China's Xi Jinping asked 'What’s so bad about deflation?' amid economic slowdown, report says
China's Xi Jinping asked 'What’s so bad about deflation?' amid economic slowdown, report says
"Don’t people like it when things are cheaper?" Chinese President Xi Jinping reportedly asked his advisers.
cross-posted from: https://lemm.ee/post/51182148
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While consumers can benefit from falling prices, persistent deflation can also lead to a downward spiral for spending and investment.
This seems like an absolute win.
Until your company, your salary and your job start deflating too.
The obsession with companies needing to post increasing profits every single year is frankly baffling. Let's say a company makes X amount in profits in 2024, and everyone—employees, shareholders, stakeholders—are happy and well-compensated. Why should the expectation be that profits must increase in 2025, even if the company is already performing well? The only explanation that comes to mind is greed. It seems like the focus is less on long-term sustainability or fairness and more about feeding the insatiable hunger of CEOs and executives who just want more—more profits, more bonuses, more power. It’s as if they’re modern-day dragons, hoarding wealth for the sake of hoarding, rather than for the health of the business or the people within it.
It's how the financial system works. Money is created out of loans that need to be paid back with interest, and the money for that interest comes out of other loans made by other people. It creates an ever increasing mountain of debt, and it pushes businesses to keep growing to stay ahead of their interest payments. The ones that don't are bought up by the ones that do. Naturally the most greedy and sociopathic float to the top in this system.
And so you get the eternal search for more things to exploit to keep growing and more profit. These things are baked in at a fundamental level.
It creates an ever increasing mountain of debt
No, it creates seignorage. Central bank lends money to bank so bank has a reserve so that it can lend book money, bank's customer pays back loan, bank pays back loan, central bank made a profit. Profit is put into the state budget and thus re-distributed.
If your business accumulates an ever-increasing mountain of debt then that's a problem with your business, not the monetary system. You could, for example, not take on loans, or not more than you can pay off. I'd say that's the smart thing to do.
And the whole thing is necessary: Without the banks having to pay back more money than what they got from the central bank the central bank could not lower the amount of money in circulation which, during a recession, would mean uncontrolled inflation. That is why you see central banks raising interest rates when there's inflation: So that they can mop up surplus money, so that the value of money stays stable. Similarly, during deflation they want to increase the amount of money in circulation so they lower the interest rate, might even turn it negative, or (this has been on the table for the Euro) even right-out transfer money into everyone's bank accounts.
This one thing (at least in the case of the ECB) is the sole purpose of the central bank and the monetary system: To make sure, as best as possible, that a sandwich tomorrow costs the same as it did yesterday. When the economy grows more money is needed to reflect the value in circulation or you'd get deflation, when the economy shrinks, less value is in circulation thus less money is needed or you'd get inflation. The central bank always has to adjust.
...the target is 2% inflation instead of 0% because you need some wiggle room and some inflation is better than any deflation. The amount the central bank adds or subtracts from the monetary supply has no direct connection to the inflation rate, for that you have to take the actual economy into account, as said, if monetary supply tracks the economy perfectly, shrinking and expanding in response to it, there's no inflation, and no deflation.
You can have inflation and lower profits, no issue there. The unit of account shifting in value has some, but ultimately little, impact on how much of the value-add companies keep for themselves, or how much their business expands or contracts. The same percentage of a less valuable unit of account is a larger number, but still the same percentage.
People like when if their rent is suddenly a lower percentage of their wages, they don't really care about the absolute numbers.
Unfair redistribution is an issue, but it's a bit orthogonal from deflation issues. I think people expect to get opportunities, promotions, new jobs, raising salary etc. this works better with a little inflation.
So long as the increases in salary outweigh the increases in inflation, sure. But that will never happen. The entire system is flawed. Debt will grow and grow and those holding the debt will pull the puppet strings and make those below them dance (and suffer).
Companies need to ditch their boards. They need to delist from the stock market. They need to be 100% employee owned. Profits need to be set at a specific percentage of COGS.
…but greed, greed never changes.
That's a factor, yes, but deflation can easily make a company unprofitable.
If a company isn't profitable, during a delfationary period, we really need to examine whether or not that business should even exist in the first place, since it apparently is only sustainable if there is an unsustainable economic model supporting it...
Let's say a company makes X amount in profits in 2024, and everyone—employees, shareholders, stakeholders—are happy and well-compensated. Why should the expectation be that profits must increase in 2025, even if the company is already performing well?
Many of the products and services that businesses depend on will or might raise in price. This is by design; most central banks target a low inflation rate, often around 2%. Without an increase in profits, raising prices on inputs will eat away at a business' profit margin.
Many of the products and services that businesses depend on will or might raise in price.
