On reflection, there’s more complexity to inflation and deflation than the simplistic few paragraphs that I wrote a couple of days ago. However, there’s no reason to jump all the way to “just trust Paul Krugman,” yet. As I think about this stuff, I become more and more convinced that it’s really, really important that more Americans get a better picture of what money is and why it matters (and doesn’t).
Inflation is a decrease in the value of money relative to time and stuff. Inflation means “salaries go up” and “prices go up.” Fundamentally this sounds like an observation of what happens during “productive economic times.” Put another way, inflation feels good. I get a raise, or I’m confident and busy enough to charge more for my time. When items are flying off the shelves, I raise prices and pay bonuses.
Deflation is the opposite. I bite the bullet and take a salary hit when I’m deeply unhappy with my job, when I’m unemployed, or when I need money *now*. When inventory is sitting on the shelves, stores have sales first. Only when the sales don’t work do they actually lower prices to get things moving. Deflation *feels* like failure. Deflation *feels* like hard times.
For people who live mostly without money, they situations are identical. The ratio of “time / hamburger” remains pretty constant either way. The difficulty and frustration come from measuring things in money. Recall that money is useful because it allows you to, quite literally, save up some time. I do not advocate going entirely without the stuff – but it’s sometimes useful to get rid of the abstraction and notice that the two things that actually matter didn’t move around – even though our system did.
