Talk:Deflation/Archive 1

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Removals by Tacitus Prime

I'm removing

More certainly, large amounts of deflation are as destructive of economic health as large amounts of inflation. Severe deflations have been associated with severe recessions or depressions just as severe inflationary periods (or hyperinflations) have been associated with recessions or depressions.

It's not certain at all -- it's a reversal of cause and effect. Also counterfactual comments about people delaying purchases (Keynesian nonsense about consumption driving the economy, as well. Investment is what's important, duh!)

I put this back in and reworded it a bit. The section seems quite fair - both do harm. Small amounts do less harm, large more. I would be very interested to hear from anyone with an explanation of how this could not be true...? Please attribute your source so I (we) can do further reading and understand the reasoning if it isn't plain.
Claiming that people delaying purchases is counterfactual is interesting. How is this wrong? It seems common sense that people delay their purchases due to impending price drops all the time. I have done so with electronics myself, waiting until the price of something dropped to a reasonable level. -- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.
But you buy sooner or later, yes? Why not keep waiting -- it's only going to get cheaper!? You provided the answer yourself: you wait until the price drops to "a reasonable level" - implying that you wouldn't have bought at all at the old price (or higher). I.e., you're not delaying the purchase because of deflation, you're making the purchase because of deflation; in a non-deflationary world, you'd have "delayed" (not purchased) forever! (Unless your idea of "reasonable price" changed, but "deflation" is not an issue then) Tacitus Prime 04:11, May 6, 2004 (UTC)

I'm removing this, too:

Any time consumers spend less, they have to put their money somewhere. In deflationary times, it makes sense for them to pay down their debts and increase their cash (or cash-equivalents like bank deposits) reserves. Economy-wide, this can be an unhealthy when it locks up capital (good economic investments are unfunded). Or, it can be a healthy adjustment if consumers had too much debt or insufficient savings to cover temporary income (job) loss.

Again, it's nonsense: in deflationary times, people need less money, so they're not going to increase their cash holdings.

I have moved this down and reduced the size somewhat to reduce the contention about it. It does deserve to be said that typically people reduce debt during deflations because that makes financial sense. -- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.
Why? Interest rates (try to) take inflation/deflation into account, so there's no particular reason why debtors should be worse off in a deflationary world; interest rates would just be lower. In any case, reducing debt doesn't mean increasing cash holdings -- the money goes to pay down the debt; after that, extra money may go into consumer spending, or investment... Tacitus Prime 04:11, May 6, 2004 (UTC)

This next is just bad wording:

Most adverse effects of deflation are arguably due to rigidities in the economy: If wages, prices and interest rates adjusted seamlessly and predictably to deflationary expectations, they would have no real economic effects.

What is this "rigidity"? If it exists, it's caused by government policy, not the "economy".

Rigidity is the inablity due to entrenched financial interest to adjust to different circumstances. I have returned this paragraph and explained further.-- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.

I changed "positive effect" to "negative effect" -- the intention of the stated policies is to prevent deflation, i.e., to negate it, not to increase it. The use of the word "positive" was clearly intended to imply that deflation is a bad thing, not that the effect is to drive it, but that's NPOV if anything is.

I fixed this to be "Other government policy changes that can reduce deflation include:" which is better wording. Thanks... -- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.


I removed

It is obvious that extreme deflation can cause serious economic side effects (a kind of vicious circle known as a deflationary spiral). However, inflation is also obviously quite bad, with serious side effects itself.

for two reasons: (1) it isn't obvious at all, and (2) it's blatantly untrue -- a "deflationary spiral" can only occur until the supply of credit money has been sopped up: the supply of "real" money is a limiting factor. Unlike an inflationary spiral, which can go on effectively without limit.

Maybe with 50 or 100 more years of good economic statistics gathering, the answer to this will be known.

The answer is known. Some people just don't like it -- they're the ones with the non-neutral POV.

