Deflation Explained in One Minute
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- Опубликовано: 7 ноя 2015
- A one-minute video explanation of deflation. Now as a consumer, you might think it's a good thing that prices are going down but deflation can end up becoming a huge drag on the economy due to the vicious circle it frequently generates.
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"Lower prices may seem like a blessing."
That's because it is.
It's a dark trick that has been played on us to ignore this obvious fact.
Are lower prices a blessing if you lost your job?
Yes of course, collect unemployment and eat fish heads.
In other words, do more with less?
🕯🕯🕯
@@OneMinuteEconomics You would just accept a "lower" wage, but if anything each dollar you're receiving now has more buying power than last year
@@OneMinuteEconomicsdeflation is only bad for the rich and powerful because they can't take in the profits they did before. Instead of cutting back on their lifestyles they'll just fire people.
@OneMinuteEconomics If deflation, which is an ever-present force like gravity, causes you to lose your job. Your job was hurting the economy...
stopped at 0:15
the prices go down, the profits go down (as if it was a bad thing)
you actually dont need to profit as much as before because... yes, you guessed correctly... PRICES WENT DOWN
The level of economic illiteracy in the comments on videos like these is astonishing. Profit is measured on capital advanced, not current costs. If I buy a machine for $1000 and would ordinarily make sales throughout the life of the machine totalling $1500 (for a profit of $500), but a deflationary spiral hits and knocks all prices down by half, my sales would be $750. I've made a loss of $250 because I spent $1000 on the machine, not the $500 it's worth now.
Deflation promotes saving and makes investments less "profitable" (if measured by sheer quantity of advanced capital as you put it, well in that case printing money is very profitable). Inflation promotes debt and forces to look for new ways to make profit. First one is neutral (although not I'm sure...), while second one is clearly bad because creates the fear that you must constantly fight for your savings to keep their value. Perhaps perfect 0% of change in money value would be perfect?
@Red Pilled We actually seem to both prefer idea of deflation. However too much deflation is also bad, right? Look at the Switzerland recently - they fought so much with deflation and still do. What do you think about this?
@Filip Sky
Obviously. Having too much deflation is as bad as having too much inflation.
Perfect 0% change in money value would be the best thing, however, that is not achievable since all sorts of factor would make it hover around 0%. And that's also bad, because people could simply save money during deflation years and buy more in inflation years, making huge spikes to either side in economy.
That's why the only sustainable are either small inflation (look how hyper-inflation turned out in Zimbabwe) or small, continuous deflation (it means smaller overall market and less employed people than keeping the inflation option, but it's sustainable nevertheless)
@@duyataksis5210 numbers wise yes, u lose 250, but your $1000 is now worth $500, so u actually did profit
A lie. Germany had deflation from 50's to 70's and it powered to as the strongest economy in Europe. The economy goes down because US is a debt based economy, unlike countries like Germany and Austria which are cash based economies.
Here's the Austrian view:
Let's say there is deflation, and you saved money, the value of your money keeps going higher and higher, and you can buy more and more, because the price of goods keeps falling compared to your savings.
The companies, if they are debt free, can buy more and more stuff from international markets (because elsewhere raw materials are cheaper), build factories (because cost of land and machinery falls), and employ more people (because wages of people are lower). Heck they will even invest in local economy for the sheer reason of price stability (big mega projects take several years to build, and as a company in a deflationary environment you do not risk having to pay 10X more sometime 2 years later because prices went out of control).
Furthermore, as a business, if you know prices will fall in future, you will want to release your product now, instead of delaying your project, because the price you get today for that product will be higher than what you get in future.The other consequence of this is, it drives massive innovation at companies to build superior products (as they can afford to, and they have to make them superior to convince the people to buy the product now). As a result, your products are superior and more advanced than anything out there in the market, which is why "Made in Germany" and "Made in Switzerland" are bigger brands than "Sold by a Harvard graduate". I haven't event heard someone say "Hey I bought a new car that was told to me by a Harvard graduate". This is why German made stuff, even though more expensive than Made in China stuff, still sells - because quality has a price, and in many cases only Germany has the technology for that thing. Heck Germany even ran trade surplus versus China. lol
Furthermore, the consumers, because there is deflation, will wait long enough until they have savings to buy that product, instead of in an inflationary environment where they have to buy the product now (thereby getting more debt from banks). This improves the life of common people over time, and they can build their retirement nest by saving. The direct result of this is that even when companies fail, people have savings to rely on. And ironically, it's the indebted companies that fail. I've never seen a cash rich company fail. :D
This is how Germany achieved 0% unemployment rate for 2 decades!
The consequence of that is Germany is an export powerhouse, with some of the most advanced industrial products in the world, and it's people have low debt.
America on the other hand has a pile of debt, makes nothing or whatever it makes is of substandard quality (Ford, GM, McDonalds, KFC, Starbucks, General Electric, Facebook, Google, Uber, public transport, roads).
