Crisis in Prices? (Deflation Alert)

New York Times ^ | 12/31/02 | PAUL KRUGMAN

[Heartlander2]

Some fuzzy math: In the first 30 days of December 2000, according to Nexis, only six articles in major news sources contained both the word "deflation" and the phrase "United States"; none of those articles suggested that deflation in this country was a real possibility. In the same period last year there were 292 hits; this past month there were 566.

Will deflation be even more on our minds a year from now? About five years ago economists realized that monsters from the 1930's were once again walking the earth: Japan, the world's second-largest economy, was trapped in a cycle of falling prices and rising unemployment. But not many people in the U.S. cared about the woes of a faraway country. Like big-time corporate malfeasance, deflation didn't seem like something America had to worry about.

But like corporate malfeasance, deflation has turned out to be something that can happen here. It's by no means a foregone conclusion: Federal Reserve officials assure us that they can and will steer us away from a Japanese-style black hole. But we're close enough to such a black hole that it's already warping our economic space.

Here's how it can happen...

[Huck]

Jude Wanninski has been talking about it for at least 4 years now, to the best of my memory.

[2timothy3.16]

So, to try and put this in a light that I can understand, if I were thinking of buying a hundred acres or so of raw land in a rural state like Maine, should I buy now or wait a year?

Second, if I were thinkinkg of say buying a new diesel pickup, 35 k range, would I be better to wait or take advantage of 0 interst for 60 months now?

[Cicero]

Maybe so, maybe no. But Paul Krugman is a jerk, whose sole purpose in life is to rail at conservatives, businessmen, and Republicans. He has picked up this idea from others and thinks it might be another useful tool to bash Bush with.

But notice that he has repeatedly knocked Bush for his tax cut, although that was probably the best thing Bush could have done in the circumstances.

[SolidSupplySide]

Jude Wanninski has been talking about it for at least 4 years now, to the best of my memory.

But according to the New York Times supply siders are idiots who practice witchcraft. How in the world could they have identified deflation in 1997, predicted the tech bubble with that information, and subsequently predicted the rash of bankruptcies following the bubble burst? I mean, supply side economics doesn't work, does it?

[The Obstinate Insomniac]

Is there a correlation between the number of predictions of doom and gloom and the occurrence of the prophesized catastrophe?

[johniegrad]

No. The correlation is between the number of predictions of gloom and doom and the party in office.

[The Obstinate Insomniac]

good point

[Mitchell]

This possibility is discussed extensively in the series of books by James Dale David and William Rees-Mogg. It's been a while since I've read them, but I thought the most interesting was "The Great Reckoning." This goes back to at least the early 1990's. There a probably hints of the question of deflationary depression in Davidson's even earlier book, "The Squeeze," from 1980.

[Mitchell]

Sorry, that's James Dale Davidson, not James Dale David.

[rohry]

One word answer?

Wait...

(but it might take more than one year for this to play out)

[sinkspur]

The dollar is dropping against the Euro, making imported goods more expensive. That's inflation.

There's no deflation now, and there won't be.

[garbanzo]

Also, the black hole metaphor can be pushed too far; as Mr. Bernanke points out, the Fed has other weapons in its arsenal besides low interest rates. The policies he describes haven't been tested, but in theory they should work

Hmm...I note that (from Drudge) gold prices are up 20% this year...

[ex-snook]

"The correlation is between the number of predictions of gloom and doom and the party in office. "

LOL Both happy-faced parties in the last election saw super economy, balanced budgets with tax cuts and unlimited spending for as far as the eye could see. The price of excluding Buchanan with his thoughts on the economy and foreign affairs from the Presidential debates has been problems in both the economy and foreign affairs. Prophets tells us of gloom and doom we don't want to hear.

[freeper12]

Alan Greenspan wouldn't be talking about it so much, if it wasn't a very real possibility. Doesn't mean it will happen, but obviously he is seeing enough things that are making him nervous about it.

My own best guess is 70% chance it happens. China is one of the big reasons. Unbeleviably cheap labor, and an almost unlimited supply of it. As more and more companies move their operations over there, the rest are forced to if they want to compete. That causes US to lose jobs,so it makes it even harder to raise prices so competitors (i.e. walmart, sears, HD etc) keep cutting the prices to gain edge on competition...unfortunately, it is a race to the bottom.

