Do economists consider a non-inflationary economy healthy?

[smiling_bandit]

@qazwart

But why buy a $60,000 house when the house will be worth $45K? I might as well sit on my money and still have $60K in deflated dollars. I certainly won’t be doing it for investment.

Because you only invested $40,000 dollars into building the house.

Yes, my numbers were a bit of an exaggeration, but holding capital is bad during deflationary periods. The longer I hold capital, the less it is worth. The incentive is to put my money in a coffee can and bury it in the backyard instead of building a business.

:dubious: No, holding capital is fine in deflationary periods. If I have 100 bucks in-hand today, I can gold it and gain more purchasing power for that money later. However, it’s not a barrier to investment because I have no reason not to lend it at a profit. I still get my 100 bucks and my investment income. The onyl downside there is that people may choose to spend rather than save, but this obviously works, too.

Even if my business could make money, the profits are squeezed by deflation. I might have bought materials, build something, and make a 10% profit in normal times, but during deflation, my profit will be squeezed because what I build will be worth less than it was when I originally bought my materials.

Profits are not squeezed by deflation. Even if the nominal amount is less, you gain purchasing power which makes those profits more worthwhile per dollar. I’ll take 90 dollars over 100 fifty-cent pieces any day of the week and twice on Sundays.

Big benefactors of deflation are pension holders because their pensions are worth more each month. They’re also the biggest losers during inflation.

Blinks

GO back and re-read your post. You’re arguing against yourself.