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Central Banks Shouldn't Fight Deflation

posted by martyb on Thursday March 28 2019, @01:05PM   Printer-friendly
from the should-not-embrace-deflation-either dept.

saturnalia0 writes:

Currently we can observe a general slowdown in the annual growth rate in price inflation across major countries around the world. [...] Most commentators are of the view that deflation generates expectations for a decline in prices. As a result, it is held, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the economic slump.

Inflation is not about general increases in prices as such, but about the increase in the money supply. [...] For instance, if the money supply increases by 5% and the quantity of goods increases by 10%, prices will fall by 5%. A fall in prices however, cannot conceal the fact that we have inflation of 5% here because of the increase in money supply. The reason why inflation is bad news is not of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process.

The economic effect of money that was created out of thin air is the same as that of counterfeit money — it impoverishes wealth generators. The money created out of thin air diverts real wealth towards the holders of new money. [...] So, countering a falling growth momentum of the CPI by means of loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation and hence for the economy. [...] Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth, then this should be seen as good news. The less non-productive bubble activities the better it is for the wealth generators and hence for the overall pool of real wealth.

https://mises.org/wire/central-banks-shouldnt-fight-deflation

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  • (Score: 1) by khallow on Thursday March 28 2019, @11:29PM (1 child)

    by khallow (3766) Subscriber Badge on Thursday March 28 2019, @11:29PM (#821562) Journal

    Inflation is also a way to discourage hoarding. Use it, or lose it.

    The point is that you're losing wealth even on stuff that is used well.

    That's not a bad thing.

    Unless, of course, it is a bad thing.

    Another effect is that it also reduces the value of debt, as well as savings, and that rebalances wealth.

    Why should we "rebalance" wealth?

    Better to stop the various unfair practices that so many wealth hoarders use, stuff like cheating their employees of pay, dumping the costs of cleanup on the public, bribing politicians and officials to give them sweetheart deals and go easy on enforcement, and to tinker with the laws yet again to favor them a little more, and a little more.

    I don't know about your country, but in my country, there's be a lot more dead bodies in the workplace, if they could get away with a lot of this stuff. And not seeing how inflation will help even a little with that (particularly, "making up for the cheating").

    Nonsense. If inflation is guaranteed to be some fixed amount, whether 0%, 2%, or 10%, for a long time, that makes certain aspects of the future extremely predictable.

    Inflation is not guaranteed to be anything for most countries. Supposedly the EU central bank tried using a formula, but they were having trouble with people anticipating their moves.

    One of the biggest cheats of the American public is the gas tax. That should have been a percentage amount. Instead it is a fixed amount per gallon. Been that way since gas was first taxed. Every so often it was raised, to adjust for inflation. But now, federal gas tax has been 18.4 cents per gallon since 1993. Hasn't changed in 25 years. So of course inflation has been steadily eroding the real value of the gas tax. The oil companies and policy makers knew very well what they were doing. Big Oil counted on inflation to give them a huge tax break that they should not have had. And they got it.

    Well, I did note that the logistics of inflation was a problem.

  • (Score: 2) by Reziac on Sunday March 31 2019, @02:43PM

    by Reziac (2489) on Sunday March 31 2019, @02:43PM (#822722) Homepage

    All I've ever seen inflation do is raise my costs faster than I can raise my prices (and since I'm at the discretionary-spending end of the market, also results in fewer customers), and degrade the value of my savings, so I have less future purchasing power (that's what savings are, really). IOW, inflation makes me poorer, both now and in the future.

    That's the realworld effect on this sample of one, regardless of what gibberish banks and economists use to explain it.

    --
    And there is no Alkibiades to come back and save us from ourselves.