Deflation is not a problem in the Chinese case because of their unique circumstances. Chinese households have very high savings so they are actually better off from deflation. They also have an ultra high investment rate which is set by the government. So they don’t need to worry about a deflationary spiral.
For other countries deflation will have different effects which may largely be negative (although that still depends on why deflation is happening). However, the fears of deflationary spirals are … completely overblown. Not only does deflation require abnormal circumstances, but fixing it is extremely easy even for capitalist governments.
That is an effect, it also increases the relative value of debts which isn’t great, but the negative impacts of those is less than the potential positive impact of reducing the relative cost of living. Really what you’ve got to focus on if you’re a government trying to manage deflation is a) capital flight and b) wage reduction, because the biggest negatives are seen if investment gets pulled out of the economy and the positives aren’t realized if people’s wages don’t stay the same.
Won’t deflation increase the value of money, and so enrich those with accumulated money more than those barely scraping by?
Deflation is not a problem in the Chinese case because of their unique circumstances. Chinese households have very high savings so they are actually better off from deflation. They also have an ultra high investment rate which is set by the government. So they don’t need to worry about a deflationary spiral.
For other countries deflation will have different effects which may largely be negative (although that still depends on why deflation is happening). However, the fears of deflationary spirals are … completely overblown. Not only does deflation require abnormal circumstances, but fixing it is extremely easy even for capitalist governments.
That is an effect, it also increases the relative value of debts which isn’t great, but the negative impacts of those is less than the potential positive impact of reducing the relative cost of living. Really what you’ve got to focus on if you’re a government trying to manage deflation is a) capital flight and b) wage reduction, because the biggest negatives are seen if investment gets pulled out of the economy and the positives aren’t realized if people’s wages don’t stay the same.