Falling Prices Are the <i>Antidote</i> to Deflation

Ludwig Von Mises Institute ^ | January 14, 2009 | George Reisman

[dbz77]

A disastrous economic confusion, one that is shared almost universally, both by laymen and by professional economists alike, is the belief that falling prices constitute deflation and thus must be feared and, if possible, prevented.

The front-page, lead article of The New York Times of last November 1 provides a typical example of this confusion. It declares:

As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.

The word for this is deflation, or declining prices, a term that gives economists chills.

Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan's so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament.

[WheresMyBailout]

The next yahoo that says that Japan was in deflation during the 1990s needs to take a look at the historical value of the yen. The yen hit its peak in the EARLY 1990s.

[familyop]

Deflation is the antidote to anti-American, pro-communist business practices and moral bankruptcy. Bring it on.

[mjp]

Economic freedom and economic recovery both require that prices and wage rates be free to fall and that all legal obstacles in the way of their falling be immediately removed.

[sten]

prices are falling as demand wanes and supply outpaces current demand by producing at the old levels. supply will pile up, pushing prices lower... until businesses cannot take it any longer and start to falter.

a few businesses will go out.. and eventually the supply will be depleted, but with the number of businesses reduced, the remaining businesses will start to jack up prices to cover costs, recoup losses during this time, and then take advantage of their dominant roll.

just ask china how that all plays out... they are finding out now

[stevem]

Most of my pay is commission and has been since I started my current gig more than seven years ago. I took an incredible beating at the start with the promise of good things in the future. There hasn't yet been a quarter such that I have made less money than the previous quarter. These days I'm doing better than not bad.

I don't deal in physical "things." I fully expect my income to continue rising for the forseeable future. I find the idea of falling prices to be glorious.

[CottonBall]

I find the idea of falling prices to be glorious.

It is - in the short term. I have to admit that in my ignorance, I fear hyperinflation much more than deflation. But I know I don't have the big picture either. Something to do with deflation causing job losses, like the 25% range during the last depression. And also causing wages to decrease for those that have jobs.

Since we're older and have money socked away, we'd do better under deflation (IMO). But younger folks certainly won't.

I'm just hedging all bets and preparing for both scenarios, although they are diametrically opposed.