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You seem to be conflating the cost of some goods going down with deflation. Wages would fall with the deflating currency. Goods would not cost less of your lab

You seem to be conflating the cost of some goods going down with deflation. Wages would fall with the deflating currency. Goods would not cost less of your labor. They would cost the same. The benefits are distributed only to those who already have money. Those who are in debt are harmed. Not to mention, those standard economic criticisms that you don't agree with. Even the working rich with a respectable bank account are harmed in a deflationary spiral.

msandford 12y ago
Deflation != deflationary spiral The deflation has to be severe enough to cause people to substantially change their behavior. Suggesting that deflation always leads to a deflationary spiral (which you implicitly did) doesn't hold. Remember, wages are sticky so people aren't necessarily going to be making less money, just that stuff will be cheaper. As things get cheaper, it's possible that sales volumes will go up (econ 101). That could then offset any reduction is gross profit, if there is any. There may well not be, because the reduction in the output price might simply be from the reduction in the material input price. Massive deflationary shocks cause a lot of problems. But how do you get deflationary shocks? By trying desperately to pretend deflation isn't happening for many years, and then eventually the market stops believing you (you being the central banker) and prices adjust to a more realistic level. Perhaps the folks who are trying like mad to prevent a mild deflation are in fact the cause of the deflationary spiral that's a problem. Perhaps in their absence we'd just have mild deflation that doesn't cause the whole world to blow up all at once.
brc 12y ago
Wages are already falling in real terms in many cases. There is a certain part of human psychology that locks onto numbers (I was paid x, therefore I should continue to be paid x) which perhaps explains the aversion to deflation. I think part of the problem is that endless credit growth is what constitutes economic growth, instead of increasing productivity as it should be. So by preening and saying we cannot accept lower prices, we ignore the obvious long term benefits of stable and falling prices. There are winners and losers in deflation, just as there are winners and losers in inflation. It's better to take a neutral view of the distribution of benefits because someone wins or loses either way, and it helps to think more clearly when you realise everyone has a bias based on which camp they are in. What should matter for the sake of the debate is whether everyone would be better off overall.

msandford 12y ago

Deflation != deflationary spiral The deflation has to be severe enough to cause people to substantially change their behavior. Suggesting that deflation always leads to a deflationary spiral (which you implicitly did) doesn't hold. Remember, wages are sticky so people aren't necessarily going to be making less money, just that stuff will be cheaper. As things get cheaper, it's possible that sales volumes will go up (econ 101). That could then offset any reduction is gross profit, if there is any. There may well not be, because the reduction in the output price might simply be from the reduction in the material input price. Massive deflationary shocks cause a lot of problems. But how do you get deflationary shocks? By trying desperately to pretend deflation isn't happening for many years, and then eventually the market stops believing you (you being the central banker) and prices adjust to a more realistic level. Perhaps the folks who are trying like mad to prevent a mild deflation are in fact the cause of the deflationary spiral that's a problem. Perhaps in their absence we'd just have mild deflation that doesn't cause the whole world to blow up all at once.

brc 12y ago

Wages are already falling in real terms in many cases. There is a certain part of human psychology that locks onto numbers (I was paid x, therefore I should continue to be paid x) which perhaps explains the aversion to deflation. I think part of the problem is that endless credit growth is what constitutes economic growth, instead of increasing productivity as it should be. So by preening and saying we cannot accept lower prices, we ignore the obvious long term benefits of stable and falling prices. There are winners and losers in deflation, just as there are winners and losers in inflation. It's better to take a neutral view of the distribution of benefits because someone wins or loses either way, and it helps to think more clearly when you realise everyone has a bias based on which camp they are in. What should matter for the sake of the debate is whether everyone would be better off overall.