Reposted without comment. Is deflation good or bad? You decide. In the red corner, repeating the “20 years of deflation” myth (prices did not fall for 20 years in Japan; they were flat. The evidence is here):
“We should first make sure that Japan exits from 20 years of deflation,” said Hiromi Yoshida, acting secretary-general for the LDP upper house caucus, urging Abe to remain focused on the economy.
via Abe bracing for spring storm- Nikkei Asian Review.
And in the blue corner:
What is it with this perennial fear the chief money printers have of falling prices? Not that we are likely to see it happen, but if it does, what of it? Bloomberg reports on the recent ECB decision with the following headline: “Draghi Says Deflation Danger Should Abate as Economy Revives”
The headline alone is a hodge-podge of arrant nonsense. First of all, ‘deflation’ (this is to say, falling prices), is not a ‘danger’. Speaking for ourselves and billions of earth’s consumers: we love it when prices fall! It means our incomes go further and our savings will buy more as well. What’s not to love?The problem is of course that when prices decline, the ‘wrong’ sectors of society actually benefit, while those whose bread is buttered by the inflation tax would no longer benefit at the expense of everybody else. But they never say that, do they? Has Draghi [or Abe, Ed] ever explained why he believes deflation to be a danger? No, we are just supposed to know/accept that it is.
… ‘Inflation’ is not the same as ‘economic growth’ – on the contrary, it both causes and frequently masks economic retrogression. …As Austrian economists have long explained, it is simply untrue that prices must rise for the economy to grow. Consumers obviously benefit from falling prices … All of us can easily ascertain how beneficial the decline in computer prices, cell- and smart phone prices, prices for TV screens, etc. is. Naturally, it would be even better if all prices fell, not only those on a select group of consumer goods.
What about producers? Won’t they suffer? By simply looking at the share prices and earnings of the companies that make all the technological gadgets the prices of which have been continually declining for decades, everybody should realize immediately that the answer must be a resounding NO. This is by the way not only true of the firms that are in the final stages of the production process, i.e. the stages closest to the consumer. It is obviously also true for the firms in the higher stages of the capital structure. But why? It is quite simple actually: prices are imputed all along the chain of production. What is important for these companies to thrive are not the nominal prices of the products they sell, but the price spreads between their input and output.
In fact, the computer/electronics sector is the one that comes closest to showing us how things would likely look in a free, unhampered market economy.
