Monetary policy isn't intended to steer the behavior of normal people[1] who have ~net-zero cash for most of their lives, it's intended to steer the behavior of investors who don't need to spend all their money on food and shelter and medicine, and who will happily choose to sit on their cash, instead of investing it, if that provides them with better returns.
Everyone bitches when the price of milk goes up 8%, but nobody seems to realize that it went up because wages did. On average, if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you.
[1] Stimulus checks did steer the behavior of normal people, but they were fiscal, not monetary policy. They had knock-on monetary policy effects, but the juice was worth the squeeze - thanks to them and the PPP, the economy didn't entirely collapse.
> if you're a worker, and you aren't saving (or trying to save) a pile of cash, inflation is net-zero for you
But people should be able to save. So that they can buy a house or apartment for themselves and their family. Without having to take up a loan to do so.
If you want to buy a house or apartment, you're probably looking at at least several hundred thousand dollars, and average working class people would need years to save that much.
In other words, we're looking at someone with a few hundred thousand dollars, held for a few years. At which point, what's stopping them from keeping the money in an index fund, instead of under the proverbial mattress?
Also, taking a mortgage is a totally normal thing to do when buying a house, it will give you years of enjoying your home ownership, and in this case inflation actually works for you!
If everyone saves, the economy will collapse. Every dollar you save is a dollar that someone else doesn't earn.
In an inflationary environment, people can still save by buying equities.
This has tax and timing implications... But it's still possible.
> Without having to take up a loan to do so.
The existence of 25, 30, 35 year mortgages driving housing prices into the stratosphere is a separate problem, but not one you're ever going to unwind without having existing mortgage holders stringing you up from a lamp post.
Billionaires have very little in savings relative to their wealth. Most billionaires have their wealth tied to ownership of a small number of companies, usually ones they founded.
Store shelves would be empty and businesses would shutter. There’d be less to buy. Banks would hold on to money instead of lending to productive businesses.
Deflation causes the production of goods and services to become more expensive in addition to slowing down the velocity of money. Hence, businesses actually go bankrupt (as in liquidated, restructuring becomes far more risky), productive capacity sits idle, unemployment rises, consumption slumps further, remaining businesses become even more distressed, all of which leads to a complete collapse in confidence in the marketplace. In turn, individuals and businesses are encouraged to hoard money, which only leads to further slowdowns in the velocity of circulation, making money even more scarce, etc.
In such an environment, businesses undergo brutal competition for a shrinking pool of money. Simply servicing current debts and operating expenses becomes difficult. Taking out new loans and/or investing capital into such businesses is nothing short of insanity. Even if a business could raise prices the inability of consumers to pay could easily result in a net loss.
The economy is built on the velocity of money. There's a reason why Bush called on Americans to spend money in the aftermath of 9/11, the system really can't cope with a significant slowdown in spending, even if only for a few days.
What if the deflation is caused by continuous improvement in productivity, as was the case for semiconductors? It seems like in that scenario, the continual decline in prices is more than counterbalanced by a continuous increase in production volumes, resulting in profits for manufacturers despite precipitous decline in the price of the products they sell. Moore's law didn't cause investment in semiconductor fabs to dry up; just the opposite. What if that happened to all sectors at once?
Productivity/efficiency driven deflation is almost always a good thing. The problem is when deflation is being driven by the scarcity of money or some other unsustainable mechanism
If all the stores did that, and people would actually buy goods at those prices, you'd be in an inflationary economy, not a deflationary one.
What do you think inflation is? It's a reduction in the value of money, relative to goods. You can't say that the solution to the problems of deflation is inflation. (I mean, you can, that is my whole point... but it fully undermines the original argument.)
