No, Deflation Is Not A “Danger”

No, Deflation Is Not A “Danger”

Submitted by Pater Tenebrarum of Acting-Man blog,


Euro Area TMS-a

The euro area’s true money supply since 1980. One can only shudder at this depiction of ‘deflation danger’ in action – click to enlarge.



What about prices though? Let’s have a look-see:



HCPI-LT-wow chart

Since 1960, there was exactly one year during which prices according to the ‘CPI’ measure actually fell, namely in 2009, by a grand total of 0.5% – click to enlarge.



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 (only Keynesian like Paul Krugman don’t realize that, as their thought processes are evidently unsullied by logic and/or common sense). 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.

Of course, in said free, unhampered market economy, Mr. Draghi and a host of other central planners would have to look for a new job.

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