceries are 5% cheaper than last year.

What living in a deflationary economy is actually like: Nobody is spending money. Your hours are cut and you won't get a raise this year. Your income is down 25% compared to last year. You can't afford to buy anything. Businesses everywhere have to cut prices to compete for the dwindling number of customers.

Investment dries up. Job creation comes to a complete stop. 500 people competing for every job opening that comes up. Wages keep going down as a result. The uncertainty means that even people who still have a job are choosing to save as much as possible rather than spend.

Foreclosures rise, people lose their homes as the wealthy snap up the newly-freed housing stock at distressed prices. Car repossession rates skyrocket, causing a surge of used cars to enter the market, dragging down new car prices along with them. Automobile manufacturers start biting their nails as analysts project lower sales numbers and tighter margins, pushing most heavy industry into the red. Workforce cuts soon follow.

Credit default rates soar, leading to the first bank failures. National deposit insurance schemes soften the blow and prevent a full banking crisis, but deposit insurance rates start climbing, causing banks to raise fees and cut benefits.

The lower economic activity causes budget shortfalls in every city in the country. Poor tax growth forecasts force local councils to start cutting services. The first to go will be cultural events. Then the public transport cuts come. And then homeless services. Then eventually all departments except police, fire, water, and electricity get cut down to the bone, and then some. Maintenance on public buildings get slapped with 5- or even 10-year deferrals.

People are skipping meals to make ends meet. Produce rots on the shelves until grocers learn to order less. Lower crop prices push many small to medium farms into insolvency; larger corporate farms are better able to weather the storm. Groceries are 5% cheaper than last year.

[–] Zorque@lemmy.world 36 points 1 day ago (1 children)

Seems like that happens in an inflationary economy as well, see the US.

[–] NateNate60@lemmy.world 12 points 1 day ago

Because deflation isn't the only thing that causes them. It's just that a deflationary economy makes them far more likely to happen to a far greater number of people.

[–] surewhynotlem@lemmy.world 21 points 1 day ago (1 children)

And the purely stupid thing is, it's all made up. The same number of people exist to produce the same amount of goods and consume the same amount of goods. The society could just continue on. But they can't, because money.

[–] NateNate60@lemmy.world 4 points 1 day ago* (last edited 1 day ago) (3 children)

Absolutely not, and I hate this term "made up" whenever people are trying to describe the economy.

In an economy populated by free economic agents, prosperity is determined less so by the amount of goods available but by how much those agents trade among each other. For each type of economic resource, whether that be goods, services, labour, money, or social status, there is a certain distribution of those resources which maximises everyone's utility. It is impossible to nail down what that distribution is, but when people are more willing to trade with each other, those resources have a tendency to flow towards the people who most want them. Even though the amount of resources available does not grow, a "good economy" where people are willing to exchange resources will feel more prosperous than a "bad economy" where everyone is scared of losing their resources and thus hoard what they have.

You are happy when you are able to trade the resources you have (possibly just your labour) and get in return things that you value more than keeping your labour. Food, shelter, cars, and Pokémon cards. You could keep your 40 hours, but surely you wouldn't be very happy with just that, would you? Trade creates value.

And because I know people like talking about socialism here, this is where the Soviets went wrong and where the Chinese went right. The Soviets thought that the way to prosperity is to produce more. The Chinese know that the way to prosperity is to allocate better, and one of the best ways to allocate resources that we know of, is by letting people trade. That's not to say it's a perfect way or even a good way, but so far we have not come up with anything better than to let people trade and then step in when the trade goes wrong or does not produce an optimal distribution of resources. Don't misunderstand; unregulated trade tends to clog itself up and results in a very suboptimal resource distribution. It needs to be closely regulated.

Money is nothing more than an intermediary to allow trade to occur. When people hoard money, that in itself is a dampener on economic growth. Money which is spent circulates again and again, and greases the wheels of trade. An economy where people freely spend and freely earn money is a prosperous one. An economy where people hoard money is one where nobody gets what they want (except the idiots who somehow derive utility from hoarding money).