The only problem with deflation is that it is unforgiving to people who run on debt, because the amount of debt remains constant, and because with time the value of currency increases with time, it become harder and harder to service that debt. In other words, debt is unforgiving under deflation. But hey it's your irresponsibility that you got yourself into debt, because you could have saved money and spent that money later.
Keynesianism
The whole idea of Keynesian economics is that, debt can never be paid back in honest way (for example there is no way US can pay back $21 trillion of debt + unfunded social security and Medicare liabilities), let's just inflate our way out. And because people are also so indebted in US, you need constant wage increases to pay off that debt. Debt is a by product of Keynesian economics, because the inflation reduces the value of your currency, and it becomes harder and harder to make ends meet even with savings, like buying a car or a house, so people naturally buy those things on debt. And as debt increases money supply, the value of currency drops more and more, thereby forcing even middle class, then upper middle class into debt. The huge wealth and income inequality is a result of Keynesian economics of debt.
Debt is the equivalent of modern day slavery, because you can never take that vacation you needed, never quit the job you hated, never retire when you wanted, never buy the car or the house you dreamed off, never go to the school you dreamed off. The whole cycle is kept up in US and many countries that the poor never work hard, are not educated, and therefore need to be shunned away. You as a society even loose compassion towards others, without looking at the root cause.
The only winner in this is the banks here, because they make interest on the debt. Need I share that with the huge money printing in last 40-45 years, the top 1% in the world now own 50% of the wealth.
In other words Keynesianism is more like trickle up economics.
@Don Francisco I'm an American living in Germany and I can say that living here is actually much better than living in America. Of course, I'm aware of the current migration issue throughout Europe, but overall the living conditions here in Europe are still better than America. It hurts me to say this, but it's the truth for the time being.
As we're seeing with the ongoing and ever-expanding Yellow Vest movement, the situation in Europe is beginning to boil over so I think it's safe to say that things are going to get tough here and that has me worried.
Unfortunately, America isn't in a healthy situation either. There's a debt crisis right around the corner and it will bring the global economy to its knees. I don't see any countries coming out of this without experiencing widespread civil unrest and extreme living conditions. I guess you could call this upcoming debacle the Great Global Depression because it will last for years if not decades.
People need to take more personal responsibility for their future and stop relying so heavily on their government. Governments need to take a step back, relinquish some control, and give it back to the people so they can learn to fend for themselves. I know that's not an easy idea to accept, but as we've seen over the past century more government does not fix our problems. It only makes our problems that much worse.
The sheer arrogance of this piece after deflationatory policies (in the form of austerity measures) ravaged Europe so that German, French, Netherlandian, Austrian, Swiss, Luxembourgian private banking cartels could be bailed out (of the risks and debt they crated as private entities), while people suffered extreme loss in their consuming power and quality makes me really wonder If its worth it to even answer to such an illusionary and aggravating comment.
We are supposed to gloss over the deafening fact the collaboration of said banking cartels (ECB and its unelected enforcing tool Eurogroup and Euro working group) shifted the burden of their own liabilities to the European taxpayer(multiple recapitalizations and bail outs) , while at the same time by denominating the Euro heavy industry countries thrived at the expense of their European counterparts. Win-win deal isn't it lovely ?
Tell me how much of a responsibility does a uni student or a startup company carry, before they get buried in debt ? But I get it. According to your logic people had just to save up now in order to eat, maintain their health and educational system years later. The best part though is that even If by some magical way no business or country was in debt (derivative market) and people could save up for their future necessities there is no guarantee that the ECB wouldn't just empty up their accounts like they did in the Cyprus case.
@Don Francisco I actually thought you were talking about the USA for a minute.
Ανδρέας Μπασάκος - Schlapp
Dutch*
You can’t get buried in debt in a deflationary economy, the interest rate is too high. You have to have actual prospects of paying back to get a loan.
@@The-Honest-Veteran you didnt know you were an oracle! or maybe you did! 😃
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Sir I IMPRESSED from your presentation How to create video content like you
A much easier way of explaining it:
Inflation = Value of the dollar FALLING
Deflation = Value of the dollar RISING
Rather than talking about "the price of everything"
Mathew Farry So it is not bad?
David Heller yes it’s bad because deflation means hyperinflation follows
That model of representing the situation might give the same results but logically it is wrong since that just doesn't happen. The only way I can explain is that the same way assuming that a train is speeding to reach a platform gives us the same results mathematically as in assuming the platform and the whole earth to be moving to reach the train, but we know that Earth isn't the one actually, physically moving since that would cause a whole bunch of different phenomena like changing weather patterns and irregularities in its orbit around the Sun.
They talk about prices of everything but when giving an example of a business they talk only about sell side, they do not talk about buy side (which is also changing in prices). In really productive economy, it is natural for prices to fall.
@@limboproductions224 bro what lol
I'd argue that inflation is reduced purchasing power and deflation is increased purchasing power. Deflation in and of itself is not a bad thing cause it makes it more profitable to save rather then spend. The reverse should then be true of inflation. Ofc you want to spend if your savings will have less and less purchasing power over time.
