Falling Prices are the Antidote to Deflation

This is nothing but another scheme for something that no assurance. People need a permanent good and stable economy. The new government has lots of plan to establish, this also gives no assurance. Sadly, so many losers play the economy. Paradoxonomics are when good situations have bad results, such as if you avoid payday loans and end up getting a bounced check fee that ends up costing you more than you would have, had you just taken out the payday loan. Deflation is a similar thing – deflation within an economy is when the values of goods declines and the value of currency go up. However, there's a big downside: with deflation comes higher unemployment, as employers are forced to let go of employees in order to cut down on operating costs because revenues have fallen. There is good news, however, and that is that the chances of the recession leading to deflation are minimal. But the Feds say things will get worse before they get better, so in the meantime, payday loans can help if you have a financial emergency.

In 1930 Hayek predicted “monetary theory will not only reject the explanation in terms of a direct relation between money and the price level, but will even throw overboard the concept of a general price level” (1967, p. 29).

Yet this general price level is still with us. The 5 March 2003 edition of USA Today reports that, in the past year, prices for gasoline were up 29.3%, fuel oil 21.0%, health care 9.2% and tuition 6.3%, which is bad news because these are all fixed costs that working class Americans are committed to paying. But prices for personal computers fell 20.7%, information processing 11.9%, men’s clothing 3.9% and autos 2.8%, which is also bad news because information processing and the manufacture, marketing and service of computers, clothing and autos are where most people’s jobs are. So what is the response of mainstream economists? They report the arithmetic average of these numbers, 3.3%, and announce that “inflation is under control and there is no sign of deflation.”

Considering his strong words against price indexes (1966, pp. 219-223), if Mises has kept up on the affairs of the living with a posthumous subscription to USA Today, he must be rolling in his grave. This author also writes about this excessive tendency towards aggregation: “The assertion of mainstream economists that the average level of prices in an economy is a meaningful statistic has done more damage to their credibility than any other assertion they have made.... Such an average is not just ludicrous but it is definitionally without meaning, for one need only ask in what units the result is expressed and one has found a contradiction” (1999, pp. 144,149).

Opposition to an average price level belongs to the legacy of Mises, though it was Hayek who put the question to the English:

[I]f we have to recognize that, on the one hand, under a stable price level, relative prices may be changed by monetary influences, and, on the other that relative prices may remain undisturbed only when the price level changes, we have to give up the generally received opinion that if the general price level remains the same, the tendencies towards economic equilibrium are not disturbed by monetary influences, and that disturbing influences from the side of money cannot make themselves felt otherwise than by causing a change of the general price level (1967, p. 28).

Footnote: Did you hear the one about the three economists who went deer hunting? They spotted a deer standing fully broadside to them. The first economist raised his rifle and fired, just missing the deer’s rump. The second economist fired and sent his bullet zinging past the animal’s nose. The third economist did not fire but jumped up and down shouting “We got it! We got it!”

http://www.axiomaticeconomics.com/critiques/critiques14.php

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Shaka, you so crazy! www.sniperflashcards.com

This tells you how well informed our MSM 'Journalists/Analysts' are!

From Wikipedia:

"Deflation creates real value in money. Alternatively, the term deflation was used by the classical economists to refer to a decrease in the money supply and credit; some economists, including many Austrian school economists, still use the word in this sense.[2] The two meanings are closely related, since a decrease in the money supply is likely to cause a decrease in the price level."

http://en.wikipedia.org/wiki/Deflation

Deflation has always had its meaning within economics before the current geniuses in government, media, edu-macation, and elsewhere decided to bastardize its meaning in a conscious and unconscious effort to confuse...

Great article. Thank you for posting.

deflation needs to be avoided for the benefit of the financial "industry", and for no other reason.

when prices deflate (in other words, there's less cash, making it more valuable), that means it's more difficult for debtors to pay off loans, since it requires more and more work as time goes on to pay the same amount of debt, even at 0% interest. the result of this is people are more likely to save money, and less likely to borrow it, hence, banks make no money.

john maynard keynes was a whackjob. he used to say crazy things like "we need to reduce the amount of personal savings." pure raw numbers, and no concept of the humanity of such policies. i'm sure we'd save tons of money if we sent all the old people to carousel, except we're not [totally] a nation of deranged psychopaths.

with advances in technology, goods and services should cost less money over time to produce and distribute, provided we don't breed like rabbits and put unreasonable demands on our economy. it stands to reason that yes, prices should drop. and real costs actually do drop, even though our economy only sees this as prices staying relatively flat, or at least not keeping pace with real inflation.