[The Obstinate Insomniac]

Which election might you be talking about? It couldn’t the 2002 election and in 2000 I remember Cheney talking about economic problems and Gore and company criticizing him for talking down the economy.

[ex-snook]

"My own best guess is 70% chance it happens. "

Sinky may be right. Maybe too much debt around for it to happen peacefully. Perhaps just as likely we will need a wheelbarrow to carry around the paper.

[ex-snook]

The economy was not on the table in the Bush-Gore debates in 2000. Cheney's campaign solution was to get rid of Clinton which happened and the economy got worse. Hence, Clinton was not the problem.

[freeper12]

>>Cheney's campaign solution was to get rid of Clinton which happened and the economy got worse. Hence, Clinton was not the problem.


So if an arosnist breaks into your house and sets in on fire, you chase him out and the fire gets worse anyway, it wasn't the arsonist fault that the house burned down?

[johniegrad]

Reform Party loses matching funds
The Associated Press


WASHINGTON -- Undeterred, Pat Buchanan says he will keep moving his adopted Reform Party to the right even though his failed candidacy denies the party millions of dollars in federal matching funds for the 2004 presidential elections.

Buchanan, who received less than 1 percent of Tuesday's vote, said the party's major planks will include support for a ban on abortion, opposition to free-trade agreements, curbs on immigration and an "America First" foreign policy.

"I'm committed to the Reform Party and these ideas," Buchanan said in an interview. "They're going to be the core of the Reform Party agenda."

The poor showing by Buchanan, whose polarizing positions on social issues split the party, means the Reform nominee in 2004 will not get any federal campaign funds. Buchanan received $12.6 million in taxpayer funds this year, based on Ross Perot's showing in the 1996 presidential election.

Buchanan said he wasn't walking away from the party he fought so hard to lead after ending decades of membership in the Republican Party last year.

"This cause is not going to die," he told about 100 enthusiastic well-wishers Tuesday evening. "This cause is going to move forward. And this cause is going to be America's cause."

John Kenneth White, a politics professor at Catholic University of America, said he didn't expect the Reform Party to be much of a factor in the future.

"It can't rise again because it is so deeply divided, deeply split on social and cultural issues, deeply divided on what its mission is," White said.

Interviews with voters indicated that Buchanan supporters were mostly white, married, Christian and making less than $50,000 a year. Still, an overwhelming majority of anti-abortion voters and self-described members of the religious right voted for Republican George W. Bush, as did more than half of those who voted for Perot in 1996. The exit polls were conducted by Voter News Service, a consortium of The Associated Press and the television networks.

The Reform Party's signature issues under Perot either have disappeared or have been usurped by others. The budget is balanced and Green Party presidential nominee Ralph Nader campaigned against free trade and for overhauling campaign finance laws, though he also failed to get the 5 percent of the vote needed to secure federal funding for the Greens in 2004.

Perot, the Reform Party founder and two-time presidential candidate, endorsed Bush last week.

Buchanan said there was plenty of room to run as a right-of-center political party, beginning with the 2002 congressional elections. He said both Bush and Democrat Al Gore aimed for the political middle.

"You've got two guys crowding each other in the center," Buchanan said. "There's plenty of room on the flanks."

Reform Party Chairman Gerry Moan said Buchanan brought new people into the party.

"I think our demographics have gotten younger, bolder, more conservative, and we're going to have to build upon that coalition," Moan said.

Some of those who left the party because of Buchanan's candidacy wonder whether there is anything worth saving.

"It's a brand name," former chairman Russell Verney said. "If the brand name gets tarnished, you may have to step away from it."

Indeed, Nader, who ran on such traditional Reform issues as campaign finance reform and trade, may wind up as Perot's heir, suggested Jim Mangia, the party's founding national secretary.

"If his independent movement is going to grow, he's going to have to reach out to those center forces," Mangia said. "Is there room for the radical center in Nader's movement? Those of us who are left standing will be coalescing and discussing what we're going to do from here."