Deflation does not mean that people have less money. Just as inflation does not mean that you have more money.
The problem is it would certainly reduce your wealth if you have any sort of debt especially with an interest rate, money is worth more and you would possibly be be earning less
@@Sorry-sk4kt Ahh, but debt is always evil. One of the reasons we are in this inflationary run is severely over use of debt and deficit.
Deflated economy gonna makes people put all their money into savings, discourage people from taking debts. Putting money into savings rather than spend it gonna harm small to medium enterprises, which can cause ripple effect to bigger industry. Not taking debt surely gonna make harm bank (since debt is where they make money), and cause further effect on investment. And it is going into vicious cycle which get worse and worse. Just look at Japan.
@@Sorry-sk4kt it would only decrease your wealth if you were an idiot and had other banks or investments hold your money.
you are right, deflation is good and inflation is bad, these so-called-economists are idiots
Lower prices --> lower wage --> purchasing power stays as it was. So no worries.
But what if decreases in demand across the board made you let's say lose your job? :(
@@OneMinuteEconomics why would demand decrease if pp stays the same?
There are waaaaaay more moving parts involved, starting with the elephant in the room in terms of questions: why are prices lower?
Mmmm more less demand due to competition or a supply surplus...
@@OneMinuteEconomics i think the definition of deflation you used was a bit incorrect, a deflation happens when there's less capital to ballast ratio, therefore the money values more. Consequently the prices will go down, there's a lot of things that can influence the price of a good, but when the price go down doesn't necessarily mean that the capital is deflating.
saying that deflation makes businesses earn less is like saying that business earn more thanks to infaltion.
worker would need to accept "lower" wages but their purchase power wouldnt be affected because the money they receive is worth more.
products dont cost less, money is worth more.
businesses are the consumers of their providers, so costs would go "down" aswell.
Do keep in mind that your scenario revolves around the assumption that there is direct proportionality involved, or that wages and purchasing power go down in a directly proportional manner. That doesn't have to be the case :)
If you’re in debt or have set bills that can’t be negotiated until the end of a contract period, than deflation would certainly make you shop less. Now think of how many people with income have some sort of debt like a mortgage or car payment this would have huge ramifications on the economy. But if you’re debt free and have a 401k and savings you’d be happy lol and likely spend more than you had planned, so that’s a small balancing portion of the economy.
if prices are falling doesnt that mean the currency is worth more?
Yes, texhnology improves and allows to produce more but the amount of money, paperss, is the same, the problem is when the state reduces the amount of money by selling bonds.
This is a person that sounds like they own a business and worried about profits going down. Profits would go down but don't mean that jobs need to be cut because its not the 1970's people already do more than ever so there is no way to give more work out of a person, People are maxed out. Just that owner is going to have to be happy making 10 million a year over 100 million.
When people can’t afford your services they won’t pay a arm and a leg for it therefore deflation that makes prices go down actually works because it helps with the demand of that product to be more affordable
Another point is that deflation is a contraction of the money supply. This video improperly defines it as falling prices...Falling prices occur as a result of a contracting money supply (i.e. deflation) but they are indeed different.
Hi Joshua, don't forget to also take the velocity of money into consideration, don't just limit yourself to looking at the money supply:
ruclips.net/video/BKEp1pzwTsg/видео.html
Thank you very very much! Great Explanation as well
I'm pretty sure this is "deflation" as profit loss applied to only one business as a micro economic system. However if applied on a Macro level where the prices to all trades are decreased, nothing should change except for the output numbers. The macro application is a bit Utopian but technically if the overall value of a currency increases it will require less of it to maintain the same functions as the inflated currency. People would be consuming just as much but the overall numbers will go down, just as inflation means the overall numbers increase even though consumption has remained the same. This concept was properly explained in your Inflation video so its odd that the deflation one makes such a strange mistake.
People are more incentivised to not spend the harder it is to earn, that's why deflation is bad.
@@thisislimbo6545 if people don't spend, they can save up to buy goods they REALLY need or make investments in the mid-long term. People being frugal is only bad for banks and businesses built over irresponsible and encouraged consumerism.
I don't agree with this at all. It does mention wages could go down, with lower prices, lower wages would equal out. I also don't buy into the idea that with an increased purchasing power, people would purchase less instead of more. Companies who could increase production would actually benefit greatly. Look at the prices of technology, companies get more and more productive every year, but does anyone wait to buy their tv, laptop, or gaming counsel? Did a massive decrease in cell phone prices since they first came out in the 80's lead to consumers not buying cell phones? No, they becam more affordable and widely available, and thus more people bought them. Same thing with LASIK eye surgery, it initially cost $10k, and now only 3k, yet people still get the service, instead of hoarding their money to see if prices fall further in a few years. I think the deflation theory incorrectly diagnoses the human psychology aspect. It also ignores that savings is good for the economy, as savings is key to capital investment. And savings as well as steady deflation are good for people who are trying to save for things like retirement. The money you save now, will be worth more later.
