Quote from: firefop on April 28, 2013, 09:03:21 PM

You can call it anything you like...

But it doesn't affect the correctness of what I've said. Nobody producing a product when faced with 'the price they get for their goods is declining AND volume sold is going down' the company either diversifies what they produce (either through innovation of opening another line of business) or they do what you're suggesting... which is scaling back production which eventually results in their going out of business.

Wow that completely takes the cake for self contradiction and stupidity.

First off a business can not 'diversity' its way around deflation, because deflation is a broad spectrum change in money valuation that is affecting ALL entities in the economy and all sectors of the economy. Further more if everyone tries to diversify at the same time its just a musical-chairs everyone is now just encroaching on everyone else, and because businesses have core competency in their original area of business but not their new business the diversification is going to lower total productivity and yes lead to reduced profits and many of them going out of business which is NOT what we expect in a growing economy.

Quote from: firefop on April 28, 2013, 09:03:21 PM

The reaction you're assuming is the expected response to a general economic slump (aka decrease of demand due to lack of funds) not the response you'd expect during deflation. During deflation you have currency that's owned growing in value and this actually encourages people to spend some portion of it that they wouldn't have before. It creates it's own added economic stimulus in this way. Persons are able to at the same time save more value and also spend more value because what they already have is increasing in value.

The response to a general economic slump IS what we expect to see from deflation because deflation will CAUSE and be caused BY general economic slumps. This is just as we expect inflation to cause a general economic heating up and a general heart up in the economy will cause inflation. This is the very basis of economic cycle theory and its a very simple explanation, the equivalent of Boyles gas laws for economics.

A business can not get a wash on selling its product at a lower costs for 'more valuable money' because businesses have lots of FIXED COSTS that are on CONTRACT (not least of which is labor, energy, building lease). Those fixed costs remain in fixed nominal currency units meaning they explode in real costs and eat away all the profit margin that may have existed even if marginal costs to make each widget are at parity with new marginal sale prices of widgets. So the business is destroyed by deflation and if you had 1 sentila of knowledge about real business you would know this.

Quote from: firefop on April 28, 2013, 09:03:21 PM

All that said - the idea that deflation is going to somehow make the 'price they get for their goods decline' is silly - that price isn't going to change just because the currency is worth more. Now someone may lower the price to stay competative, but if the currency is worth more... that's a neutral move on the part of the company not a loss.

Now you speak as if your don't know the meaning of the world deflation, it IS the increase in purchasing power of money so YES prices decline, if their wasn't a decline in prices then their would be by definition no deflation. And yes business (all of them) WILL change their prices to stay competitive, (they will either do that or go our of business), that is how free-market competition works, this is well understood and is what happens when the ratio between supply and demand changes. Under deflation the price point is dropping because their is either more stuff or less money.

Quote from: firefop on April 28, 2013, 09:03:21 PM

What you really should consider is this bad idea that deflation is going to encourage hoarding. It doesn't and it won't. If someone suddenly made everything cost half the current price... how would a typical consumer act? They'd buy more/nicer stuff with some portion of their income and probably end up saving (or paying down debt) with the other portion. Both of those are good for any economy.

You just can't avoid contradicting yourself, first you say it 'wont cause hoarding' and later admit people will 'save and pay down debt' with some of their new surplus. If that particular person was not doing those things before then this is a decrease in the percentage of their income that was spent. And that means monetary velocity is going down, it will take longer for each unit of currency to make a circle through the economy so it now has less opportunity to bid on goods and services and this allows prices to fall further, this reduction in velocity can more then counter the increased value of money such that the net value of money moving through the economy goes down and when the that goes down it means the economy is contracting not just nominally but in real terms.

Some people might spend the more valuable money but because we know people will be losing jobs left and right in the economic downturn their will be a broad mood of fear and a desire to save in order to protect oneself in the event of that job loss hitting you, so a huge jump in savings is what ALWAYS occurs during an economic slump. This creates a spiral of more businesses closing, slower monetary velocity, more deflation, the classic deflationary spiral that has been observed for CENTURIES (note also that unwinding of debt adds more fuel by contracting money supply through the banking system).

In your mythological reality some kind of never before seen upward deflation spiral would need to be happening in which velocity increases because people spend more (nominally) then they were previously and businesses expand despite being killed by fixed overhead costs. All of this is a fantasy in direct contradiction to the logical responses that businesses and individuals would actually have to deflation and in complete contradiction to all observed economic contractions.