I would love more info on what you mean by credit money and 'real money. Please don't say that real money is Gold, this might brand you as a bit of an economics fringe element (nothing personal, I just believe that a very few people would actively advocate for a return to the gold standard).-- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.
I assume [s]he means by "credit money" money that is not backed by existing Federal Reserve notes (in the US case); that is, fractional reserve banking means banks lend out far more money that actually exists - that is "credit money" (but correct me if that's not what you mean, anon). In the event of a "bank run", that money isn't available to be paid out (unless Bernanke starts running his presses on overtime - but then it would eventually end up back in the banking system forming new reserves for an unprecedented inflation!).
As for "very few people would actively advocate for a return to the gold standard", anyone who actually understood the issues (and wasn't actually evil) would ... even Alan Greenspan did, in 1960! Tacitus Prime 03:00, May 6, 2004 (UTC)

There's still a lot wrong with the article (e.g., the price of cars falling is not deflation! Deflation proper is a fall in the money supply, but price deflation means a general fall in prices, not just the price of cars falling! During deflation, the production costs of the cars will be falling as well, so the factory can still make a profit) 218.101.88.104 05:53, 5 May 2004 (UTC)

I believe the link to 'Myths about Deflation' site is NOT NPOV. This site advocates for the return to the gold standard, which is very much NOT mainstream economic thought, regardless of it being true or not. Since it is under debate if Gold Standard policies are good/bad, I'm okay with the link, but we need to forewarn people that this site is not NPOV somehow.-- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.
I very much agree that this article could well be improved further. While I am quite literate in general economics, I'd welcome any professorial perspective on this topic, with historical perspectives, advancements in monetary theory, current Federal Reserve Board policy, perspectives from Japan and throughout Asia after their currency crises of 1998, etc. -- user:Justanyone | talk Wednesday 5 may 2004 1:38 pm CDT.

As a practicing economist who lived through 68 straight months of falling (year-on-year) consumer prices, I can tell you that large amounts of deflation are as destructive of economic health as large amounts of inflation. People do delay making purchases (the bigger the ticket, the longer the delay) because they know that it will be cheaper, later. My real world experience is in Hong Kong. DOR (HK) (talk) 05:52, 4 June 2008 (UTC)

Good economic things to do

These are all problematic. A lot of these are "good economic things to do" but most of them don't have anything to do with deflation.

  • Reduce the value of the local currency (makes it cheaper)
    • Imports inflation by increasing the cost of imports.
    • Reduces the yield from savings.
  • Increase government spending
    • Makes up a shortfall in consumer spending with government spending.
    • Wisely spending on infrastructure like roads, bridges, water/sewer, electrical, etc., can enable quicker economic growth as well as providing jobs and solving needs;

Other government policy changes that can reduce deflation include:

  • Improve public safety
    • Safe and happy populations buy more goods, work harder, are more efficient workforces, etc.
    • Money spent on safety is, in a sense, wasted; it is capital not spent in a way that generates economic growth;
    • Money transferred during crime is often inefficiently allocated;
    • Many crimes causes damage to capital goods or service capabilities, reducing economic growth potential;
  • Improve bankruptcy laws
    • When businesses fail, they trap business assets including both the physical plant and monetary assets;
    • Business assets being well-deployed is vital to economic growth;
    • Bankruptcy laws dictate how assets of failed businesses are sold off to pay creditors;
    • Creditors have a portion of their cash back and can use it for economic growth;
    • Bad bankruptcy laws trap business' physical assets and creditors cash in limbo until a court settles things
    • Good bankruptcy laws make very clear how courts should decide ownership of a failed company's assets, increasing economic turnover and enabling good growth.
  • Improve property ownership laws
    • Reduce tight restrictions on real estate property sales preventing efficient transfer of property to where it's more useful and thus increase economic growth;
    • Reduce limits on foreign ownership of certain asset classes (real estate, corporate stock, food- or defense-related industries, etc.), preventing foreign transfer payments (investment) from buying up and exporting excess capacity or capital equipment. This turns excess capacity directly into growth-inducing and inflation-producing cash, and thus is a very effective tool;
    • Engage in trade agreements that reduce mutual tarrifs. This increases exports, and reduces excess domestic capacity;
    • Solidify laws surrounding private ownership. Some former communist countries do not have clear laws on private ownership, which leads to highly inefficient allocation of capital, reduced foreign investment, etc.
    • Improve contract laws so transfers of property during a execution of a contract is very predictable and reliable;
    • Improve both criminal and civil justice systems: court systems that are predictable, just, fair, ethical, and reasonably quick can improve economic growth very quickly.
    • Improve government transparency: money wasted by corruption or fraudulent government activities like confiscation of private property stifles growth and drives the economy ;
    • Reduce government red tape: if there are complex procedures required to create any new business, even a small one, prevent economic growth;
    • Reduce incentives for captial flight by creating a predictable business policy environment. Capital flight is wehre money is sent out of the country for safekeeping, reducing capital available to grow the economy.
  • Loosen labor laws to enable businesses to:
    • freely reduce their workforces (lay off or fire workers) to quickly adjust their capacity to the demand;
    • easily fire inefficient, incompetent, and/or unethical workers;
    • change workers hours such that a factory can work multiple shifts, using physical capital more efficiently and generating growth;
  • Tighten some business regulations:
    • Force businesses to state their real assets and liabilities, so companies that should be bankrupt can be seen and either bought out or forced into liquidation;
    • Better environmental regulation may reduce production capacity by taking inefficient and polluting equipment offline;
    • Simplify and/or fine-tune tax collection to enable government to receive a more fair share of the income from business activity and use it for transfer payments (to needy people) or growth projects;
  • Increase interest rates (if interest rates are already at zero, during extreme situations) (NOTE: this is a controversial tactic)
    • Deflation is caused by excess capacity.
    • Reducing capacity forces reduction in supply, redistributes production capacity to new (more efficient) uses.
    • Raising interest rates raises cost of capital
    • Fragile businesses fail, reducing capacity.
    • Fragile consumers who had high debt burdens go bankrupt, forcing redistribution / write-off of bad debt; money moved to more productive uses;
    • Banks are forced to write off bad loans & improve loan-giving decision making;
    • Overall credit quality improves, driving capital to on-average-better performing areas, inducing growth.

