Whether it be academic laziness or just plain ignorance, too many people use a litmus test of sorts for any given topic and can’t be bothered to consider nuance.
This is particularly true when the masses have been conditioned to equate certain words with bad things.
Russian equals bad, even though, for example, removing Russian goaltenders from the NHL would strip the league of most of its top netminders.
Chinese equals bad, even though most of our economy relies on cheap Chinese products.
Donald Trump could walk on water and it would be bad because he’d just be proving he can’t swim.
Forget redeeming values, there are no shades of gray when it’s a litmus test, applied with animus. Bad is bad.
And so it is when we move to the economic front that deflation is bad, no doubt about it.
Not so fast, demand curve breath.
Let us begin with basic definitions. Inflation is an increasing money supply and credit. Deflation is a decreasing money supply and credit.
The symptoms of these things have come to be synonymous with the situations, as in inflation of the money supply often gooses demand and leads to supply shortages, in turn producing rising prices.
So, to many, inflation is rising prices, not the symptom of an underlying cause. Think of it in a health sense. A person has a fever because they have the flu, but the fever is but a symptom of the actual illness.
Similarly, while deflation is a decline in money supply and credit, it tends to produce falling prices and this price phenomenon has come to be taken as the definition of the term by too many.
Part of the deflation-is-bad mantra stems from the reality that our financial overlords, those wizards behind the curtain charged with keeping a complex, debt-ridden economy functioning, have no levers to pull to cure it.
Inflation is a boon to debtors, allowing them to pay back those debts with money that is worth less with each passing day.
But debtors get crushed in a deflation. The difficulty earning or borrowing money makes existing debts all the more onerous.
This nation’s so-called Great Depression of the 1930s was a deflationary event, which defied the best efforts of Franklin Delano Roosevelt to spend us back to prosperity with various government programs.
It can be argued that only the onset of World War II, and the inflationary trends that produced as nations spent beyond their means to win at all costs, brought the depression to an end.
The current crop of movers and shakers doesn’t want to rely on World War III to cure economic malaise, for obvious reasons, so their response to any economic difficulty is to flood the system with money. Inflate or die.
It happened in 2008, on a huge scale, and again during the COVID idiocy.
Eventually we will be called to pay the piper for that fiscal insanity, but not yet.
The thing about deflation is that not all should fear it. If you end up paying less and less for food as time rolls by, it would be a good thing.
The same is true if housing, automotive or energy costs suddenly did an abrupt 180-degree pivot and began going down month after month, year after year.
Consumers should embrace deflation. But our masters say deflation is bad, so the mantra from the masses is to parrot that.
Repeat after me: Deflation bad!
Sam Ross Jr's site 