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I have never understood the inflation is good argument. Looking at PCs, DVD players, etc. it seems price deflation has been great for the consumer and overall

• millstone 14y ago
  Electronics become cheaper due to technological improvements, that is, positive supply shocks. That means our real wealth is increasing. That's a good thing! Electronics might also became cheaper due to, say, someone setting money on fire, so there's less to go around. Clearly in this case our real wealth would not be increasing, so it's not good. But it's not obvious why it should be bad, either. The reason it's bad is due to our psychology. If the money supply shrinks (and nothing else changes), prices and wages must both go down. But people hate the idea of negotiating a lower wage, so instead wage drops are accomplished through layoffs and unemployment. That's bad because it means that people aren't working: the economy's real output is reduced. So inflation provides a buffer that allows the economy to adjust wages downwards in a way that we find more palatable than negotiated nominal wage decreases.