The New York Times sums up a standard bit of economic propaganda about the dreaded downward spiral of deflation we are all supposed to fear:
The Fed has also become more concerned about the sluggish pace of inflation. Prices rose at an annual pace of just 0.8 percent in the second quarter, according to the Fed’s preferred measuring stick, a measure of inflation compiled by the Bureau of Economic Analysis — well below the 2 percent annual pace that the Fed considers healthy. Low inflation can cause problems, although Mr. Bernanke recently noted that the reasons were “hard to explain to your uncle.” The primary cause for concern is the risk that prices will begin to fall, which can plunge the economy into a debilitating cycle of deflation as prospective buyers wait for prices to fall even further.
The Times does a perfectly good job of explaining in a single sentence the reason we are supposed to fear deflation. If your uncle isn’t buying it, though, it’s just because he’s just not a completely gullible fool. And if he is buying it, it’s either because he is a gullible fool or because he has been well indoctrinated with a higher education.
Let’s think about this for half a moment. So, we are told to believe, if prices don’t continually increase, but instead tend to fall, then people will stop buying stuff because they will want to wait until prices fall even further, and this decrease in demand will in turn cause prices to fall even further, and around and around this vicious cycle will go, such that nobody will ever buy anything and the economy will just totally collapse in an apocalyptic downward spiral of deflation.
We are supposed to not regard this as complete and utter nonsense. And if it doesn’t make any sense to you, you are supposed to believe that is just because it is over your head, and you, like your uncle, just aren’t educated enough in economics to be able to comprehend it. Of course, the good folks at the Times know well enough not to question whether the emperor is wearing clothes.
Does this make sense to you? Can you perceive any fallacies in this thinking? Comments are open!