[Malsua]

Their theory is that if consumers believe that prices will fall over time that they will curtail their purchases to get better deals down the road.

You mean like all those people that hold off buying electronics and computers because they will be cheaper next year?

[Nervous Tick]

>> It should be clear to anyone that consumers individually, and an economy collectively, benefit from lower energy prices.

Plus, low energy prices really tweak the enviroweenies. That’s fun to watch.

Good article but I wish he had included in his analysis inflation/deflation vis a vis cash/debt. I think that’s an important part of the calculus.

[thackney]

Thanks for posting. I had not read that take before.

[I want the USA back]

“deflation” = rising purchasing power of the dollar. How is that bad?

It’s not bad, but some people with degrees in economics think it’s bad.

It’s good because it retains and possibly increases the value of savings and property.

[baltimorepoet]

I see a potential problem with oil prices going down... high enough oil prices would have driven up the cost of transporting goods from overseas and reduced some of the outsourcing... leading to jobs coming back here.

I wonder if lower transportation costs will lead to more outsourcing and more imports?

[smokingfrog]

The drop in oil price seems to be dragging down the stock market too. I guess the Saudis will have less money to invest?

[Organic Panic]

The gooberment is salivating over the low gas prices. They can’t wait to add new gasoline taxes while we are still use to $4 a gallon.

[RayChuang88]

The oil speculators should have seen the warning signs when China and Russia signed that US$400 billion natural gas (and eventually petroleum) development deal that may encompass new gas and oil fields in eastern Siberia. As such, speculators are dumping oil like crazy because of the fear that OPEC may within the next 20-25 years lose most of its sales to its two biggest customers, the USA and China, which will create a gigantic glut of oil on the open worldwide market. And it doesn’t help that increasingly strict fuel economy mandates for motor vehicles worldwide could result in a levelling off and possible decline in sales of gasoline (petrol) and diesel fuel.

[Norseman]

I think he mis-states the case. An overall deflation slows the economy primarily because wages are notoriously sticky on the downside. It’s far too difficult to get the existing labor force to accept individual pay cuts, so instead businesses facing lower sales (due to deflation) cut workers instead of wages.

This leaves the ones still working better off because they still have pre-deflation wages to buy deflated goods, but the layoffs drive employment down aggravating, or prolonging, what is already usually a monetary-induced recession.

The last time we experienced this we had the Great Depression. We really don’t want to go there again.

A drop in oil prices is good because it frees up personal resources, but the spending of those resources on other goods will drive up the prices of those goods, offsetting the effect on overall prices. It’s not deflation, but a repricing of goods relative to one another.

[vpintheak]

I have talked to a few people, and most of them agree that most economists are socialists.
I don’t take anything they say seriously unless I know them personally or hear from a trusted friend that an economist is not a socialist.
Until then, they can all pound sand.

[Riflema]

My paternal grandfather loved through 3-4 years of deflation in the 30's, nice since his wages declined at a slower rate.

But the problem I think Schiff alludes to is in demand for big ticket items. Why build new plant, if you can squeeze another year out of the old? Likewise, new trucks, new earth-moving equipment and all the rest. Suppressing demand like that quickly gets into a deadly spiral downhill.

But then again, I'm not an economist.

[Mr. Rabbit]

Inflation is great if you’re a debtor. Just let inflation reduce the value of your debts. Which is why the U.S. government loves inflation and fears deflation: $18T debt. It’s also why interest rates aren’t going up significantly any time soon as long as Uncle Sugar can help it. High interest rates will be a disaster with $18T in debt.

[Smokin' Joe]

They forget that falling prices also mean falling costs and increased sales, which lead to higher profits, more capital investment, greater production, and higher real wages. Henry Ford succeeded, and his workers prospered, not because he raised prices, but because he lowered them. Cheaper Model T's did not impose a burden on the public or compel Ford to lower wages.

Perhaps Ford isn't the best example. Ford paid his workers well enough they could afford what they produced. That got the vehicles out of the lot.

Businesses can't long endure the squeeze between increased (or even static) labor costs and falling revenues. What other costs will decline?

I don;t expect electricity costs to decline much, because of the plants going off line. Natural gas will be cheap until the wells producing now deplete, and natural gas wells in general and horizontal wells in particular have steep depletion curves.

Ford did not have to deal with the EPA, OSHA, or any of a number of alphabet soup agencies that can effectively shut a business down, nor an insane regulatory climate.

Ford couldn't have been sued because someone (in a 'protected' group) got their feelings hurt.

As for greater production, (yes, the oil industry built that), aside from the oil industry and related spinoffs, who is building what that doesn't depend on government contracts? (where the real winners and losers will be decided in a deflationary environment).

I don't see the current situation fitting a model from a century ago.

[1010RD]

Ping to a deflation argument.

[ArcadeQuarters]

If your primary source of income is to skim the wealth that others create, then you benefit from high prices and the mindless consumption of others. If you’re actually productive, then lower prices and frugal spending raise your standard of living.