Post
Topic
Board Economics
Re: Is deflation truly that bad for an economy?
by
tee-rex
on 06/03/2015, 16:36:07 UTC

Quote
On enterprise side, although the amount of currency they earn decreased, but currency appreciated, their real income will increase, salary become cheaper, they could hire more people and drive larger projects. This also happened when bitcoin price reached $1000+, lots of projects were setup back then

In real life, producers' profits may turn negative due to decreased prices. But negative is negative, and you can't do anything about it, deflation or not. What you say is probably the most common mistake people make when they discuss deflation "on enterprise side". In short, deflation is not a mirror reflection of inflation (as many erroneously believe).

Again, it is a common mistake by economists to use currency as an absolute measure of value. But I understand that it is extremely difficult for them to understand that currency's value fluctuates all the time, since they have been using currency to measure value since they barely can do 1+1. If they start from an international point of view by looking at FOREX market, then they will understand that currency's stable value is just an illusion. Get rid of that illusion, then people will not look at the numbers in their account to decide if they are profitable or not, they will look at what they really gain from a certain economy activity

I have just one question. What are you as a producer going to do with negative profit, i.e. a loss that you may incur as a result of decreasing prices? Remember that you have to pay wages from your income, and your employees don't care about your ideas (absolute measure of value and all that) but love cash.