It's more to do with investment, I think. Sure, you'll always buy food and clothes and soap and gasoline. But will you buy a house that will be cheaper tomorrow? Will you buy a computer that will be cheaper tomorrow? Will you hire somebody for $70K per year, when you can hire them for $50K per year in six months?
You say that if somebody doesn't need something, they shouldn't buy it. Well, they don't buy it, in a deflationary environment. But, we really don't NEED all that much. As more and more people decide they don't need new cars, new houses, new clothes, clean water, electricity, etc., the society spirals back in time to the caveman days. That's an exaggeration, obviously, but you get my point.
> Will you buy a computer that will be cheaper tomorrow?
This is how consumer electronics works, and yes, people buy plenty.
> As more and more people decide they don't need new cars, new houses, new clothes
New cars and clothes? Well, they probably don't need these things. Overproduction is not a good thing - excess clothes sit unused in a closet, and a frivolous new car means an old car goes to the junkyard (circuitously).
> clean water, electricity, etc
One can do without these just as easily regardless of inflation (especially since you can't really store them), and yet people still buy them. Demand comes from widespread wealth, when the benefits of these things outweigh the relative cost. This independent wealth (and thus true progress) are encouraged by a monetary policy which rewards savings, not by one which induces spending for the illusion of temporary wealth.
Granted people buy deflationary items. Consumer electronics, stock options, and perhaps one or two other things. That fact is proving that deflationary spirals are not something to be concerned about?
I'm only responding at all, because I have a cool analogy that I want to use.
Positive feedback. If you're not aware of what that is, since this is a digitally oriented site, it's not a good thing. It means that the more something happens, the more something happens. The less something happens, the less something happens.
Economies tend to have this quality because of people's emotions. There's also negative feedback, which is capitalism, where supply and demand form a beautiful analog computer that is almost magical in it's ability to allow goods to appear where they're needed most, when they're needed most. But, on top of this wonderful capitalist negative feedback system, we have the evil positive feedback system of human greed and fear.
With positive feedback caused by our greed and fear, in this case, fear, we end up in a deflationary spiral, where everything just shuts down, and the more it shuts down, the more people lose their jobs, and the more they hoard money and goods, and things shut down even tighter.
This is not an especially difficult or non-intuitive point, and I only make it, since you didn't seem to grasp it, and I wanted to talk about feedback.
Now, it's very nice to talk about savings. I quit my job two years ago to spend time on my start-up, and I could do it because I was a good saver. That said, what is good for a person, is not good for a people. A society that hoards, will soon be hoarding crumbs and dirt.
"With positive feedback caused by our greed and fear, in this case, fear, we end up in a deflationary spiral, where everything just shuts down, and the more it shuts down, the more people lose their jobs, and the more they hoard money and goods, and things shut down even tighter."
Are there real world examples of such deflationary spirals getting out of control? Would be interested to read about them.
I am still not really buying it, to be honest. People can't ignore their needs forever. And what if the deflation is just the correction of the previous inflation? I suppose the housing bubble is an example, while the prices for houses where rising it was inflation, and now it is deflation?
You say that if somebody doesn't need something, they shouldn't buy it. Well, they don't buy it, in a deflationary environment. But, we really don't NEED all that much. As more and more people decide they don't need new cars, new houses, new clothes, clean water, electricity, etc., the society spirals back in time to the caveman days. That's an exaggeration, obviously, but you get my point.