Well clearly it doesn't, because people still need to live. We have many years of evidence that people still buy shiny tech gadgets despite knowing that in a year's time they will be much cheaper.
That’s not true. The issue isn’t that the same device will be cheaper in a year, but that the latest device will be the same or close to it. As a result, people are more likely to hang on to their devices (for example) if they assume that next year’s latest model will be cheaper than this year’s.
A great example is the Apple Vision Pro. How many people didn’t buy it simply because the price is too high? Betcha they would if it were cheaper, which they know it will be eventually.
The same is not true of phones, which don’t generally get cheaper for the flagship products.
> The issue isn’t that the same device will be cheaper in a year, but that the latest device will be the same or close to it.
I can't see how this is not a matter-of-degree of what GP comment said. If the latest-tech device is going to be cheaper next year, I will still have to use the old tech for another year before I upgrade. I don't think the equation changes at all.
If the iPhone 5 is the latest and greatest this year and is $1000, next year it may be $600. But the iPhone 6, which only exists next year, will be at or around $1000.
Therefore, there is no benefit to waiting until next year, as it is unlikely that the latest device (which is the device most people buy) is going to drop in price.
Of course there's a benefit; you can buy the iPhone 5 for $600. If you would be happy with it this year, you'll be happy with it next year too. The existence of an iPhone 6 doesn't make the iPhone 5 any worse.
I understand this. But most people do not, and will buy the most recent one and wait two or more years before buying the next one. They buy the most recent one, aka the most expensive one, because they believe (correctly) it will last them the longest. But the price changing doesn’t affect their decision.
Of course there's a benefit, you get more value per dollar the more you wait.
When the first androids came out I waited for the first 300€ model and bought it. Over the years I always hovered around the 200€-300€ range and kept upgrading. The last phone was 200€ and it's the best phone I've ever had.
I can get the same (even better!) value from cheaper models over time.
The issue is investment, not consumption. When deciding what to invest in, expected returns are calculated net of taxes, inflation, and risk. Capital generally flows to the investment with the highest expected net return at every risk level.
In a deflationary environment, sitting on investable cash grows risk-free and tax-free, which makes it an attractive "investment" for many category of investor instead of putting that capital to work.
Isn't that a self-correcting problem? If the money supply were held constant, and people didn't invest, then production efficiency would not improve, and there won't be deflation, right?
Even for "risk-free" assets like cash/bonds, inflation risk always exists. It's essentially a risk that you don't have a counterparty willing to trade the things you want.
I pay $1 to buy an apple and eat it. It is gone and tomorrow I will have no Apples unless I buy more. Instead I buy (invest in) an apple tree and now I have apples continuously.
The difference is the spending for a one time use vs production of new goods.
In the context of the thread, both investment and consumption are spending though. Whether one buys a shiny new gadget or a tech stock that pays dividends doesn't matter, because cost of doing either will be less tomorrow in a deflationary economy.
Consumption is concerned with your actual wants and needs. Investing is purely a financial measure with your excess cash. If you assess that it is financially savvier to not invest you will not invest. Investment is the concern of the large amount of excess money that wealthy people have that drive new projects.
But you’re still going to want and need things to consume. Much, much less sensitive to inflation.
