wfrost
@wfrost
Sound Money Socialist, Montessorian, and Rortystan
This idea is consistent with a recent Anthropic survey that found workers are, so far, keeping the majority of productivity gains to themselves. I call this “Slacktivity theory”
2026: the year that Russian autocrats were more popular than public services among Republicans
At the same time, people are saying they are mad about nominal prices, which do provide a clear through line to both: 1. Labor’s declining share of income 2. Unprecedented wealth inequality So while this is probably not a satisfactory answer, I respect why people are pissed about this economy
Cumulative effects. At some point this has to be a problem. The argument is not, wealth inequality is responsible for the vibecession. It’s, people have good reason be frustrated about this economy
Empirically, there is no link between deflation and recession The theory: deflation is the natural result of productivity growth. More goods, same dollars = lower prices
The craziest part? The empirical record supports your point 100%. Whether deflation is good or bad depends entirely on the cause.
That’s not entirely true. In economies that dont mandate inflation, such as the US, deflation is often associated with growth. Some good examples: 1. Cost Rica today 2. China 1998-2002 3. Switzerland today 4. US 1880s
Yep! It is. But median debt service in the US is only about 10% of income. So in the 1st order, deflation is 90% good and 10% bad for households (on average). Whether deflation is bad in the 2nd order depends entirely on the cause of deflation (some are good, some are bad)
Empirically, outside of countries like the US that mandate inflation, there is not strong link between deflation and recession. Its a common misconception in the US
The US has not experienced substantial deflation for about 100 years, which is a (bad) policy choice to not allow productivity gains to go to households
The idea that all deflation = bad, which is the same as saying a strong currency is bad, comes from Great Depression trauma. It’s an outlier in the empirical record Deflation is more commonly associated with growth than recession. (But its a relative tax on businesses and subsidy to households)
Same logic applied for economies at large - here’s a broad study on this exact question. It also discusses whether there’s a clear link in Japan between deflation and growth.
This is false: “Deflation means consumers don't spend.” Our modern experience with structurally deflationary goods (tvs, plastics, PCs) shows a strong correlation between deflation and growth. And empirically, if we look at economies at large, there is no link between deflation and recession
Also empirically, deflation is more commonly associated with economic growth than with recession. Whether deflation is ultimately good for labor depends on 2nd order impacts that are all cause-dependent
100%. Who would delay spending on the hope of a 0.2% price decline in a month? Our modern experience with structurally deflationary goods (plastics, TVs, PCs) shows prices going down and demand going up
There is no reason why prices cannot fall economy wide due to productivity growth. No demand drop required. It’s quite common in countries that do not artificially target inflation.
In the US, I think middle-class workers notice because they see the 10% living large while they are struggling to get ahead. Which is also consistent with tumbling faith in the labor ladder
From a tiny base - its like when you give your kid a $0.25 increase on a $5 allowance. Looks at these stacks of $$ on $$ going to the top
Neat thread. One thing that makes manufacturing special is the near flat (at times inverted!) supply curve. Higher volumes = lower price In the US, that surplus has passed to consumers via deflation, but our commitment to 2% inflation mathematically requires even greater inflation in other products
For the past three years, Costa Rica has experienced high growth and deflation. No death spirals.