Although I will agree that rapid deflation would be bad. I strongly believe steady deflation would be greatly beneficial and increase consumption AND savings. Some people will spend more, and others will save more, leaving more savings for capital. So I personally believe steady deflation would be very beneficial.
Expect if there's deflation that means the dollar is more valuable so no people wouldn't be getting poorer. Their work would be the same value it's just the number goes down cuz the value of the dollar has gone up. If you have savings then it's wonderful.
hi i just wanna say this helped me a lot for my research on college so yeah thank you!
+Qassandra I You're most welcome, hope you'll check out my other videos too. Don't have too many atm but I'm working on it :)
Sir I IMPRESSED from your presentation How to create video content like you
when prices go down, profit margins dont go down, because the price of goods goes down more. this video is more Keynesian propaganda and is completely wrong in its premise
I respect your opinion but for what it's worth, I'm not a Keynesian and I'm not an Austrian either.
765 lb squat You're referring to Purchase price parity, but you don't understand that this causes a major shift in profits and revenues.
If a store is selling less products, it's losing money even in PPP terms because there are less shoppers, sales. Plus the owners still have to pay rent, workers, and inventory.
Yes, profits do not relate to falling or rising prices so well as to the chances of innovation or new lines of production.
Well, you do adopt many of Keynes ideas!
Japan is a country who has less natural resources but humans.Most of the intermediate goods that they use for production are imported.So they have to respect to the international prices even though inside the country they have a deflationary environment.So there is an effect of profit margin.
Great video!
Keep up the good work buddy - this is a very helpful channel and super informative.
Comments like yours are what keep me going, thanks a ton! :)
Thank you for the knowledge
Thank YOU for taking the time to spread some positivity around by saying something nice. Quite rare these days.
OMG! The best channel! I'm from Brazil. Thank you :)
THank you so much for sharing this useful data ! Greatly appreciated.
Price goes down.
Low price + Same taxes + Same minimum wage = low profit
Low profit = People fired
Etc.
Looks like the problem is the
Price going down not the taxes. Cuz politicians always know their shit, sure the amount of taxes is ok. Makes sense.
If lower prices lead to a lower revenue, taxes will probably end up being lower as well (depending on the taxation regime of the country in question), but things can get quite a bit more complicated than that. For example, when times are good and profits plentiful, tax burdens are easier to bare. When the economy enters a downturn... less so :(
@@OneMinuteEconomics Yep, and it doesn't work that way here in Brazil. Taxes stay the same, and if I'm not mistaken we are one of the countries with highest taxes.
RIP me.
And also, that is why when in crises, the government should cut costs and reduce taxes, to go easy on the entrepreneur and let them do their job to move the economy and employ people.
And yes, I'm not a Keynesian.
Edit: Great video. Haha
The taxes are not the same, they are a percentage over the price. All the prices go down , all, or the mean.
We need deflation so bad. Companies will be fine, many of them pulled in record profits over the last year
Deflation or lower inflation?
Fantastic explanation! I was stuck for so long before finding this video
Happy to hear (read) the video helped clear things up :)
Cheer~~~bring about a general reduction of price levels in (an economy).😊
In my opinion there is a mistake in the logic. If people earn less, but things cost less, then it's the same. At the end of the day they would buy the same stuff than before, but with less money. I believe 2 situations could happen, but they are large to be written here (in one situation purchasing power remains the same, in the other one purchasing power increase).
Hi Ramiro, the situation is unfortunately far more complex... that's economics for ya, heh. First of all, it is indeed important to point out that some folks will be at let's say break-even (same as before) or even ahead (if your salary remains the same or even goes up, while prices go down). But after drawing the line, it's the vicious circle element that's ultra-dangerous when it comes to deflation.
Prices go down and as a small business owner, my income will go down along with them. Employees of my small business also end up suffering for that same reason. Thus, I will spend less and my employees will spend less. With our decreased spending bringing other people's income down and so on.
Plus the psychological dimension associated with downward price spirals, in light of the fact that markets tend to be manic-depressive beasts rather than 100% rational. When prices go down, many people who should be ecstatic that their money gets them more goods and services go in money hoarding mode instead? Why? Because they believe/speculate that the downward trend will continue and want to keep their ammunition at hand, so to speak.
Etc. etc. etc. :)
That may be so in a few goods but not in most, and where it is so it would be a bit like saving which is not so popular. Inflation causes savings to ebb but deflation aids them and, contra Keynes, the is no real downside to saving and it boosts all wage rates.
nice!when will you make one about digital currencies(bitcoin,litecoin etc..)
Thanks for dropping by Brian, the next script I'll write will be about just that :) There's one video that is about to be uploaded (about the unemployment rate vs. the labor force participation rate), I have one finished script about how to calculate your net worth, so two videos in the "queue", the crypto one will be the third video I'll be publishing. I try to publish one every 7-10 days (closer to 7), so my best estimate is that the crypto one will be live in about 3 weeks.