I agree--Confuzion 03:23, 14 May 2004 (UTC)

A bit unwieldy?

I think this article has grown a bit upwieldy, esp. the tools to fight deflation - the government policy stuff could go on forever if you really wanted to; but I don't really know how effective they are, relatively - also, they may be easily summarized as 1. stimulate economic growth 2. increase consumer confidence 3. legislation to improve capital/labor allocation

Also, is the following statement accurate? I thought that, for the most part, the US economy was mainly, if not completely, still in a mild inflationary state during 2001 to 2004... does anyone actually have facts to back up the statement below about US deflation from 2001 to 2004?--Confuzion 03:22, 14 May 2004 (UTC)

Minor deflations: Throughout the nations' history, inflation has approached zero and dipped below for a short time (negative inflation is deflation). This was very common in the late 1800's, and even more recently in 2001 through 2004.

Rubbish! The US (and pretty much the whole world) has been inflating massively for years. What are you using to determine recent deflation? The CPI? That's a useless measure, well known to undercount inflation.

Removed statement about recent inflation. From above, I was just questioning why that statement was placed there as I also had doubts about the statement; I did a quick lookup, and according to http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp the statement seems to be incorrect - from the inflation table, the lowest monthly inflation between 2001 and 2004 was June 2002 at 1.07%; no deflation appears in this timeframe, not even for a single month--Confuzion 09:41, 20 May 2004 (UTC)

This statement is inaccurate: "decrease in the money supply (the M3). If there is less money, each unit of currency becomes more valuable, and this is deflation. When an economy contracts, production is too high and must fall to meet (decreased) demand. However, the capacity to produce often remains the same for a while."

A decrease in the money supply does technically make each unit of currency more valuable but it also must be noted that wages go down at an amount that is equal to the money supply contraction. For instance, if the money supply is cut in half, prices are cut in half but so are wages. Therefore, each unit of currency technically becomes more valuable, but a consumer's spending power will not be increased. I'm changing this statement. --Dissipate 22:17, 23 Jun 2004 (UTC)

Overhaul?

This article needs a complete overhaul. It is very confusing because it does not distinguish between the different types of deflation. If deflation is defined to be a cause (general decrease in prices), all the main causes must be clearly stated. I'm working on an overhaul, it should be done in a few days. --Dissipate 03:48, 24 Jun 2004 (UTC)

Removed paragraph, June 2005

I took this out of the article:

In truth, Joe's bank doesn't really like this situation, either. Since Joe is effectively paying more for the loan, the probability is much higher that he will default on the loan, which pushes up costs for the bank significantly. Contrary to popular belief, a foreclosure is often a net loss for a bank.

