True, but again, reversing the omelette, at what cost? I'm a Spaniard, Spain is one of the few countries in the EU with a "healthy" GDP growth. Since 2020, with Germany sunken into recession, Spain has a stable 2%-ish GDP growth yearly, yet purchase power keeps going down because of inflation and lack of correspondingly rising wages. Checking the Instituto Nacional de Estadística (INE, national institute of statistics)'s consumption surveys, purchase power is worse in 2025 for the vast majority of house units than it was 20 years ago. Compare that to China consistently achieving increases of purchase power year after year, 2024's report pointing to a 5% purchase power increase over one year.

I fundamentally agree that, in principle, "price-wage spiral" is a thing that an advanced socialist market economy needs to take into account. However, I also believe that there's no fundamental reason for a socialist economy to use markets in 2025 (except as a possible transitional phase), the whole "information of markets and prices" neoliberal stuff has been dispelled by Marxian economists such as Paul Cockshott and the revival of Labour Theory of Value using computational techniques and empirical studies.

[–] xiaohongshu@hexbear.net 1 points 2 days ago* (last edited 2 days ago) (1 children)

By which metric? GDP growth, maybe. Well-being of the workers, I'm not so sure.

Let’s start with a very simplified and exaggerated scenario and work this out step by step:

If your income is $1000, and the price of a Treat is $100, you can afford 10 Treats per month. If next month, your income has doubled to $2000, and the price of Treats has also doubled to $200, you can still afford the same amount of 10 Treats next month.

Question: is your situation after the inflation the same as you did before?

Similarly, let’s consider the opposite scenario:

If your income is $1000, and the price of a Treat is $100, you can afford 10 Treats per month. But next month, your income has halved to $500. But, the price of Treats also halved to $50 - in this case, you can still afford the same amount of 10 Treats the following month.

Question: is your situation after the deflation the same as you did before?

Hint: neoclassical theory says there is no difference between them.

Don’t worry about getting the answer wrong, because most people won’t get it right, but make sure you give a moment of thought before answering. I will provide the answers afterwards, because getting this part right is very important to understand what follows.

[–] vovchik_ilich@hexbear.net 1 points 2 days ago (1 children)

Assuming that the person has no debts or savings denominated in that currency, nothing changes, that would be my answer.

Regardless, my point about inflation wasn't theoretical, I've given you concrete examples of countries with inflation vs deflation and the effects on macroeconomics vs workers themselves.

[–] xiaohongshu@hexbear.net 1 points 2 days ago* (last edited 2 days ago) (1 children)

Your example of Spain with the stagnating wages (stagflation) is why, as I wrote in the original comment, that workers are feeling financial strained.

However, believe it or not, deflation itself is even worse!

You may think if products are getting cheaper, the purchasing power of the consumers will increase. Yes, but only up to a point.

Neoclassical economists think there is no difference between the scenarios because they treat money as a medium of exchange. But this cannot be the case because money is debt…

Consider the inflation scenario:

You have $1000 income, Treat is $100 a piece. If you take out a $2000 loan, you can get 20 Treats this month.

Next month, your income has doubled, so you have $1000 + $2000 = $3000, you use $2000 to pay off your debt, you still have $1000 left in your bank account that allows you to afford another 5 Treats if you wish!

Now, consider the deflation scenario:

Same as above, you take out a $2000 loan to consume 20 Treats. But next month, your income is only $500, you have a total of $1000 + $500 = $1500 but with a $2000 debt to service. You are $500 short with no liquid cash to afford more treats this month.

Of course it’s an exaggerated scenario, but it very much reflects how money works in an economy. First, consider the business sector:

For many private firms, they take out commercial loans for investment, for expansion of production, hiring workers etc. Under an inflationary scenario, the loans become cheaper to service, wages can be raised etc as long as profit is expanding. This also means you can hire more workers, expand productive capacity which will lessen the inflation over time.

But under a deflationary scenario, your profit margin gets squeezed (prices become cheaper = profits falling) but you still have the same amount of debt to service. There is no good way out of it - you can’t pay your workers more, and as they receive less wages, they will consume less, which means the deflation gets worse over time, and more workers become unemployed as a result!

Now let’s consider the household sector, which is very much the relevant situation for the Chinese middle class today.

