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A complexity here is that Switzerland is a small country heavily integrated with the Eurozone, but with its own currency that has recently risen strongly in val

A complexity here is that Switzerland is a small country heavily integrated with the Eurozone, but with its own currency that has recently risen strongly in value. In CHF terms, yes, Swiss prices are currently deflating. But this isn't really a domestic deflation phenomenon in the sense that a similar decline in prices would be in a bigger economy like the USA: the role of CHF in Switzerland isn't nearly as canonical/exclusive as the role of USD in the USA, since so much Swiss business, even individual business, takes place in EUR-priced marketplaces. As the article briefly mentions, the Swiss Franc is now worth about 10% more vis-a-vis the Euro than it was a year ago. Many things in Switzerland are actually inflating if you care about EUR value, which many Swiss people and businesses do: prices and wages have decreased 2% in nominal CHF values, while the CHF has simultaneously appreciated 10%. Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. I think the same would probably happen with any small European country. If Denmark broke the DKK/EUR peg and let the DKK appreciate by ~10%, many things would deflate in DKK terms to compensate.

finnh 11y ago
Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. That's backwards wrt prices (the article spoke more about prices deflating, not wages). Deflation of prices increases purchasing power.
mike_hearn 11y ago
The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere. I've been saying this theory is bunk for years, so it's nice to finally see the view start to surface in mainstream publications. You only have to review the data to discover that there's no empirical link between deflation and depression. For instance, take this paper, written by economists at the Minneapolis Fed: https://www.minneapolisfed.org/research/sr/sr331.pdf https://www.minneapolisfed.org/research/sr/sr331.pdf Abstract: Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link. But you don't really need data to convince yourself that the 2%-inflation-is-best theory is nonsense. Basic common sense should be good enough. The entire thing rests on the assumption that there's a class of investments that people would refuse to invest in if left to their own devices, but which suddenly become attractive only if their savings are shrivelled by a few percent a year. Such a class of investments certainly does exist: they're called bad investments!
- djur 11y ago
  > The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere. Please cite an economist saying that.
  - nickff 11y ago
    Here you go.[1] [1] http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/?_r=0 http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
    - djur 11y ago
      > If the economy is doing well, all this can be offset by just keeping interest rates low There's your condition; there can be others that don't fit into a single blog post aimed at American readers. Various deflationary measures are also recommended by orthodox economists in cases of hyperinflation.
      - nickff 11y ago
        I cited an economist who never mentioned anything about the size of an economy when talking the evils of deflation. You are moving the goalposts. What is your new demand? That I prove a negative? That I have to quote an economist who says "deflation is bad, no matter the size of the economy"? The post you responded to said: "The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere.", not that deflation hawks said economy size doesn't matter (it is implied through omission). Please accept that your curt and dismissive comment was falsified by a random commenter on HN who spent literally 30 seconds on Google, and typed in "Krugman deflation<CR>".
        djur 11y ago
        I am looking for a claim that "deflation is bad... is an absolute theory that [applies] everywhere." 'Size of economy' is just one possible exception that would belie an absolute theory that applies everywhere. By the way, I have not been insulting to you, and I would appreciate the same consideration.

finnh 11y ago

Many Swiss employees therefore in practice have a salary that represents more European buying power than it did a year ago. That could be expected to have some effects more similar to inflation rather than deflation, in this context. That's backwards wrt prices (the article spoke more about prices deflating, not wages). Deflation of prices increases purchasing power.

mike_hearn 11y ago

The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere. I've been saying this theory is bunk for years, so it's nice to finally see the view start to surface in mainstream publications. You only have to review the data to discover that there's no empirical link between deflation and depression. For instance, take this paper, written by economists at the Minneapolis Fed: https://www.minneapolisfed.org/research/sr/sr331.pdf https://www.minneapolisfed.org/research/sr/sr331.pdf Abstract: Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link. But you don't really need data to convince yourself that the 2%-inflation-is-best theory is nonsense. Basic common sense should be good enough. The entire thing rests on the assumption that there's a class of investments that people would refuse to invest in if left to their own devices, but which suddenly become attractive only if their savings are shrivelled by a few percent a year. Such a class of investments certainly does exist: they're called bad investments!

djur 11y ago
> The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere. Please cite an economist saying that.
- nickff 11y ago
  Here you go.[1] [1] http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/?_r=0 http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
  - djur 11y ago
    > If the economy is doing well, all this can be offset by just keeping interest rates low There's your condition; there can be others that don't fit into a single blog post aimed at American readers. Various deflationary measures are also recommended by orthodox economists in cases of hyperinflation.
    - nickff 11y ago
      I cited an economist who never mentioned anything about the size of an economy when talking the evils of deflation. You are moving the goalposts. What is your new demand? That I prove a negative? That I have to quote an economist who says "deflation is bad, no matter the size of the economy"? The post you responded to said: "The theory that deflation is bad for an economy doesn't say "but only when that economy is over a certain size". It is an absolute theory that claims to apply everywhere.", not that deflation hawks said economy size doesn't matter (it is implied through omission). Please accept that your curt and dismissive comment was falsified by a random commenter on HN who spent literally 30 seconds on Google, and typed in "Krugman deflation<CR>".
      - djur 11y ago
        I am looking for a claim that "deflation is bad... is an absolute theory that [applies] everywhere." 'Size of economy' is just one possible exception that would belie an absolute theory that applies everywhere. By the way, I have not been insulting to you, and I would appreciate the same consideration.