Seriously, this contradicts the paragraph immediately prior to it, and it is hardly a solid economic argument. What this is saying is that bankers dislike an opportunity to charge people higher real interest rates. - Nat Krause 05:37, 14 Jun 2005 (UTC)

I assume these posts are left so that debates are not restored in the future. The removed quote is actually correct. Assume a bank has a deposit for $10 which is subsequently loaned out. If deflation occurs and the borrower defaults, only paying back $8, the bank's equity holders are left to foot the other $2 owed to the depositor. Not only does the bank owe $2, but the $2 is worth *even more* because deflation has occured. daleyc 2/6/07

POV?

"Bills and coins now account for less than 5% of the money supply. The printing press is therefore nowadays an ineffective mean. Bernanke, a board member of the US central bank, has made the case that the US central bank (Fed) was ready to drop money from helicopters, finance on a large scale the federal deficits. However this policy has never been implemented so far on a large scale, probably because it is blatantly inflationist and because it hurts all those who profit from the lending business."

Is this not POV? It's confusing in any event. Can someone who knows more than me make an attempt to clean this up? Aplomado 01:49, 1 March 2006 (UTC)

I don't think it is POV. THis is basic facts. I could have written, the printing press and market operations are now ineffective means to boost money supply, I could have written, the central banks are now minor players in the money creation scheme, as soon as the credit bust happens, they will be for a while completely powerless, just as in the 30's, and precisely for the same reasons... I think may be the point should be spelled out more clearly. MOnetary authorities have not created enough money over the last 50 years and have prefered to manage through interest rates the rate of private money creation (credit), now they have turned themselves into minor money creators and will prove powerless when credit bust finally happens. Or sth like that. I'll work on sth better some time.

Edits to 'Effects of Deflation' section

March 5, 2006: The original intent of my edit today was to correct this run-on sentence in the 4th paragraph of the 'Effects of Deflation' section:

Improving production lowers the price of goods, and population growth is faster than a slowly-growing money supply, from mining precious metals, means that there is less and less hard currency per person.

However, as I got into the task of editting, I recognized another problem with that paragraph: It conflated two independent causes of deflation. Specifically, it claimed (in the context of a hard-currency economy) that deflation requires "reduction in money stock per person" to be simultaneously "greater than the reduction in prices" brought on by improved production efficiencies. This is demonstrably wrong. A reduction in per-capita money supply does not have to be greater than a concomitant reduction in prices. A reduction in the per-capita money supply is deflationary. A reduction in prices is also deflationary. Ergo, a simultaneous reduction in both is always deflationary, regardless of which one is greater in magnitude at the time. It's only when one of these two deflationary drivers is running counter to the other, that the positive driver must yield a greater effect than the negative one. However, in the original sentence quoted, the example given was for the case where then two effects are running complementarily, rather than counter to each other.

Regardless, I thought it beneficial to give each of these two deflationary drivers their own paragraphs, which I have done. I also separated the anecdote about the 19th century into its own paragraph, and expanded upon it.

--Mephist0 19:32, 5 March 2006 (UTC)

March 23, 2008: This comment on inflation from the effects of deflation section does not make sense to me:
Consequently, deflation can be thought of as a phantom amplification of a loan's interest rate. (But, conversely, inflation may be thought of as a regressive, across the board general tax.)
Inflation is a flat tax on accumulated wealth, why is it being described as regressive? Nothing in the article on Inflation describes it a regressive tax.
--Wallenfe (talk) 21:20, 23 March 2008 (UTC)

This may be to simple..

If deflation is happening and the goverment wants to stop it can't they just print more money?

Yes, one could do that, although in the past printing money is typically more dangerous (i.e. volatile) than market operations. Someone asked my econ prof this. Fephisto 02:21, 17 September 2006 (UTC)

No they can't because : Government (public) money creation is very small relative to banks and market (private) money creation. RIght now less than 5% of money supply is made out of central bank money. One can not overnight replace private money by public money, generally private agents resent this as spoilation. Please realise that printing or market operations are included in my remark, both are ways to inject public money in the economy. The problem we face right now is that the ratio of public/private money has never been so small ...