If the product's PED was elastic, wouldn't that generate more profit for the firm? if price falls we tend to consume more. And when the PED is elastic, the change in price brings more than proportionate change in quantity consumed. So lower price could generate more profit for the firm. CMIIW. Thanks
This is the biggest economic myth of our time. Deflation is good and should be welcomed, depending on the circumstances. Deflation makes us able to afford and consume more. Imagine if the price of eating at restaurants would drop. Then people would eat out a lot more often, because they now can afford to do so. The demand for eating out increases. The restaurants hire more workers to cover this increased demand.
If the price of everything goes down yet you lose your job, will you be able to afford more?
You don't lose your job you just accept a "lower hourly rate" yoir pay goes from $12 to $10 but the buying power of each dollar goes up 30%.
You are actually now earning more because each dollar you get gas more buying power and you're rewarded for saving.
"Seeing your neighbour face financial difficulties makes you more pessimistic as well"... Not really.
The baseline state of a competitive market without monopolies is deflationary. Human curiosity drives technological innovation, enhancing efficiency. This, combined with consumers constantly seeking "more for less" and entrepreneurs striving to stay competitive, results in deflationary pressures on prices across all sectors. Ultimately, prices should fall to the marginal cost of production. If this premise holds true, I am compelled to question the collective conviction that monetary inflation is a necessary component for a functioning economy. To be more direct, why do we endorse a system where a certain loss in purchasing power, akin to a hidden tax, is deemed essential and undemocratically imposed upon us? Could it be that we find ourselves entangled in a conflicting paradigm? One where the exponential growth of technology, promising efficiency and deflation, clashes with the perceived need for inflation to stave off economic downturns, especially in the face of seemingly unsustainable levels of debt.
great post
+Deflation #1 Newsletter Thanks for dropping by, appreciate the support :)
thanks One Minute Economics
I don't get it, if prices are cheaper then wouldn't that mean more money will be spent and business will earn more revenue?
you are correct. the video is presenting deflation in a bad light.
You didn't even touch on the causes of deflation. If you did, you might have noticed that when prices decline due to productivity gains (aka real economic growth), then the profits of businesses obviously don't go down, but stay the same (or might even go up).
The best example for this is the technology area (smart phones etc.), in which there is an constant deflationary trend.
Deflation is actually good for the country.. you won’t consume less cause things will be cheaper so you still consume at the same pace percentage wise, even if you’re unemployed
But what if government cut everyone's taxes at the same time as the deflation of prices?
Wouldn't that _increase_ everyone's buying power and therefore strengthen the currency in question?
And wouldn't that kind of situation drive economic growth on an increasing trend, due to the increased demand generated by said increased buying power?
Isn't that also what Japan is experiencing right now, without a total economic collapse, for the last 10-15 years??
Late comment but Japan's economic system is not doing so well.
yeah..... if people only barely have enough to buy what they need, then prices go down, they won't decrease their purchases. and a majority of Americans have already cut what they can due to inflation caused by corporate greed. there wouldn't be less purchasing, there would however be less investing, so it's bad for rich people and good for average people
Thank yooooooou! ;)
Oil prices 1980
Good time for corporate take over...
Are low interest rates deflationary
Low interest rates can either be deflationary or represent what central bankers consider "medicine" against deflation :)
i dont get it, sure the wages will go down but so will the cost of goods. wouldnt it all even out?
The main fear is that instead of evening out (which would be fine, sure), an uncontrollable downward price spiral would be generated
how do decrease in price reduce profit???
"If prices go down, the profits of businesses tend to go down with them" - NOT IF THEIR COSTS ARE ALSO DOWN. The ultimate cost in all industries is food (the ultimate reason why you pay your employees or why anyone would like to get paid) if not fuel (how food is made and which is our capital energy). Fuel businesses wouldn't make so much a loss as to need to lay off workers, since the ultimate reason for their expenses, i.e., food and other things of survival, would be cheaper as well. They are already making too much profit in the current situation esp since they're almost monopolistic in a country, and they are the primary drivers of inflation, just like in the recent times if you've heard of the war. The government would start lowering their fixed fees as well, in a similar manner where they increase it in accordance to an instance of inflation; otherwise the people and businesses would complain of course.
To make deflation advantageous, one should lower the prices of such basic commodities, which can naturally be done using competition or industrialization (more efficient production). As such, your currency will have more value, because you have much more wealth relative to the total value of currency that is circulating in your country. That's a bit better than businesses just jacking up prices coz they have the opportunity to.
Deflation > Reduced wages. Inflation > Reduced/Stagnant wages.
How I wish it were that simple :)
How about considering the possibility of negative inflation rates to increase the value of money? We could reduce wasteful spending and consumption, and instead adopt a more sustainable approach similar to nature's ecosystem, from an economic standpoint.
civil servants and first responders are very much needed in transitions, but it is not the same thing as shifting large power and finance constructs into only labor hands. And, these large spheres of influence... whether disease state, governance, faith structures... are not immune from basic human dynamics. The reality of love and healing and the knowing and unkowing of us all.. as translated into markets and supplies and demand and the actual needs AND transitions. Breathe....
