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Sure, but we have a economy that's extremely reliant on consumer spending, in fact it's about 70% of GDP these days [1]. Major deflation of the USD and the resu

Sure, but we have a economy that's extremely reliant on consumer spending, in fact it's about 70% of GDP these days [1]. Major deflation of the USD and the resulting decrease in spending would be devastating to the national economy [2]. Moderate inflation, however, serves to stimulate economic growth (while a similar degree of deflation would have a proportionally negative effect on growth). Is this an ideal economic system? Maybe not, who knows. It's what we have though. And it is a direct consequence of an economy driven by growth, and one that encourages liberal individual consumption. [1] http://en.wikipedia.org/wiki/Consumer_economy http://en.wikipedia.org/wiki/Consumer_economy [2] http://en.wikipedia.org/wiki/Panic_of_1837 http://en.wikipedia.org/wiki/Panic_of_1837

wyager 13y ago
>Sure, but we have a economy that's extremely reliant on consumer spending, in fact it's about 70% of GDP these days What a meaningless statement in this context. "Consumer spending" refers to private sector spending. This is as opposed to, for example, Government spending, which might also fluctuate with changes in monetary policy. What percentage of the GDP is estimated to come from consumer spending has little bearing on the effect changes in inflation rate might have on the economy. You are trying to oversimplify a vastly complex system. If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation. >...would be devastating to the national economy Please actually read the article you linked. "Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Great Britain were all to blame." Deflation was a result of this panic, not the cause of it.
- dllthomas 13y ago
  "If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation." "A little is good, a lot is bad" is in no way an inconsistent position - it's true about most things.
DennisP 13y ago
Consumer spending is extremely reliant on consumer earning. Unless you rely instead on borrowing, which doesn't tend to end well.

wyager 13y ago

>Sure, but we have a economy that's extremely reliant on consumer spending, in fact it's about 70% of GDP these days What a meaningless statement in this context. "Consumer spending" refers to private sector spending. This is as opposed to, for example, Government spending, which might also fluctuate with changes in monetary policy. What percentage of the GDP is estimated to come from consumer spending has little bearing on the effect changes in inflation rate might have on the economy. You are trying to oversimplify a vastly complex system. If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation. >...would be devastating to the national economy Please actually read the article you linked. "Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Great Britain were all to blame." Deflation was a result of this panic, not the cause of it.

dllthomas 13y ago
"If what you are implying (that there is a causal positive relationship between inflation and production) were true, it would be economically advantageous to adopt zimbabwe-style inflation." "A little is good, a lot is bad" is in no way an inconsistent position - it's true about most things.

DennisP 13y ago

Consumer spending is extremely reliant on consumer earning. Unless you rely instead on borrowing, which doesn't tend to end well.