So no, it is not "made up". In economics, public confidence is what creates prosperity. When people are confident, they spend. They earn it back. They trade. They create value. When people are scared, they desperately hold on to what they have. They stop trading. That value, it never gets created.

[–] AppleTea@lemmy.zip 15 points 1 day ago (1 children)

Trade creates value

Labor creates value, trade allows us to quantify the value between different goods (which are themselves still the output of labor)

I agree with what you've laid out here, except that I think you've missed the point of the comment you are replying to. When an economic downturn happens not for material reasons (resource constraints, logistical choke-points, and the like) but for financial reasons, then yes, physically it is arbitrary. The 2008 crash happened because of mortgage debt in a ledger - our physical ability to work and produce goods didn't change.

[–] NateNate60@lemmy.world 1 points 1 day ago (1 children)

tl;dr I am arguing that the value which is created (or realised) from trade is equally as valid as value created from the production of resources or services, and that it is a mistake to only consider physical goods or actual services provided as "value".

Let me quantify what I mean by "value" here. By "value" I mean the economic concept of surplus. I assume you already know what that means but for the reader's benefit, surplus is the difference between what an actor values a resource at and what they had to give up to obtain that resource.

All resources are inherently created by labour. In that, you are right. Labour creates initial value. But most of the surplus that exists in the economy is a result of trade. Trading the resource with others makes the resource more valuable as it passes to people who value it more and more.

Let's just start with labour as a resource. Everyone possesses hours of their time as a resource. And for most people, their time isn't inherently worth much to themselves (i.e. people generally would much rather work and be paid at least a little bit than to be unemployed without money), so finding a job at the Pokémon factory and working for wages generates a large amount of surplus.

An hour labour might convert $100 worth of cardstock into 100 packs of Pokémon cards. You get paid $30 for this labour, which is a large surplus to you because you would be much, much happier with the $30 than to sit around at home for an hour, especially knowing you can do this trade 40 times weekly. But what value is generated here? The value of a resource is determined, in economics, by the amount of utility that whoever owns it derives from having it. You have traded away your hour of labour. Perhaps you would only value that hour at $5 (i.e. you would be happier with the hour at home than $4.99, and you would be happier with $5.01 than the hour at home), so you have generated $25 worth of surplus for yourself by trading your hour. On the other hand, the Pokémon Company knows it can make a tidy profit on the results of your labour (the Pokémon cards), so maybe it values the labour at $50, and then banks a $20 surplus by trading its money for your labour.

But nonetheless, the product of that labour is inherently worthless from an intrinsic standpoint, and the Pokémon Company obviously derives no intrinsic utility from it. All the utility from it comes from knowing it can be resold. So when it sells those cards to a retail store for $300, it is creating nearly $170 in surplus (subtracting off the $100 in paper and $30 in labour to avoid double-counting). This surplus wasn't derived from labour; not meaningfully so, anyway. The amount of work involved here is nominal compared to the surplus generated from the mere fact that a trade occurred.

All this extra surplus is what makes people feel richer. And the lack of this trade makes people feel poorer. The underlying physical goods are worth nothing if they stay with people who don't value them. A country could produce ten times more rice and would still be poorer if that rice fails to find its way to the hungry people who value it most. The rice farmer doesn't derive utility from hoarding a hundred tonnes of rice. They do not derive happiness from it. That happiness, that surplus, is only made real when the rice gets into the possession of the people who want to eat it. So trading a kilogram of it to their neighbour is what creates this value. It turns a resource which was nearly worthless to its previous owner into a resource which is highly desired and worth far more to someone else.

[–] AppleTea@lemmy.zip 2 points 1 day ago (1 children)

If trade value is equal to the labor value of something, then how is it that the trade value can fluctuate so much? You emphasize its creation of value, but what of the destruction?