Kramer

Please explain why you're reverting. Fephisto 05:55, 16 September 2006 (UTC)

Your edit falsely says the following -
  1. A very serious deflationary spiral as opposed to The deflationary spiral - a deflationary spiral is the same as a hyperinflationary spiral. There is no inflationary spiral.
  2. You remove "modern" from "modern credit based economies." Modern is important to distinguish.
  3. You add fiat to unstable currency economies - this is not accurate.
  4. You state that economists believe deflation is self curing - this is not true.

In summary, you are editing the article to reflect your minority POV. Stop. JBKramer 06:32, 16 September 2006 (UTC)

It is possible that I'm confusing POV with mPOV, I've been around mostly Austrian Economists lately. Allow me to say the following in defense, however:

  1. Yes, piont taken.
  2. As opposed to pre-modern credit-based economies?
  3. For two reasons: 1)nothing stops the government from printing 2)I lose half of my money's value throughout the course of my lifetime.
  4. Throughout deflation, saving occurs, and there is a point where prices have fallen enough that re-encourages consumer spending.

Fephisto 02:30, 17 September 2006 (UTC)

Insane economists

No sane economists believes that money authorities control the pace of money creation. Money creation is in private hands now, it's the job of banks and since deregulation of the 80's increasingly in those of the financial markets. So I added the banks.

It is true however that some insane economists adopt as a gross simplification the hypothesis that money authorities control the money supply. However no central bank has ever done it. The history is full of market events driving central banks into reactions that some years later have some effect on the mood of the market. I've never heard of a country with free banking where money supply was in anyways under the control of central banks. So I added banks in the definition section.

The sooner we get the insane economists out of the profession, the better. This is a POV.

I added a line on the neoclassical school, if any turns up, he might try to say what his school has to say about something that happens in the real world and not in its perfect models.


( From JIM : Money creation( money supply ?),Central bank can partially control or affect the money creation through many intruments such as banks ,reserse ratio,regulation ,....But nowadays ,it can not fully control ,because it depends on some other market sector such as preference of people to hold money,demand for loan,....) —Preceding unsigned comment added by Jim238 (talkcontribs) 15:25, 10 April 2007 (UTC)

Modified version

The modified version appears to put far too much focus on fringe economic theories. What specific changes need to be made from the longstanding version of the article? JBKramer 16:16, 16 October 2006 (UTC)

The longstanding version is what I am reverting to; the version you're reverting to removes too much detail and example in order to further inform about deflation, and actually incorrectly describes what deflation truly is. 81.117.200.27 16:52, 16 October 2006 (UTC)
I disagree. Please seek consensus for your changes. Thanks. JBKramer 17:16, 16 October 2006 (UTC)
Why don't you seek consensus for your reverts? From what I see, I am reverting the edits of one person, which has been reverted by others. 81.117.200.27 17:33, 16 October 2006 (UTC)
It seems to me that Sterling and myself are in strong agreement, and only you, Ruy, are not. JBKramer 17:42, 16 October 2006 (UTC)
Who is Ruy? Furthermore, Sterling's edits to this article were unproductive as well. Why do you agree with Sterling? The fact that he warps the definition of deflation into something it's not? 81.117.200.27 17:58, 16 October 2006 (UTC)
Which of his edits do you take issue with? JBKramer 18:03, 16 October 2006 (UTC)
Excuse me, JBKramer, I believe using the term "liar" consists of a personal attack. Please stop. Anyway, to get to the point, Deflation is the general act of ad hibinum reduction in economic cashflow, not what the article you rv to says, but the previous longstanding version did, which you constantly neglect to review since you're apparently targeting my good faith edits. 81.117.200.27 18:08, 16 October 2006 (UTC)
Please cite a reliable source. JBKramer 18:10, 16 October 2006 (UTC)
I'm reverting to the previously longstanding version. It's actually up to you to cite a source. What do you even know about deflation? 81.117.200.27 18:13, 16 October 2006 (UTC)
What specific edit do you have a problem with? JBKramer 18:24, 16 October 2006 (UTC)
I have issues with you reverting blindly because you have a buddy that you happen to agree with. 81.117.200.27 17:10, 18 October 2006 (UTC)

Revert war

Gentlemen,

It should be clear to everyone this edit war is unproductive and not converging toward consensus. Several of you are already in violation of the three revert rule literally as well as in spirit, which "entitles" you to an introductory 24 hour editing block. It behooves you to quickly find the key points of the disagreement and debate those. As an observer, I would expect the winner to incorporate the greatest number of relevant citations.

