Depends if average Joe has a mortgage. Deflation is very bad for people who borrow money, since they have to repay with more valuable dollars. Thus the old cliche of the poor widow being kicked out of her house by the evil banker. Why were those set in the late 19th century? Because deflation meant that she could no longer afford the payments.
Right. And with high inflation you have the opposite…the poor banker being kicked out of his bank by the evil widow. The banker is screwed because the widow got a loan of high value dollars and gets to pay back the loan with low value dollars.
And this is why inflation or deflation is such a problem. Loaning or borrowing money becomes incredibly risky, since you don’t know the future value of the money. If the rate of inflation is steady you can fiddle with the interest rate so that the borrower has to pay back more but cheaper dollars. But what if the inflation rate doesn’t track with your projections and the interest rate you borrowed at or lent at is too high or too low? Then either the borrower or the lender is getting screwed.
Where do you suppose these fixed incomes and pension returns come from?
I didn’t mean revaluing the currency, I meant making larger-denomination coins. One, two, and five dollar coins, for example.
Sorry, I misunderstood you.
I agree that rationally the United States would be better off switching from dollar bills to dollar coins. But the American people don’t want the change. I think the key factor that the government overlooks is that it’s more fun to tip a stripper with a dollar bill.
Right, right, but deflation and inflation are things that happen regularly. What I’m talking about, as far as I can tell, has never happened in modern western society. I didn’t want to just ask “can deflation happen?” because the answer to that is obviously yes. A steak dinner going from $50 to $0.35 is so huge I felt it needed to be worded differently. And I feel like if it happened on that big of a scale they would come up with a new word for it. The Great Depression was technically a recession but no one calls it that.
But a steak dinner going from $35 to $5000 is exactly the same order of magnitude change, and that’s just regular old inflation. Is the question: We’ve seen historical examples of hyperinflation, are there any instances of hyperdeflation?
I don’t think there are any examples of hyperdeflation. The wikipedia article (Deflation - Wikipedia) talks about several rounds of deflation, but nothing like the radical collapse of prices that you talk about.
The root cause for the imbalance is that there doesn’t seem to be any incentive for governments to enact policies that cause massive deflation, while there are plenty of reasons governments enact policies that cause inflation, see Hyperinflation - Wikipedia
Huh?
If the economy is collapsing, then pretty soon the entity that is paying your pension or annuity is going to default or go bankrupt. These entities committed to paying back when dollars were cheap, now that dollars are expensive they’re going to find it impossible.
… so the best way to stay ahead in a time of deflation is to hoard cash. And that’s bad for the economy. (Ever wonder why the economy gets a bounce around Christmas? Why the govt think that giving everybody a few hundred dollars will stimulate the economy? It’s because spending is good for the economy.)
I imagine something like that happened during the industrial revolution - consumer products which previously cost hours to produce by hand could suddenly be produced in minutes by machine.
Still, even that might not qualify, since presumably the cost of raw materials didn’t go down much, or might even have gone up.
Yes. I did this just today. Instead of filling up my tank, I put $15 in because I think that gas prices will keep going down.
Now, if everyone thinks that way, then demand for gas will decrease, causing the price to decrease, creating a self-fulfilling cycle.
When you talk about deflation, forget about just gasoline, think of everything. People will only buy what they need to survive and hoard cash, making the deflation worse. It is terribly hard to break the cycle.
Please explain.
Now that would make an excellent skit!
Well, huge hassles involved with revaluation of money, be damned, I believe the true spirit of America would be reinvigorated if we reset the system so that we could all go about flipping nickels to everyone in exchange for newspapers, cups of piping hot coffee and fine Cuban cigars. As soon as inflation raises the cost of those *essential *commodities to two bits (that’s a quarter, for you young’uns), devalue 5X back to a nickel again, ad infinitum. I wouldn’t mind making $900 per year, so long as I can flip coins all day in exchange for goods. It would spur spending, I’m certain. We men should all be required to wear hats again, too—and not simply those ubiquitous baseball caps either.
And we should also carry fashionable canes and were those little one-eye glasses like the Monopoly man. 
That, sir, is simply preposterous.
However, it would certainly be apropos to engage in lively banter with the nickel throwers at the automat (e.g. *“hey toots, you sure you ain’t tryin’ to bamboozle me out of some buffalos?”) *or the shoeshine boy, while thumb flipping a coin high in the air (e.g. “here you go mac, don’t let this get stuck in your gullet.”)—All the better if you’re wearing a drape cut, pinched waist suit coat, wide trousers, a fedora tipped down over one eye at a rakish angle and a wide-assed tie…and speaking in a thick Philly or Brooklyn accent, of course.
I’ve never really read a good history of purchasing power vis a vis the prices of things back in The Day.
For example, the OP mentions a steak dinner costing 35 cents. But what was 35 cents to the average Joe in those days? What would have been the average hourly wage of, say, a factory worker in Chicago? IOW, how long would someone have to work to be able to pay for a steak dinner?
Can someone recommend a book (or a website) that lists the costs of certain day-to-day goods (as well as luxuries) compared to the purchasing power of the average person over time?
This article says that there were three periods of significant deflation in the U.S., one in 1836, one from 1873 to 1896, and one from 1930 to 1933:
In each case, the prices dropped to about 30% to 40% less than they were at the beginning of the period. There were a few other periods of minor deflation when for a while prices didn’t increase or very slightly decreased. There have been no cases of hyperdeflation in the U.S., where the prices dropped by 50% or more.
On review, I see that Lemur866 has already made most of these points.
Note that this is basically the logic that people use to claim that those “gas boycotts”, where people put off buying gas for a day, will reduce the long-term price of gas.
Unless you’re actually using less gas, then the positive feedback cycle you’re talking about won’t happen. Filling up your tank half-way twice as often doesn’t affect gas prices. Of course, in a recession/deflationary cycle, people do actually buy and use less of many things.