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

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 Friday March 29 2019, @12:06AM

    by khallow (3766) Subscriber Badge on Friday March 29 2019, @12:06AM (#821583) Journal

    Let's be very clear that this site is anti-empiricism and therefore anti-scientific methodology.

    They talk a great game, but they resort to empiricism all the time. As to being anti-scientific, it's worth noting that there are numerous commonly used truth-seeking methods out there which aren't scientific such as philosophical methods, markets, and tribunals. The Mises approach checks off the first one.

    But if you read the Mises propaganda, it becomes clear that the objection is not merely to bad interpretation of statistics, but rather a complete rejection of empirical methodology. They try to couch it in terms to make it sound sometimes less than that, but what it boils down to is that the Mises philosophy is about accepting economic "axioms" that are beyond the realm of doubt, and then simply asserting that economics must run by them. You can never question them. You can never disprove them.

    While I agree that the Mises approach is fatally flawed on that basis, it still remains that they can talk, think, and argue about some interesting things which we can then discuss using better approaches. Makes it SN territory as a result.