4 ms·

Price deflation is the normal state of affairs when the Government isn't inflating the currency. It isn't a problem to be solved. A financial bubble is the pr

by gasull 17y ago

Price deflation is the normal state of affairs when the Government isn't inflating the currency. It isn't a problem to be solved. A financial bubble is the problem. Japan is trying to create a bubble in its economy. Even if they succeed it will deflate at some point in the future. The bigger the bubble, the deeper and longer the recession/depression that follows the bubble.

philwelch 17y ago
Deflation may be the "normal state of affairs when the Government isn't inflating the currency", but that doesn't mean it isn't a problem. And that's a flawed description of affairs. Deflation is more specifically the normal state of affairs when the government enforces a legal tender law on a scarce, slow-growing currency such as gold. It doesn't happen when the currency is fast-growing, like silver was in the late 19th century, or like tobacco was during the colonial period. And it doesn't happen in a barter system. The establishment of the gold standard was a major political effort that was only accomplished by the McKinley administration around the turn of the 20th century (having been preceded with an even less tenable system of bimetallism that finally collapsed due to the Nevada silver rush). As for whether deflation is a problem, deflation disincents both investment and spending, which means in a very real way that deflation disincents economic growth. The situation you describe would also be possible only with a return to the gold standard, which would effectively price gold out of any kind of industrial use--something that would have negative economic repercussions in itself, and which would likely cause extremely high rates of deflation in the future.
- gasull 17y ago
  I should have said "mild deflation": http://www.cato.org/pubs/policy_report/v21n3/cpr-21n3.html http://www.cato.org/pubs/policy_report/v21n3/cpr-21n3.html
  - philwelch 17y ago
    Mild deflation is better than runaway deflation just as mild inflation is better than runaway inflation. But it seems that mild inflation is actually better than mild deflation. I'm not impressed by think tanks: they come up with the conclusion first and the reasoning second.

by gasull 17y ago

philwelch 17y ago

Deflation may be the "normal state of affairs when the Government isn't inflating the currency", but that doesn't mean it isn't a problem. And that's a flawed description of affairs. Deflation is more specifically the normal state of affairs when the government enforces a legal tender law on a scarce, slow-growing currency such as gold. It doesn't happen when the currency is fast-growing, like silver was in the late 19th century, or like tobacco was during the colonial period. And it doesn't happen in a barter system. The establishment of the gold standard was a major political effort that was only accomplished by the McKinley administration around the turn of the 20th century (having been preceded with an even less tenable system of bimetallism that finally collapsed due to the Nevada silver rush). As for whether deflation is a problem, deflation disincents both investment and spending, which means in a very real way that deflation disincents economic growth. The situation you describe would also be possible only with a return to the gold standard, which would effectively price gold out of any kind of industrial use--something that would have negative economic repercussions in itself, and which would likely cause extremely high rates of deflation in the future.

gasull 17y ago
I should have said "mild deflation": http://www.cato.org/pubs/policy_report/v21n3/cpr-21n3.html http://www.cato.org/pubs/policy_report/v21n3/cpr-21n3.html
- philwelch 17y ago
  Mild deflation is better than runaway deflation just as mild inflation is better than runaway inflation. But it seems that mild inflation is actually better than mild deflation. I'm not impressed by think tanks: they come up with the conclusion first and the reasoning second.