Inflation and Deflation

You know how your parents always tell you about how cheap things were when they were kids? Well it's true, prices for literally everything have risen dramatically over the decades. Why? Because of something called inflation. What exactly is inflation? Why does it happen? Is it good or bad? What about deflation, what's that? Let's dig into the details!

Check out "Is This Wi-Fi Organic?", my book on disarming pseudoscience!

[CyanLightning]

Back in my day, a dollar was equal to a dollar.

[glennpearson]

Nice overview, Prof. Dave. Perhaps you'll cover some additional and related items in future episodes of this series:

1) The effects of cashless commerce on inflation/deflation;
2) The "misery index;" and
3) The effects of consumer confidence on inflation/deflation.

I'm really enjoying this series! Thanks to you and your team for this great content.

[jonutsthedanklordpayton]

From science to the economy what doesn't this man know

[benmullen]

I'm a fan of Prof Dave, AND a fan of Mr. Beat!!! so this is basically both

[geoffreyulreich]

I'm surprised you didn't cover the 'sweet spot' more thoroughly, given your science videos. Specifically, the fact that inflation, vs deflation, favors the wealthy, as do the monetary policies pursued in the US. You also don't mention the effect on the trade balance, or the links to environmental science - ie, the unrealistic expectation of always growing.

[bhgtree]

Great video Prof Dave. The downside of inflation is that people on social security and those on lowest pay are going to be hit hardest.

[idontknowwhatnameshouldipu]

Wow it feels like a lesson in school, but instead its fun and really interesting to watch (thats because i am not forced to do it i do it cause i want to)

Keep up with these great videos

[dr.orange]

The baseline state of a competitive market without monopolies is deflationary. Human curiosity drives technological innovation, enhancing efficiency. This, combined with consumers constantly seeking "more for less" and entrepreneurs striving to stay competitive, results in deflationary pressures on prices across all sectors. Ultimately, prices should fall to the marginal cost of production. If this premise holds true, I am compelled to question the collective conviction that monetary inflation is a necessary component for a functioning economy. To be more direct, why do we endorse a system where a certain loss in purchasing power, akin to a hidden tax, is deemed essential and undemocratically imposed upon us? Could it be that we find ourselves entangled in a conflicting paradigm? One where the exponential growth of technology, promising efficiency and deflation, clashes with the perceived need for inflation to stave off economic downturns, especially in the face of seemingly unsustainable levels of debt.

[alexthomas]

I noticed a lot more keyframed animations in this episode. Great work!

[maryellen]

One of the best simple explanations of this subject. Too many of these videos make the subject of economics too complicated.

[repositoryforresponses]

Literally just finished the previous video in this series, imagine my surprise! Thanks for continuing to create, the lessons here have been fun.

[ytube]

Wouldn't no inflation and no deflation be ideal? It's not really clear why 2-3% inflation is ideal... other than just because economists say so.

[djibrilm__-]

From high-level mathematics concepts to economy... I would like to spend a day in Professor Dave's brain

[LuizOtavio-gqdk]

If you take a look, it does come down to supply and demand.
1- Making more money: You're increasing the supply, therefore, as the “demand” is the same, the value goes down.
2- More people wanting stuff = more demand
3- More money in order to produce = decrease on supply

[Soapy-chan_old]

I have a huge problem with Inflation, in particular the third cause. A company pays their workers more money, which causes a price increase, which means other workers can not afford it anymore, and thus need a higher wage from their company (which they can enforce through strikes and stuff) and then this company also has to raise their prices, and it's just a stupid circle. Also the most important thing with this is, that most workers won't get more money at all, and like he mentioned, social security doesn't cover higher prices either. This system is inherently flawed and needs a reworking.

[lil-rose]

I've always have trouble to understand economy theory, thanks profesor Dave for explaining it :)

[Maurcusj]

I hate how the definition of "inflation" has been changed from describing an increase in the money supply to an increase in prices more generally. The second is merely a symptom of the first.

[buggsieyou]

I'm hoping this is the foundation for a series. I love the simple and generalized presentation, but a follow up with more detail of each of the 3 "causes of inflation" is needed in order for me to feel comfortable with Dave's understanding of the material.

Specifically, aggregate demand (when used to describe inflation/deflation) is considerably more complicated than the video implies. It's interesting that a term originating from demand-side and supply-side economics didn't include even a passing mention of the supply side in this video. I would assume that's because Dave's planning another video where he explains this correlation. Or maybe it's just meant to get the conversation started in the comments?

In case Dave doesn't get to it in a future vid, aggregate demand is the total demand for a certain amount of goods in a market. This applies to every good ever produced and is separate from inflation or deflation. Deflation may happen when supply outstrips demand, and inflation may happen when the opposite occurs. Inflation may happen either because demand increases OR supply decreases.

The "OR" may seem like an unimportant distinction to make, but this specific distinction is incredibly important in any speculative market. Consider the Beanie Baby™. Or any collectables for that matter, the value of a collectable is determined by it's supply more than demand. Of course there is a bottom floor, you need at least one person that wants an item for there to be any value, but supply is the more weighted factor in this situation.

Beanie Babies ™ are a silly thing to mention though, so let's consider another more practical speculative market, oil. Demand in this market fluctuates a moderate amount from day to day and year to year, but prices in this market are generally set by supply forces. Organizations like OPEC attempt to manipulate supply in order to effect the market value of the good they produce, and it works. It works exceptionally well on commodities and almost as well on luxury goods.

This phenomenon has earned the moniker "manufactured scarcity" and it's important to remember that it not only exists, but is one of the largest driving forces in the amount you pay for almost anything. In fact, its presence is far more impactful on the price you pay as a consumer than the cost to produce and deliver a product or good is in almost every situation. It applies to the clothes you wear, the car you drive, the food you eat, the device You're reading this on, almost everything.

There's a lot to discuss here and I hope dave continues the conversation. Great vid🤌

[maxinesenior]

Of course, the pricing of medicine as shown at 1:07 is LARGELY based on pharmaceutical companies going out of control with their greed, NOT inflation or Supply and Demand. It's just because they can that they put such a heavy price tag on letting people live.

[pepperVenge]

In the 1920's and 30's, an old feller I talked to back in 2003, said he bought a used Ford Model T for $30, and sold it for $30. I then later learned that a Brand New car in the 30's would cost you $100. My great grand parents bought my house back in the 1950's for $16, 000. Today, its worth $355, 000.