Let’s say you purchased a house at $100k. Now you may say the price of the house is irrelevant because you’re not interested in speculative investment, you just want to stay in it.

But does it really not matter? Can you make sure that you can stay employed over the next 30 years of your mortgage?

You bought a house at $100k, the inflation has made your house worth $150k. We’ll dispense with how much downpayment and how much you already paid for the mortgage because it’s too complicated.

But let’s say you lose your job and can’t find one in months. Your savings is running thin. At this point, you can sell your house and take the cut (say $30k after all the expenses) and downgrade your living condition to a cheaper rental place. You now have a $30k buffer to get through the unemployment.

But if the deflation has made your house worth only $70k, you’re pretty much screwed!

First, it’s unlikely you can see your house, because who would want to buy it at $70k when it could be $50k next year? Not only are you already making a loss in real time, but you’re not even allowed to cut your losses!

If you choose not to default on your mortgage, you still have to pay that $100k + mortgage over the full 30 year period, while having lost your entire income!

This means austerity, cut all spending and use whatever you have to keep servicing your loans, and this automatically translates to less consumption, contributing to the deflationary spiral of the economy.

As the middle class spending stops, the economy begins to stagnate. These two situations are very real in China right now, and it is made worse by the fact that there is little to no social safety nets in China, unlike European countries.

[–] vovchik_ilich@hexbear.net 2 points 2 days ago* (last edited 2 days ago) (1 children)

If you define "inflation" as "inflation + increased wages" and you discard stagflation as a special case of inflation, your comment holds up, it's just not the case anywhere in developed countries for the past 40 years. The reality for most workers is that, as of the past 20 years, inflation doesn't correlate with increased wages, so discarding the whole "inflation = suffering" that most workers actually feel in their bank accounts feels sophistic to me.

You have $1000 income, Treat is $100 a piece. If you take out a $2000 loan, you can get 20 Treats this month.

Next month, your income has doubled, so you have $1000 + $2000 = $3000, you use $2000 to pay off your debt, you still have $1000 left in your bank account

Not true to many workers. In Spain, when the inflationary episode of 2022 hit, it turned out that most mortgages had a variable interest rate, so if a mortgage used to be 500€/month, it went to 750€/month, so people not only had to afford more expensive goods with meager salary increases, their debts also increased because banking institutions have shielded themselves from inflation when giving out debt by applying variable interest rates.

For many private firms, they take out commercial loans for investment, for expansion of production, hiring workers etc. Under an inflationary scenario, the loans become cheaper to service, wages can be raised etc as long as profit is expanding. This also means you can hire more workers, expand productive capacity which will lessen the inflation over time.

How much have productive capacity and number of workers increased by in Europe and the USA over the past 3 years? Also, is debt in practice cheaper to take on during inflation when central banks in capitalist countries consistently decide to rise interest rates under inflation?

But if the deflation has made your house worth only $70k, you’re pretty much screwed!

In a country like China, where there is a home ownership rate of 90+%, this might seem obvious. Go to Germany with a <50% home ownership (disproportionately affecting low income workers) and let's see who's actually hurt or benefitted by a lowering of housing prices and profitability of housing as an investment.

At the core of the issue, I think this is just a matter about our definitions of inflation vs stagflation. If your point is "there hasn't been inflation exclusively in most of the developed world for the past 20 years, there has been stagflation", then I guess sure, I agree.

[–] xiaohongshu@hexbear.net 1 points 2 days ago

it's just not the case anywhere in developed countries for the past 40 years.

How much have productive capacity and number of workers increased by in Europe and the USA over the past 3 years?

That’s literally what I said at the top comment. The wealth is being concentrated at the top 1% due to neoliberal policies and monopolists charging what they want (this is known as the sellers inflation, which Marx talked about). This happens due to a lack of strong labor union movement that can push wage growth through the price increase set by the capitalists.

What I am saying is that deflation is much more dangerous than inflation, because inflation, as you described, can be easily fixed through policy change - you simply expand the productive capacity, more workers can be employed, and the increased supply of goods will lessen the inflation. The fact that your neoliberal governments refuse to help poor people is beside the point.

Deflation is much harder to get out because once baked in, can spiral very easily. This is because money is debt… it has a time component, and if the system does not have a debt cancellation mechanism, it can drag the entire economy down. This is a problem you don’t have to face under inflation.