Many of those businesses shouldn't even exist, to begin with. cough the entire ad tech market cough
Maybe we should see increasing prices for energy... And let "the free and open market" fully control how much consumers pay for fossil fuels at the pump?
raising prices on inputs will eat away at a business’ profit margin.
Good.
Maybe we should see increasing prices for energy... And let "the free and open market" fully control how much consumers pay for fossil fuels at the pump?
Although I'm all for letting free market advocates get fisted by the invisible hand they worship, high energy prices have arguably contributed to the wave of obnoxious populism sweeping the world. I'm not saying we should keep fossil fuels to cater to the angry and fearful; I'm saying the transition should be more managed, because the sudden economic disruption you suggest is politically fraught.
Why would inputs increase?
Because everyone wants infinite growth, including the companies supplying your inputs.
Incorrect, anyone that wants infinite growth is too stupid to breathe, much less be a part of a successful business.
Yeah, take a look around bud.
That would mean I need to work fewer hours, to buy the same things?
If so, how is that bad?
Usually when a company has less work over a prolonged period, it's not just going to reduce worked hours, it's going to reduce the number of workers.
If peoples money is stretching further from deflation wouldn't they be able to pay for more services giving more businesses more work?
If people think the price are going down they will wait more before buying anything not essential and a lot of our economy is not essential. Deflation is not only going to touch what you buy, it's also going to touch what you or your company sells, reducing revenues.
Isn't it great that we also have people who do know about economics?
"The people are tired of experts" stupidity apparently knows no political borders.
You can find an "expert economist" to paint you any picture you like. I mean, hell, we still have people in the US thinking trickle down economics is a rule that works. To the point it's even flooded into the housing market, where people still believe that building luxury housing with tax dollars is a way to create cheap housing.
Okay, but the only economists who believe in trickle-down bullshite are Austrian School clowns who aren't taken seriously by the discipline as a whole. Even the extremely pro-free-market Chicago School thinks it's bunk. It would be like pointing to the 2% or so of climate scientist denialists as proof that there's serious dissent as to the nature or seriousness of climate change inside of the discipline, when, in reality, there isn't. It's just politically convenient to pretend so.
Okay, but the only economists who believe in trickle-down bullshite are Austrian School clowns who aren’t taken seriously by the discipline as a whole
Well, they are taken seriously by... Every politician.
It would be like pointing to the 2% or so of climate scientist denialists as proof that there’s serious dissent as to the nature or seriousness of climate change inside of the discipline, when, in reality, there isn’t. It’s just politically convenient to pretend so.
May I remind you who drives economic policy? Checks notes... Politicians.
I mean, I'm not trying to say that morons and swindlers don't have influence over the real world, I'm just saying that legitimate experts are generally trustworthy with regards to their field of expertise - if not necessarily in presenting the correct view, in at least presenting a supported view, and trickle-down is anything but. A fucking zombie theory only given life by horrific amounts of dark money, that makes everyone in economics academia retch when it enters the room.
Legitimate economic experts are still using the assumption that the world has infinite resources to be exploited, and therefore, we should have infinite growth...
So, color me skeptical on whatever the "economic experts" state. Because they also state privatization and commodification of social interactions is "Good actually"... Those same experts have "gifted" us enshittification.
Legitimate economic experts are still using the assumption that the world has infinite resources to be exploited, and therefore, we should have infinite growth…
... peak resources and diminishing returns of limited deposits are major topics in modern economics.
Don't mistake modern economies with modern economics. Economists have as much control over economic policy in most cases as climate scientists have over climate policy.
… peak resources and diminishing returns of limited deposits are major topics in modern economics
So, they accept that inflation is bad, because inflation is a signal that resources are nowhere near maxed out, and basing an economic system on having inflation means said system expect infinite growth, in a finite set of resources, correct?
Don’t mistake modern economies with modern economics.
So, basically, economics are just a bunch of untested ruminations of academia then, and have no place in our decision making, correct?
Because, when "theory" meets the road, it just shows all those ruminations are just "Best guesses, based on faulty premises".
So, they accept that inflation is bad, because inflation is a signal that resources are nowhere near maxed out, and basing an economic system on having inflation means said system expect infinite growth, in a finite set of resources, correct?
Jesus Christ. That's not what inflation is.
So, basically, economics are just a bunch of untested ruminations of academia then, and have no place in our decision making, correct?
Economics is predicated on the study and prediction of economic trends. I don't know how you got "Economics is untested" from "Economists have no control over economic policy", even after a very clear and pertinent comparison with climate scientists.
Not all experts are equal. Climate science is a hard science with decades of data and evidence backing it up. Economics is a soft science with policy recommendations based on politics, running a feedback loop where the rich boost policies that benefit themselves.