In the meantime, I recommend the article remain unaltered by the factions. The present version of the article (which contains a Keynesian economics section) seems like it should stand for now. Whether he was right or wrong, certainly John Maynard Keynes was (and is) a major force of the theoretical economic landscape and shouldn't be omitted. — EncMstr 18:22, 16 October 2006 (UTC)

The article in it's current state fails to accuratly reflect what deflation is, resorting instead to a fringe-economics focus. Keyne's views are included in the non-Ruy version, in lines that begin "Keynesians insist on the distinction between consuming goods and producing goods, and less often between exogeneous and endogeneous money supply," among others. JBKramer 18:26, 16 October 2006 (UTC)
Clearly there is disagreement on the proper content of the article. I overlooked the Keynes section, mostly because it wasn't in the place I anticipated from the structure of the article. I expect the resolved article to contain something like
Deflation is blah, blah, blah, though others believe that deflation is blah, blah, blah.
Then the reader can follow the citations accompanying each and decide for themself. The article must be WP:NPOV, which usually means all significant points of view are presented. What is significant? Those with links to credible sources. — EncMstr 18:48, 16 October 2006 (UTC)
I expect users to follow basic concepts such as wikipolicy and the relevant laws of the jurisdictions they reside in There isn't a controversy here, there is an attack by a well known troll. While the article is crying out for improvement, as long as we are dealing with a troll attack, it isn't going to be possible to do so much as spell check - the Ray Lopez outbreak reverted even such things as correcting a typographical error. Your failure to adequeately research before lecturing other people on wikipolicy is offensive and insulting. Stirling Newberry 04:02, 9 November 2006 (UTC)
I agree. Perhaps those that don't like the information Sterling cut (I agree with him 100%) should find reliable (not fringe) citations for the information they want reincluded? JBKramer 18:50, 16 October 2006 (UTC)
All of my tags were removed by the anonymous editor again. JBKramer 12:36, 18 October 2006 (UTC)
I have reverted back to the tags. If the anyonmous editor could provide sources where requested, we could move on to the NPOV violations. Otherwise, I will request adminstrative intervention. JBKramer 16:07, 18 October 2006 (UTC)
Is there an estiamted time that it will take you to provide sources, anonymous editor? JBKramer 16:16, 18 October 2006 (UTC)
Yes. There's one there right now. You should look at the article more closely, or get thicker glasses. 81.117.200.27 16:47, 18 October 2006 (UTC)
Please provide sources for the statements I have requested sources for. Thanks. JBKramer 16:50, 18 October 2006 (UTC)
I have, look in the article 81.117.200.27 16:52, 18 October 2006 (UTC)
None of your edits has provided a source for the two statements I am disputing. Please provide a source for "In the ideal perfect market world, no deflation can happen because monetary authorities control money creation and prices are allowed to fluctuate." and "Austrians believe in preventive action, while they blame the government to allow booms, they believe busts are the price to be paid for past foolishness." Thank you. JBKramer 16:55, 18 October 2006 (UTC)
The citations were provided. Clear your cache. 81.117.200.27 17:01, 18 October 2006 (UTC)
Could you post a diff? Thanks. JBKramer 17:02, 18 October 2006 (UTC)
[file:///c:/Program%20Files/Internet%20Explorer/Custom] There you go. 81.117.200.27 17:07, 18 October 2006 (UTC)
Thank you, but I am requesting a diff of you providing the sources. Could you provide that? Thanks. JBKramer 17:08, 18 October 2006 (UTC)
I just did! They are in the article and right above you. Please pay attention. 81.117.200.27 17:09, 18 October 2006 (UTC)
My arrogance must have blinded me. Can you please provide them here, on the talk page? Thanks! JBKramer 17:11, 18 October 2006 (UTC)
[1] 81.117.200.27 17:12, 18 October 2006 (UTC)
Please provide a citation for the statement "In the ideal perfect market world, no deflation can happen because monetary authorities control money creation and prices are allowed to fluctuate." Thank you. JBKramer 17:13, 18 October 2006 (UTC)
[2] 81.117.200.27 17:15, 18 October 2006 (UTC)

small error

The first paragraph of the definition section says "This generally also means that wages in nominal amounts." I'm guessing that it is missing the word decrease somewhere, but I don't know anything about this stuff so I don't want to guess. Can someone who knows a thing or two fix it?