Instead of Pokemon cards, lets use a trend that came and went. The trade value of a Beanie Babies skyrocketed in the mid-to-late nineties. People were using it as an investment vehicle. And then the trade value plummeted. The Beanies themselves, the cloth and the plastic filling, remained unchanged through all of it. If a good is damaged, its value is permanently reduced (sans labor to repair, anyway). If trade value is reduced... doesn't matter. It can go up or down or anything tomorrow. You would claim that process is equal to value derived from labor?

[–] NateNate60@lemmy.world 1 points 1 day ago* (last edited 1 day ago) (1 children)

I do. I claim that trade can destroy value, and it can destroy value that is created through labour just as much as it can amplify it. A change in how much people value something can turn productive labour which produces valuable goods into a worthless activity which wastes time.

If tomorrow, people suddenly decide rice is disgusting, repulsive, and not fit for human consumption, that would destroy all the value in rice production equipment, and it would destroy the value of all the rice that has been produced but not consumed. The rice hasn't changed. The nutritional value hasn't changed. But since rice no longer makes people happy, its value is now far less, regardless of how much labour was expanded to produce it.

There is no objective standard for value. Value is inherently subjective. Not even for food. After all, dandelions are edible, but also perfectly worthless because it's simply culturally unacceptable to eat them. Blackberries are another great example. In your area they might be a rare and expensive delicacy. In my region, they grow like weeds and we pay people to remove blackberry vines.

For a similar reason, we could pour as much labour as we want into producing mud cakes, but no matter how much work it was to make them, mud cakes are worthless to everyone and so there is no surplus created by making them. Instead, everyone who expended resources (money, equipment, labour) to make them has incurred an economic loss because the resources were consumed and nothing valuable was received in return.

[–] AppleTea@lemmy.zip 3 points 4 hours ago (1 children)

Suppose we imagine a fantastical world where no one is able to trade, and a second fantastical world where nobody is able to labor.

In the first world, people would still be able to get stuff done, alter their surroundings, and invent new things - they'd just have to do it each for themselves. In the second world, there would be nothing to trade.

How can the process of exchange value be equal to labor value when it can only exist with the prerequisite of labor?

[–] NateNate60@lemmy.world 1 points 3 hours ago* (last edited 3 hours ago)

This is non-sequitur. The fact that value derived from labour is required to exist for value derived from trade to be generated does not mean that either category of value is less real.

Labour gets you from 0 to 1. Trade gets you from 1 to 100. Labour generates value by adding to what's available. Trade generates value by multiplying what's available. The observation that zero multiplied by anything is still zero does not invalidate the fact that multiplication is still more powerful than addition. It just means that one cannot exist without the other if you want to have more than zero.

[–] surewhynotlem@lemmy.world 6 points 1 day ago

I think you've hit it on the head. The economy is the stupid part.

If there is food, and there are people, it's stupid that we have hungry people who don't get the food. And all the reasons you listed are a consequence of the "economy" which incentives people to not get the food to the other people.

That isn't to say that an economy is worthless. But when it's failing to the point that people are starving, it's idiotic to follow its incentives.

[–] MonkeMischief@lemmy.today 1 points 1 day ago

This was quite educational, thank you very much for all the detail! I feel like I understand fundamental economics a little better now.

[–] robear@lemmy.zip 10 points 1 day ago* (last edited 1 day ago) (1 children)

You're conflating an economic problem that is causing deflation with deflation itself.

There is nothing inherently more negative about deflation compared to inflation for the average person. It's just generally not caused by anything positive under our current economic model.

[–] deathbird@mander.xyz 3 points 1 day ago (1 children)

Deflation of a currency discourages people from spending it, because you can make more money by just holding on to it. It makes loans more expensive to provide because someone can borrow money and it will increase in value without them doing anything, so you have to have higher interest rates to counterbalance this. This harms economies. What you want is stable prices, erring on the side of inflation if you must.

I suppose for a single person deflation doesn't feel like much, but money is collective so the party doesn't last.