The reason that deflation is bad for an economy is that people will delay major purchases if they know those things will be cheaper tomorrow. Money circulates slower. It hangs around in savings and can't be loaned out, etc..
Not necessarily. It all depends on the rate of deflation and the value they get from immediate purchase
The reason inflation is bad for the economy is because there’s increased demand. And money gets cheaper
There might be a fundamental flaw with this. Say there's a price drop of 5% for product X, Timmy loses 5% wage selling X, material costs to make X also drop by 5%. So no one technically earns more or less... It's the exact same proposition with inflation. But I know nothing.
Please also keep the "self-fulfilling prophecy" element described in this video in mind. If humans were let's say robots, I would agree with this way of thinking but since we tend to be rather manic-depressive market participants instead, the self-fulfilling prophecy variable is ultra-important. When it comes to deflation as well as inflation (entrenched inflation expectations)
@@OneMinuteEconomics Interesting, so it's far more tied to psychology or human nature than I'd figured! Thanks for the informative response! I'll try to learn more about this self-fulfilling prophecy variable :)
Much better for the planet!
That's one way of looking at it, heh :)
I will solve the problem with lower priced produce by eating more.
Just watch those carbs :D
I was struggling to understand why people consume less in deflation before I watch this video. Thank you very much!
its the opposite
Well. As long as the CEOs get to keep their high wages. :p
I'm all for deflation at this point. I dont see it happening but something has to give. Wages havent kept up with inflation..
Be careful what you wish for, as we've dealt with major deflationary forces for over a decade after the Great Recession and wages have had an awful performance :(
Inflation is good for bankers and deflation is bad for bankers. I'll take deflation no matter the cost. I'm inclined to save and not borrow. I'll do just fine in a deflation economy.
Even if you lose your job? That's the tricky thing about deflation, we'll all be not just fine but actually better off but only if nothing bad happens to our income source
Lower prices also mean that holding your money is better than using it. Since it will be worth more day after day. Deflation is bad indeed
Yep :(
Consumption is a vicious circle anyway
Nice
Thanks a lot :)
This is confusing for our current corona virus issue. There are less income for a lot of of jobs. Less jobs in general. and Less demand for stuff like health plan. But there are still high supply/demand for resources? Is this a deflation? What is it???
Would recommend watching my latest videos. Due to popular demand, all of them are directly/indirectly related to what is happening in 2020. With respect to your question, time will tell and nobody can predict the future, my best guess is that we'll be dealing with deflation first but ultimately dust off our inflation books, as we notice that yes, it's possible to go from deflation to an inflationary spiral :)
Deflation would be bad if employee pay kept up with inflation
How do u deflate money? How does that happen?
Very difficult to answer through just one comment, I'd strongly recommend watching the videos found in my "Money and Banking" playlist... there are quite a few but you'll be glad you did IMO: ruclips.net/video/beAvFHP4wDI/видео.html
@@OneMinuteEconomics hey if it can satisfy my therst for awnsers then I'll check it out, thanks!
faith matters... human dynamics and imperfection... easy on varieties of cotrol
DEFLATION IS GOOD.........PRICES FALL........INPUTS FALL SO PROFIT REMAIN SAME OR HIGHER.....SALARY WILL DECREASE BUT THAT DOESN'T MEAN YOU CAN BUY LESS.....REAL WAGE IS UP.....SO YOU BUY AS MUCH BEFORE OR EVEN MORE THAN WHEN YOU HAD A HIGHER SALARY........ONLY PEOPLE WHO DON'T WANT DEFLATION IS BANKS AND GOVTS.....
People with debts
@@juancassinerio1580 A reason not to have debt. Refinance at the new rate. Debt is bad on all sides.
i believe for those who save a lot money in bank is good because their money values more.
Yep, the individuals in your scenario would be better off in a deflationary environment, at least when it comes to the purchasing power of their savings. Of course, what if let's say the same deflationary environment caused them to lose their jobs? Let's just say that after factoring everything in and drawing the line, it's more difficult to come out ahead than meets the eye :)
Consuming less is good for the long term, more sustainable, good for the environment, good for your overall heath to slow down the rat race. These aren’t factored into economists analysis
In a cynical way, they are, for example the (in)famous Paradox of Thrift: ruclips.net/video/l5BeKCbXngI/видео.html
Why would the prices of goods and services go down in the first place?
