Friday, May 21, 2010

The Economy is Out to Get You

No, I don't mean that the economy has become sentient and decided that you're its enemy. That's not quite how it works. Here's what I mean.
As you're probably already aware, inflation is bad. In short, inflation is bad because your money is weaker, so the same amount of money gets the consumer less stuff, or the consumer has to spend more to get the same stuff. Thanks to inflation, a dollar doesn't go as far as it used to go.
So, the opposite of inflation - deflation - must be good, right? Well, that's not quite true. When deflation occurs, the average consumer has less money to spend. Thus, while the money might go as far as before, there's less of it to spend.
Admittedly, deflation might help a specific individual, if that individual had a steady job and a stable income. That is, it could help if inflation were truly the opposite of deflation. It has come to my attention recently that deflation does not mean that prices actually go down. Rather, deflation occurs when less money is spent on a given commodity. So, when layoffs hit an area, and people have to find lower-paying jobs, they're less likely to spend money on unnecessary things, and they're likely to spend as little as possible on necessities - buying generic brands of foods, for instance. Thus, the market value of a given general commodity - bread, beans, butter, that sort of thing - goes down, while the prices that manufacturers stamp on their products remains the same.
Basically, inflation's bad for each person individually, and deflation means that the economy is doing poorly.
I'm sure that I could have articulated this more clearly, but I think that you get the point.

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