I think the example of falling milk prices downplays the theory that deflation is harmful unfairly. Surely, if we were facing deflation, I would continue to bu

I think the example of falling milk prices downplays the theory that deflation is harmful unfairly. Surely, if we were facing deflation, I would continue to buy milk. However, I would be seriously hesitant about borrowing money to purchase a house because the value of a dollar at the time I bought the house would be less than the value of a dollar in the future. Under inflation, the opposite is true: I pay back a loan with dollars that are less valuable than the dollars I borrowed. If you go beyond the individual prospective debtor and consider larger entities like banks and businesses, the potential economic effects of deflation appear more serious. To add to this: under continued deflation, wages would have to fall to compensate. But, as Krugman and others have pointed out, nominal wages resist downward pressure[1], which means that instead of lower wages, you get layoffs. If you get laid off, whether or not prices are falling, you might actually hesitate about buying that gallon of milk. [1] http://krugman.blogs.nytimes.com/2010/07/26/mysteries-of-deflation-wonkish/ http://krugman.blogs.nytimes.com/2010/07/26/mysteries-of-def...