Deflation Scare

Preface

This will only be a non-academic discussion of this subject. Just some thoughts from a former professional economist.

Is It A Scare?

The short answer is no! It is more a deliberate scarecrow or red herring!

For some time or every so often, the scare of deflation is circulated in the news even by reputed economists and central bank chiefs. It is implied that deflation is as bad as inflation. It is a vicious downward spiral and so on.

Why Is Deflation So Bad?

It is often implied that some moderate inflation is beneficial, but deflation! Price stability, however defined, is the proclaimed aim of many central banks in developed economies.

Whys is moderate inflation good for the economy while moderate deflation is supposedly a dire condition?

Why is the general price level supposed to go only up over the long run. I believe there were historical periods where prices were going down as well.

Well, in the Wikipedia article on deflation we read, e.g. “Deflation occurred in the U.S. during most of the 19th century (the most important exception was during the Civil War). This deflation was caused by technological progress that created significant economic growth.” (Emphasis added). That was when so called robber barons like John D. Rockefeller lowered the price of gasoline.

Hyperdeflation Anyone

I am not an expert in economic history, but, I believe, there never was such a thing as a hyperdeflation, whereas most people have heard of or some have contemporaries even suffered through a hyperinflation. I do not remember ever having read of a hyperdeflation in any of the economic textbooks etc. I have studied, but I might be wrong.

Perhaps it is even impossible for a sustained hyperdeflation to occur in real life, because at some point people start buying again if products or services are really cheap unless after tax income deflates faster or unemployment increases faster than prices deflate.

Temperance

Like almost anything in life, moderation is a virtue to live by and to live well.

Price change moderation on average is the sweet spot in free market economies. Only extreme general price level behavior is of concern. Cyclical fluctuations up or down of the general price level in free market economies is probably normal and desirable.

What Is Economic Deflation?

There is no entry for this subject in “The Concise Encyclopedia of Economics” nor in the

the “Encyclopedia Britannica” nor in the “New Palgrave Dictionary of Economics”. This subject is only referenced as a sub subject of other subjects.

Snake Oil Salesmen

So next time one of these supposed experts come out in public to warn the public of deflation let them know they are perhaps only charlatans!