I don’t know if I’d put much stock in that. The Old Spaghetti Factory was founded in 1969.
Dollars are a commodity just like any other. Deflation occurs when the value of dollars is increasing faster than the overall cost of living. The money that is becoming more valuable can be exchanged for a larger quantity of other goods and the visible effect is a lowering of prices.
So deflation occurs when money is scarce. During the Great Depression there was prolonged deflation because so many people were poor and had relatively little money. Between 1929 and 1932, prices decreased an average of 30%. The same thing had happend in earlier financial crises in the 1830’s, 1870’s, and 1890’s.
Heh. Oh. Well, other places then :).
I would think that if a person has wealth (I’m talking having a lot of cash on hand, not just an income) and has no other debts, deflation might actually be a great thing for that person.
No person is an island. Deflation has disastrous consequences for the rest of the economy. Local governments lose income, stop fixing roads and providing services. Police and fire services go downhill. Semi-public services like hospitals start cutting back so maybe you can’t get a qualified surgeon to perform that emergency appendectomy at the nearest hospital. Schools start turning out even less qualified graduates so the people you have to deal with in stores and offices are going to be less competent. And on and on.
Even buying the cheaper products starts to become harder as manufacturers start going out of business, fewer new products are introduced, etc. Your dream vacation to Poughkeepsie requires three layovers since the airlines cut back on flights.
When any part of the economy starts to hurt, it hurts everybody. Deflation is a +5 blessed sword thru the jello heart of an economy.
Right… the only “problem” here is that your brain has to adjust to what a dollar will buy.
No, deflation would be very bad. Let’s say you made $1000 this week. Next week your salary will go down to $900, and to $800 after that, etc.
Your car is old, and leaks oil, but is still driveable. The new car that you want costs $15,000. Next week it will cost $14,000, and $13,000 the week after that. So every week you put off buying a new car for another week. Milk and bread you have to buy in order to survive. But as for the non-essentials, you hoard your money and wait as long as possible to buy.
This is bad for the economy.
Again, the only problem that this would solve would be your brain’s adjustment to what $100 will buy.
If I wait to buy computer parts for a month, I can often get them cheaper. Doesn’t seem to have hurt the computer industry much.
Yes, as noted above, certain industries have products which tend to become cheaper over time. However, one industry is not the entire economy.
Also, the computer industry has been pretty ruthless about weeding out uncompetitive players, which is why there are almost no US manufacturers left. So, it has hurt the industry in some sense.
Really that’s different because as technology advances, the “new” component on the market makes the “old” one worth less.
You can’t really compare prices when dealing with technology. For example, how much would a DVD player cost in 1973? A million dollars? A bajillion dollars? The fact is that all the money in the world in 1973 couldn’t buy you a DVD player, so you can’t really use a DVD player to compare purchasing power in 1973 vs. now.
Someone upthread mentioned a 5 cent phone call in the thirties. Even that can’t be equated to today since our society is based on everyone having a cellphone on their hips needing instant communication. Back then it was a treat or a luxury to have a chat with someone miles away. And most people weren’t available by phone anyways. Apples and oranges.
My point is that you can’t use one industry to make comparisons to the whole economy.
I haven’t yet read past this post so maybe this has already been commented on.
It isn’t so much how much something costs that defines it’s expense as how long you have to work to make the money to buy something. Growing up in the 50s and 60s gasoline, for instance, was generally .20 to .30 per gallon. During that time I generally got $.50 to $1.00 per hour for working. Thus gasoline, on the average, cost me about 20 minutes per gallon. Today, assuming $3.00 gas, it takes me about 8 minutes to buy a gallon.
I remember driving through Arizona in February 1969 and being absolutely enraged by having to pay $.44 per gallon.
jtgain writes:
> . . . our society is based on everyone having a cellphone on their hips needing
> instant communication . . .
Do I not live in today’s society, since I don’t own a cell phone?
No, you don’t.
But seriously I should have said “most people” instead of everyone…
This is why I used a car in my example, instead of electronics. 
Japan went through a period of deflation and for a few years now the question that everyone keeps on asking economists is: “is it over?” When oil started selling for unheard-of prices a lot of people were thinking that deflation had to be over, hey, gasoline is 170 yen a litre! To which one analyst responded exactly like you did and added that the best indicator wasn’t the price of certain commodities, but wages.
This Scrooge McDuck you are talking about does not exist in modern western society, outside of fringe Ron Paul style nutcases.
Rich people don’t generally keep their wealth in the form of hard currency. They are rich because they hold capital, or investment assets. They are rich because their assets, whether they are houses, factories or companies, generate wealth. In fact, the whole economy sort of revolves around them doing just that. In a deflationary situation, the guy holding hard currency holed up in his mountain hideaway with a stockpile of everything he needs will indeed benefit, to the extent that he will be able to buy more with his scraps of paper when he ventures into town.
The rest of you who have jobs and buy thing and generally depend on the economy to continue functioning? Not so much.
We would still be able to buy significant things with a pocketful of change if they had bothered to change the currency denominations to reflect the drop in the value of money. We shouldn’t still be using dollar bills.
Revaluating currency is a huge economic disruption and is only used when an economic crisis is so big that drastic measures are needed.
And people on fixed incomes, with Annuties or fixed pensions, they will do well.
In actuality Deflation is no worse for the working Joe than is rampant Inflation (a small amount of inflation appears to be good for the economy, and most people)
That is deflation. Deflation (and inflation) are measured using the Consumer Price Index- a simplified measure of the “cost of everything”.