-- Zarvok | Talk 21:30, 21 January 2007 (UTC)

Merge of Disinflation into Deflation (economics)

I am unable to discern any difference, though Disinflation needs significant work and I believe its statements are completely incorrect. Might anyone be able to enlighten me as to any differences? --Bossi (talk ;; contribs) 04:12, 5 April 2007 (UTC)


From Jim ,disflation and deflation is completely different
Deflation :fall in price level ( -ve inflation)
Inflation :fall in rate of inflation
—Preceding unsigned comment added by Jim238 (talkcontribs) 13:47, 10 April 2007 (UTC)


I've not looked at the disinflation article, but
  • The word “deflation” refers to
    1. a reduction in the money supply, or
    2. an over-all reduction in prices
  • The word “disinflation” refers to
    1. A reigning-in of the inflationary process
In other words, relative to inflation, disinflation is slowing-down whereas deflation is moving in the opposite direction.
Formally:
  • Deflation:
  • Disinflation:
I am removing the merge tag. —SlamDiego 21:53, 15 April 2007 (UTC)
Deflation is a fall in aggregate price level whereas disinflation is a reduction in the inflation rate. For instance, in the early 80's when the Fed determined to fight inflation, they induced disinflation, meaning the aggregate price level rose at a slower rate than previous years, but the price level did not deflate. Deflation has not occurred in the United States since the 40's.MattM1105 22:22, 26 June 2007 (UTC)

consumption goods and production goods inflation deflation

I've made several changes in order to explain the difference between consumption and production goods. Deflation inflation desinflation is only in consumption good prices. So for instance in the 1980's we've had worldwide desinflation and at the same time inflation in the asset prices.


I ve also added comments on Bernanke helicopter drop threat. And reference to the fact that the central banks now print a much smaller part of the money supply in the 1920's

I've written a keynesian explanation of deflation. Implicit reference to samuelson and fisher. I've always wondered how some people can actually believe in monetarism (the money supply has increased way faster than the inflation in good prices, if you don't understand that the rise in asset prices explains the difference you understand nothing) let alone austrians ... Come on who actually believes in markets ? And gold standard !!! Backward as can be. Anyway I suppose an encyclopedia is supposed to allow a diversity of views, so I've just added the keynesian one.

I guess adding a marxist one would be worthwile.

I object to the changes that have been made to the introduction such that it reads "or a rise in the purchasing power of money with respect to a large class of consumption goods or services, over a period of time". The presumption that inflation and deflation is something that is measured by consumer goods is not true of all economic schools. Supply-side economics is quite specific in its criticism of relying on consumer goods as a measure as such prices are a lagging indicator or monetary errors. The introduction should be as general as possible and the bolded section above should be shorted to just say "or a rise in the purchasing power of money, over a period of time". Any discussion about how you would best measure or define the purchasing power of money should be discussed outside the opening because it is not an area on which there is concensus.

I agree with your point, however I have a problem, in the price index subject in wiki, there's nothing about an asset price index. So right now the definition is misleading since it says that deflation is a fall in the prices of the thing bought or sold (cPI and PPI) but there's nothing about the price of things held and mostly assets. So can we do sth about the general price level ?

specie, fiat and credit money

Specie or commodity money (gold, silver, shells, whatever) can only opposed to fiat money, notes emitted by an authority entrusted by a legal government. Credit money can happen under a commodity money system (for instance credit money existed during gold standard) or under fiat system. A fiat system is inflationary, as money can be created at will however credit money in itself is not inflationnary. Indeed if too much money is endogeneously created during a boom, it will be destroyed during the bust, so in the long period credit money is neutral. ALl one can say is that as long as the debt/GDP ratio rises, credit money is inflationary, however this debt/GDP raio is rising and falling over time.

THerefore I replaced credit by fiat.

By the way, the reference to theory of quantity of money is misleading. It seems that the equation does not included transactions on stocks of preexisting goods, so it is not an equation that includes all transactions.

Removed

- The next, and possibly largest example of deflation, started in 2008 in the United States and may continue for some time.

