Deflation is bad because you can “invest” by just keeping cash around. Which means investors aren’t contributing to economic activity.
A small amount of inflation helps, because investors understand that if they’re not investing the cash they have, then they’re essentially losing money.
High levels of inflation is bad, because prices can change so fast that it makes commerce too difficult with prices changing too frequently.
But that’s for stable levels. Salaries tend to be very vulnerable to unexpected changes in inflation/deflation because they don’t change that often and they’re not pegged to inflation. Which means if the money unexpectedly devalues by 20%, then you effectively get a 20% pay cut and it might not be easy to negation a rectification with your employer and meanwhile you’re still underpaid.
The reverse is true with unexpected deflation, you get an effective 20% pay raise and your employer can’t do anything about it except fire you or go bankrupt. This is how deflation can lead to unemployment.
So deflation might help make a bit of wealth transfer from the capitalist class to the working class. But it’s very temporary and would likely come at a great cost to the overall economy.
If you want to fix wealth inequality it’s really simple: tax the rich, regulate monopolies and oligopolies.
True, I’m not sure if deflation with low-unemployment is economically possible but it would be nice.
Deflation is bad because you can “invest” by just keeping cash around. Which means investors aren’t contributing to economic activity.
A small amount of inflation helps, because investors understand that if they’re not investing the cash they have, then they’re essentially losing money.
High levels of inflation is bad, because prices can change so fast that it makes commerce too difficult with prices changing too frequently.
But that’s for stable levels. Salaries tend to be very vulnerable to unexpected changes in inflation/deflation because they don’t change that often and they’re not pegged to inflation. Which means if the money unexpectedly devalues by 20%, then you effectively get a 20% pay cut and it might not be easy to negation a rectification with your employer and meanwhile you’re still underpaid.
The reverse is true with unexpected deflation, you get an effective 20% pay raise and your employer can’t do anything about it except fire you or go bankrupt. This is how deflation can lead to unemployment.
So deflation might help make a bit of wealth transfer from the capitalist class to the working class. But it’s very temporary and would likely come at a great cost to the overall economy.
If you want to fix wealth inequality it’s really simple: tax the rich, regulate monopolies and oligopolies.