Deflation is good for you and here’s why
I had a short exchange with someone last night about this tweet on deflation:
@davidkorowicz: Deflation [here] we come, and though not polite to say in civilized conversation, the limits to growth are shadowing our present moment
The conversation the tweet sparked reproduced some of the most often made arguments for why deflation is an unwelcome development in a capitalist economy. Among the most important arguments was the assertion deflation will cut wages and increase debts.
The alleged mechanism of the negative effects of deflation on the working class are these:
- Your company gets less income so they lay you off or cut your wages.
- With lower wages or no job, your outstanding debts become harder to repay — which is a big thing if, for instance, you have a mortgage on a house or a car loan.
On the other hand, with inflation you get many of the opposite problems.
- Inflation constantly increases your real cost of living.
- With prices rising, you either have to get more frequent raises or work longer hours just to remain at your present standard of living.
- With rising prices, you tend to become increasingly dependent on debt to make up the shortfall between your wages and prices at the checkout counter.
So which is worse? Losing your job and facing wage cuts? Or working more hours just to keep your head above water?