The Deflation Bogeyman

We're supposed to be afraid of our cost of living going down? Having the purchasing power of our dollars robbed is supposed to be good for us?

Pretty much whenever you read about the possibility of deflation in the media, the key takeaway is how disastrous it would be for that to happen.

Here’s from a recent New York Times article, for example, on the supposed “austerity” policies of European countries:

Germany, economists say, is effectively combating a phantom: The real threat is not inflation, but the opposite — deflation, or falling prices. When prices are dropping, that means demand for goods and services is weak, and that reduces the incentive for businesses to expand and hire.

Now, if we are good little media consumers, we will just accept this without question. I, however, am not very disciplined, and regard it as utterly ridiculous. My retorts on Twitter:

The notion is worthy of ridicule. I’ve mocked the horrors of deflation before. In another post on the dreaded downward spiral of deflation, I noted:

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 … 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.

So why are we supposed to believe this nonsense about how a lower cost of living would be bad for us?

Well, Paul Krugman offers a clue. He asserts that “a falling price level is a bad thing”, but that inflation, on the other hand, is good for us.

These aren’t the droids you’re looking for…

Krugman’s Jedi Mind tricks are intended to manufacture the consent of weak minded fools for their own servitude. The Federal Reserve’s inflationary policy robs the poor and middle class of the purchasing power of their dollars and serves to transfer wealth upward.

It also causes misallocation of resources in the market. Paul Krugman advocated inflation to “solve” the problem of the recession that occurred from the bursting of the dot-com bubble, with the specific stated goal of fueling a boom in housing. And we’ve seen how that turned out…

But never mind. These aren’t the droids you’re looking for….

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