They could go down if the supply remains intact but demand falls sharply, for example if fear takes over to enough of a degree for whatever reason(s) and people stop spending. The same way, demand might remain the way it is but too much in the way of new supply appears, more so that the existing demand can absorb without prices taking a hit :)
@@OneMinuteEconomics Thanks
no income rise but expected to spend more anyway lmao
Income =/= purchasing power
Hey, One Minute Economics
I’ve been trying to learn about micro/macroeconomics, about the different components at play that make this sprawling system function, and how international markets work. Even though this video is only (in-keeping with your namesake) a minute long, I just wanted to thank you. This little passion project of mine has half been very interesting information that’s fundamentally, I guess, matured how I look at economies, but the other half has made me want to blow my fucking brains out. A notable percent of what I find is just straight up conspiracy garbage (people REALLY seem to hate the Fed for reasons they cannot seem to coherently justify), another chunk is misinformation that even a college STEM major with no background in anything relevant here like myself could smell reeking of absolute shit, and then (this is what broke the camel’s back for why I’m leaving this comment on your video), probably most painful of them all, the swarm of locus in the comment sections of EVERY video I watch. They spill out either the most vile and offensive hatred (I naïvely thought that this level of antisemitism was confined to 4chan or some small echo chambers in the bowels of RUclips), make shit up, or fucking lie to me in responses. What I’m trying to say is that you’re doing something that’s, in some portion, a thankless job, and I feel like your ilk needs affirmation from time to time. So, again, thank you for this educational video.
You, sir, are awesome! Indeed, projects in the edu space are frequently rather thankless endeavors... especially in our politically-charged world, where someone like myself who doesn't play the "us vs. them" card seems downright out of place, heh. Comments like yours ultimately make it clear that it's a battle worth fighting, reading this literally made my day! :)
But why buy and consume less if everything is cheaper now?
Because you expect things to get even cheaper :)
If prices drop, people will consume less? What? If people get paid less they will consume less? But the prices dropped so they can afford it with less... What if people get paid more? Then everything costs more because people have more money?
It’s all about the RATIO of income to cost of living.
They’re making an argument that deflation can theoretically cause job loss, but history proves inflation causes job loss... and history proves deflation puts an economy on steroids. Please don’t ask me to cite the entire history of the worlds economy this is common knowledge.
Hey iam rocker also use this same animation for his videos
And what do they do with their money when they consume less? they save it. and your bank uses your savings to invest in new firms and give loans.
Firms are less likely to want to borrow and invest if their customers are going to be purchasing fewer goods. Savings is not the restriction on economic growth, too many people get hung up on this.
Seth Apex Interest rates tend to drop in deflationary environments. However this is still smart to do, because you're money power increases while also earning interest, but it will be at a lower rate.
Banks lose out in this deal, because there are fewer people applying for loans. It doesn't mater if they have more money to lend if there is less demand to borrow that money. It's kind of like having more inventory in your shop with less people to buy it.
Low prices more volumes...
Distorted version deflacion it is good.
People are spending way too much now. I think we need some deflation to balance things out
It terrifies me how generous with respect to spending even the most financially vulnerable folks in my social circle tend to be at this point. Anecdotal evidence, of course, but still gives me twilight zone vibes :(
@@OneMinuteEconomics where I live in Southern California, restaurants and malls are packed with people. I don’t see a recession here
You just described inflation. So what about deflation?
:P
Deflation is a bad thing, but inflation is really hurting us right now. But that's life, we've always had inflation and we will most likely always have inflation. At least things right now are still affordable. Thank gosh.
deflation is not a bad thing. stop being stupid.
Delfation is a natural good thing
can u explain about trading.. pls
Sure thing, you can start by checking out the videos in my "Asset Classes Explained in One Minute" playlist:
ruclips.net/p/PLhICud5IUwVidPHzcxVIABWmlAwSAagTx
Will do my best to publish more videos and you might also find the personal finance playlist interesting:
ruclips.net/p/PLhICud5IUwViBc1b-ZlRL3MA3splR9gmn
Hi
Really helpful
Happy to hear that :)
got it
Just print more money!?!?! Lmao
I love Vietnam
Hey, thank you for these videos! But, could you write the text in the box? For the best comprehension.
deflation and better prices are considerably different matters. It's also true, a one payer health system is very dangerous. It doesn't mean there are very real needs of diversity of options. The connections with community and healthy sharing can NOT be skipped. The egos running rampant will hurt us all exponentially.
"What happens when people consume less"
Like that's a bad thing... Imagine a technology based world where things cost 10 times more, but phones last decades, cars a hundred or more years. The only people who are terrified of a world like that are billionaires and oligarchs, not 'us'
Not quite, because while we are all consumers and consumers benefit from lower prices, we also... well, do stuff for a living. And once deflation psychology kicks in and consumers keep postponing purchases, what does this mean for your livelihood?
My livelihood comes from providing a support and a background for a society that is mining finite resources to manufacture throw-away items to serve a lifestyle with an expiry date date.
What happens to my livelihood when those resources run out I wonder? I would rather adapt to a simpler (harder), not market based, but sustainable lifestyle than starve to death in the age of extreme scarcity.
(I'm saying this with a commerce background btw) @OneMinuteEconomics @@OneMinuteEconomics
I think the video would be more accurate titled "Deflation - worst case scenario - in one minute" A few too many assumptions IMO.