[–] boonhet@sopuli.xyz 6 points 1 day ago

At the loan part, you're confusing inflation and deflation. You need higher interest rates to counterbalance inflation because money loses value. Loans during deflation make the loan giver get richer by default. But TAKING a loan during deflation is a shit deal because the value of what you're paying back keeps increasing. Inflation, assuming that it comes with gradual raises in income (which it theoretically should, just not in the modern US), actually makes your loans cheaper to pay back over time.

[–] TeamAssimilation@infosec.pub 4 points 1 day ago (1 children)

What about moderate deflation? Not “nobody is spending money” but “everybody is spending 5% less”, to go in accord to your groceries example.

[–] NateNate60@lemmy.world 1 points 1 day ago

Even 1% deflation will kill a good portion of investment and job creation. It drives up interest rates because the risk of lending money out is less worth it compared to letting it sit, so you have to earn more interest for it to be worth it. This drives up loan rates which means significantly fewer people find it worth it to borrow and start or expand businesses. The job market constantly loses jobs, but without new ones to replace them, people start losing work and then getting scared that they won't be able to find a new one. It is this environment that causes ordinary people to not spend. It's because they're scared of losing their jobs.

[–] MonkeMischief@lemmy.today 5 points 1 day ago

Hey no fair, you're just reciting the events surrounding 2008!

But yeah. Scary stuff.

[–] diaphragmwp@discuss.tchncs.de 1 points 1 day ago* (last edited 1 day ago)

!flippanarchy@lemmy.dbzer0.com

[–] altphoto@lemmy.today 1 points 1 day ago

Gen Z-ers.... Yeah, we've been waiting for this shit to pop.

[–] Widdershins@lemmy.world 8 points 1 day ago (1 children)

Thats from Jan Van Eyck, right?

[–] Rothe@piefed.social 3 points 1 day ago (1 children)

Yeah, that window being reflected fish lense style is a proper tell.

[–] beliquititious@lemmy.blahaj.zone 1 points 1 day ago* (last edited 1 day ago) (1 children)

You don't know the name of the painting do you? I was hoping to see a higher rez version to see who is reflected in that mirror.

[–] expatriado@lemmy.world 5 points 2 days ago (1 children)

i don't see the problem - banks

[–] NateNate60@lemmy.world 15 points 1 day ago

Deflation is devastatingly bad for banks. It discourages investment and new businesses because it shifts the maths in favour of just holding cash rather than investing in new businesses. No new businesses means fewer people need loans. And deflation makes loans more expensive for ordinary people, who stop borrowing. Banks profit only by lending out the money that they have. No loans, no profit.

[–] jdr@lemmy.ml -5 points 2 days ago* (last edited 2 days ago) (1 children)

Deflation? You talking about Afghanistan or Sri Lanka or where? Not a lot of countries tolerate deflation.

[–] q4chin@lemmy.world 11 points 2 days ago (2 children)

am Talking about USA after AI crash hits all corporations will feel deflation.

[–] TootSweet@lemmy.world 8 points 2 days ago (1 children)

I hope it comes soon.

[–] NateNate60@lemmy.world -2 points 1 day ago (1 children)

Unless you live in the US, because the reason that your money would deflate is that you would have a lot less of it.

[–] TootSweet@lemmy.world 9 points 1 day ago* (last edited 1 day ago)

The longer the bubble continues to grow and the bigger it is when it pops, the worse the crash/deflation will be, which is why I say I hope it comes "soon".

I guess that and so that I can stop having LLMs forced on me.

Oh, and "deflation means you have less money" is a bit overly simplistic. If you're living hand-to-mouth and don't have a lot of debt, deflation can actually be a net good thing because a paycheck in the future can buy more than a paycheck of the same size today.

I'm in the U.S. if you're curious.

[–] DomeGuy@lemmy.world 3 points 2 days ago (1 children)

While I'm aware of the causal influence a deflationary currency can have upon economic activity, I'm not sure how the inverse works

Care to explain?

[–] q4chin@lemmy.world 1 points 1 day ago

Less spending → less demand → prices drop. that's what you're asking?