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Fair. My fault for not checking. But to but you and @KMC , the original comment did say to actively reduce prices. If this quick source is correct the last time we had deflation was 1954. And generally speaking, deflation means the economy is in a very bad condition.
Ok, so spell this out for me. I swear this isn’t a gotcha. I don’t know anything about economics, I’m here to learn.
Deflation is bad. Ok. So do you think we should literally never have deflation? Can we at least keep prices static? Because if we can’t decrease them, and if we can’t keep them static, then that seems to imply that they would continue to unboundedly increase into the future. We would eventually get to the point where a loaf of bread is a million dollars. That doesn’t seem desirable. What am I missing here?
Yes? There is nothing wrong with this.
Well 'eventually' there would be nothing wrong with that - though it might takes many centuries. While targets like 2% are slightly arbitrary, some (low) level of inflation is necessary unless we want stagnation and unemployment.
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At that point you replace old dollar by new dollar at 1 000 000:1 and continue.
Not sure has it happened to dollar already at some point, but it was done for many currencies.
Or print banknotes starting from 1 (million in small print) to say 500 (million in small print).
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Nothing, more or less, and the inflation will inevitably lead to hyperinflation, and then there will be a currency reset, and we'll do it all over again unless our currency is no longer fiat.
The trick is when the inflation will lead to hyperinflation, but fiat always ends in worthless currency.
This is why I referenced Volcker. Sometimes you have to suffer through the pain of something bad, because of the alternatives (see, Social Security, Medicare, Medicaid, entitlements in general).
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I'm hardly an economics professor myself, but I do know some things. Inflation happens because demand is higher than supply.
For examples of good inflation, if the economy is doing well, people have money to spare. They literally don't value $1 as much because they have so many of them, and businesses are able to get away with higher prices. Another example: when you hire a person, you are hiring a person to make them not do anything else. In other words, if in a given population everyone has the necessary education to go into astrophysics, if you want someone to flip burgers for you, you have to pay them a salary high enough that they don't go into astrophysics instead.
The bad reasons for inflation are obvious: Supply drops to lower than demand.
Deflation happens when supply is high but demand is low. Supply being high is good, but if demand is low for a long period of time that generally means something is wrong. Either you predicted demand poorly or customers turned frugal.
As unintuitive as it may seem, I think you generally always want inflation, but inflation for the good reasons. That should be slow enough that a loaf of bread costing a million dollars would happen, but maybe 10,000 years in the future. You've lived your entire life to where a penny is not really even worth the time it takes to pick up, but it wasn't that way from the beginning. Inflation is bad when your income doesn't keep up with it.
If a loaf of bread ever got to the point where it was a million bucks and you wanted to stop it, the only relatively reasonable way to do that would be a currency exchange. You print some nuBucks, force the economy to use nuBucks after 2 years, but they can trade $1,000 old dollars for 1 nuBuck. That's still a major hassle that most would want to avoid.
You're assuming the money supply is constant, which it isn't. If nothing changes with supply or demand, but the money printer shoots out 10x the number of paper bills, then you're going to have inflation.
We've already had inflation, serious inflation, but due to the way in which is was done, it was mostly confined to asset prices (real estate and stocks). You can argue about supply and demand and building and immigration all you like when it comes to house and land prices, but those things are not applicable when it comes to stocks, and they are also inflated far over the $30 hamburger example.
It's inevitable, but you're right, nobody wants it.
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I'm not an economist either, but I don't think a loaf of bread being a million dollars is too much different from a turkey dinner in 1960 costing 60 cents versus now costing $7. I'd guess we start seeing the dollar like the Japanese see the yen, where $10,000 to buy a pair of shoes is just what's expected and perfectly affordable for most people.
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The econ 101 explanation, which I believe is pretty much correct, is that we always want some inflation and never want deflation. Deflation means that cash just naturally accrues value - the $100 in my hand today is worth more tomorrow if I don't spend it. So I don't spend it unless absolutely necessary. And if everyone does this, then the economy slows down, there's less growth, and everyone suffers from the fewer goods being produced and services being rendered. Inflation has the opposite effect, where currency constantly loses value; so the most value you can get out of that $100 is right now, which puts pressure on you to look for the right opportunity to trade it for a useful product or service right now.
Of course, too much inflation is well known to cause serious issues. Income tends to be sticky and laggy - most people's salaries aren't pegged to inflation, but rather get raised once every period of time, and so if inflation is very high, then most workers suffer. Which is kinda what happened the last few years. This is why the US federal reserve's dual mandate includes hitting a 2% inflation rate - it's positive, but not so positive as to cause issues, at least most people seem to think so.
So eventually, yeah, a loaf of bread will cost a million dollars. If a loaf of bread were to cost $2 today, then at 2% inflation, that'd take a little over 660 years. Much like how movie tickets cost a literal nickel like a century ago and cost $15 today. But the idea of inflation is that, when a loaf of bread costs $1,000,000, the average income will also be (1,000,000/2)*(average income today), so things will remain the same in relative terms. In practice, it doesn't work that perfectly.
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