Appreciate the feedback Jonathan, feel free to many any nuance-related clarifications you deem appropriate and I'll do my best to incorporate your suggestions in future videos :)
00:12 "if prices go down, the profits of businesses go down with them"
I don't know about that, I've seen lots of goods which demands have increased when people learned that they have gone cheaper 😅😅😅😅😅
(The greater the demand the higher the profit) and guess what? When the demand increased, their prices eventually increased as well 🤣🤣🤣🤣🤣
Funny economy 😅😅😅
Man! you're one clever guy
Thank you so much Muralidhar, really appreciate the support :)
The people consume much less when prices are high, dude. They won't consume less if the prices are low, wtf. Businesses wouldn't just lay off workers like that; that would be a rare occurrence because their costs are also down.
People also don't want to spend their money because the value of the dollar will keep going up won't it? So they'd rather hold their money cause they know they'll have more the longer they wait thus no one ever spends their money. (Don't quote me on this I'm no expert lol.)
I heard Deflation is surprisingly much worse than Inflation in the long run. Like I mean it's harder to bounce back as a country when Deflation takes off. Inflation seems worse at first & deflation is the hidden scar.
Let's just say that if you're a central banker, you're more worried about deflation than inflation because while you have more adequate tools in your arsenal with respect to tackling inflation, getting out of a deflationary spiral is... well, more difficult with the tools central banks have at their disposal (misleadingly powerful as they may seem) :)
The true measure of an economy is how much labor does it require to acquire goods and services.
Let's estimate that it took an average individual in 1950 two years to save for an average new car.
Let's estimate that it takes an average individual in 2020 5 years to save for an average new car.
The economy is worse. It all comes down to buying power and correlation to labor required.
Also, see current inflation.
You are cherry picking a bit here IMO :) What about the idea of ever-changing needs? Or what about that for some of these, especially high-tech ones, your purchasing power has gone up (for example, how ultra-affordable smartphones have become)?
@@OneMinuteEconomics
Cherry picking? So, does the same apply to housing, medicine, food, utilities, fuel, and large goods and services?
Some electronics and technologies have pushed down prices. But, could that be partially due to being operated pretty free of government and financial hinderence?
Smartphones are not that cheap, the costs are simply obscured and extended. By one but attached to a plan, and it is a much different story.
Smartphones are whatever you want them to be :) If you buy the latest popular brand name phone, sure, it'll be expensive and they "get" you by convincing you to buy a phone attached to a plan that's actually way more than you need. But if you settle for last cycle's technology or average brads, very good smartphones are remarkably cheap. Way more than you need in terms of hardware, just without brand/model-related bragging rights :)
Also, it's not just "some" electronics, therein lies the most important nuance here. Times change. The manner in which we live changes and thus, various electronics and technologies end up becoming quasi-necessities to such a degree that they must be included in any equation involving purchasing power. Thus, simply applying methodology that was relevant let's say two generations ago is sub-optimal
@@OneMinuteEconomics
Quasi-necessities? Could you expound on that?
Learning🥰🥰🥰🥰
Awesome! :)
So the main takeway is: both inflation and deflation are bad. Everything is bad.
Pick your poison :(
Need to understand that wheel of economical inflation and deflation before any stupid act.
We live in crazy times, heh
deflation is good for the environment period
Deflation definitely has its pros as well. Economists tend to be more scared of it than inflation though because getting out of inflation tends to be easier than escaping deflation.
Mo Cho I'd have to mostly agree with you on that, however there are cases where it could be bad.
If solar panel prices drop, why should companies sell them to make a profit? Same goes for EVs, or waste management companies not finding incentives to recycle. Even populations that burn trash instead of having a trash company manage it because they can't afford a trash pickup due to a deflationary economy they lost their job or can't find one.
But when was that supposed to be so? And inflation is very damaging, even Keynes saw and said that.
@@rs72098 If solar panel prices drop, its because the companies selling them can sell them at that price and still make a profit. Falling solar panel prices means more people will buy them which increases sales, which increases profits.
Stock market crash!!?? check out my podcast, have a new one coming soon about the bubble in gold and the bounce between the deflation and inflationary plays!
BUT IT COST LESS TO MAKE GOODS.
It does... but things get problematic if there are fewer people interested in buying those goods :(
The premise of this video is fundamentally wrong. Yes, we spend less, but we receive the same amount of goods(production) because the money is more valuable. Workers may or may not receive less, but the purchasing power of the amount received remains the same or greater. Deflation is simply a decrease in the amount of dollars in circulation. Our fiat currency only has value because we exchange if for the total goods and services in our economy. If the gov prints $10 we exchange a small fraction of a penny for the goods we need, if the gov prints $1trillion, we spend considerably more. It's up to business to price their products accordingly - the value of the money in circulation is always relative to the amount of goods available. Fiat currency has no intrinsic value, only production has value.
In aggregate, we can be and frequently are in net negative territory, in other words we receive less money but *also* suffer a living standard hit. The fact that money is more valuable will be of little consolation if you lost your job and don't have any savings, wouldn't you agree?