I removed the above. It didn't belong in the "Causes of Deflation" section. And, while it might turn out to be true, is fairly speculative at this point (Oct. 2, 2008). The current situation is as likely to result in inflation as deflation, if you ask me. —Preceding unsigned comment added by Cbare (talkcontribs) 20:45, 2 October 2008 (UTC) Fair enough... debt deflation might occur, but I think we're in for a huge correction. - princeton student —Preceding unsigned comment added by 140.180.159.76 (talk) 00:30, 3 October 2008 (UTC)

I doubt that we're going to experience inflation. What is currently occurring is a destruction of credit, which is shrinking the monetary base and reducing monetary velocity, while also creating demand destruction. That is all deflationary. As fund managers panic and try to raise capital they are liquidating everything, causing huge declines on the stock market, declines in commodity prices, flight out of corporate paper and into treasuries, etc. The dollar is also strengthening against most other currencies other than the Yen (unwinding of the carry trade). And when we look at the stock market, we can interpret this as the market being repriced in terms of more scarce dollars. Similarly, money to buy housing has contracted, so the prices of housing is being repriced (downwards) to reflect the cost of a house in deflated dollars. On the other hand, the next phase of this may be an epidemic of currency crises as other currencies collapse (Iceland being only the first to fall) as capital flees out of emerging economies and into US treasuries. A lot of Austrians are convinced that the US currency must now fail, but I think that is based on religious beliefs rather than sound economic observations. And while we're pumping in $700B, we've destroyed about $5.4T in market value in the Wilshire 5000 and another $3.6T in value of housing which is getting magnified by deleveraging. And who knows how many trillions have evaporated in other areas of the economy that I don't know anything about... Lamontcg (talk) 07:45, 8 October 2008 (UTC)

When deflation happens

Deflation basically happens when production of goods and services grows faster than the amount of money available (or the amount of money shrinks faster than production).

- In the late 19th century the money supply (gold) was relatively fixed while the Industrial Revolution brought a huge increase in the amount of goods available.

- In the Great Depression the failure of businesses and banks, and stricter government regulations, caused a drastic decline in lending, contracting the money supply.

- In Japan in the 1990's the decline of the stock market and real estate decreased banks assets, causing them to also decrease lending.

This is from the Monetarist ( http://www.wikipedia.org/wiki/Monetarism ) point of view, but it seems simpler yet more effective to me in explaining these examples than the theories in the main article.

Tomtul2 (talk) 07:05, 24 August 2014 (UTC)
Deflation can also occur if monetary velocity slows, and you need to talk about money in much broader terms as purchasing power and aggregate demand to really be more accurate. If everyone hides their money under their mattress and hordes it, there will still be deflation even though the monetary supply might expand. Falling asset values can also lead to less of a 'wealth effect' which contracts purchasing power due to decreasing ability to use collateral to get loans and just due to psychological factors (so declining housing values can lead to less consumer spending directly and not just via bank asset sheets). So your simple explanations are not NPOV, there's considerable debate. Lamontcg (talk) 08:04, 8 October 2008 (UTC)

Requested move

The following discussion is an archived discussion of the proposal. Please do not modify it. Subsequent comments should be made in a new section on the talk page. No further edits should be made to this section.

The result of the proposal was move the page, per the discussion below. It seems that the economics term is the primary topic here, and there's not currently an encyclopedia article on the deflation of tires and lifejackets, if there's one to be had. Dekimasuよ! 14:44, 13 October 2007 (UTC)


Deflation (economics)DeflationDeflation is simply a redirect to Deflation (economics), and there is no other article named like "Deflation (XXXXX)". There is no need to disambiguate. —supernorton 11:18, 8 October 2007 (UTC)

Survey

Feel free to state your position on the renaming proposal by beginning a new line in this section with *'''Support''' or *'''Oppose''', then sign your comment with ~~~~. Since polling is not a substitute for discussion, please explain your reasons, taking into account Wikipedia's naming conventions.
  • Support "Deflation" is primarily an economic term--Victor falk 13:11, 8 October 2007 (UTC)
  • Support. Though the term is centred around the physics term, a google search and the "what links here" on the page will give you a clear indication as to the consensus of which is the more commonly used term. We simply then create "Deflation (disambiguation)" or just bad out directly to the physics term (if they even exist) and add the link to that from this page. The logistics are easy to figure out. The fact is, this is over 95% of the use of the term which more than qualifies it to occupy the non-disambiguated term. --lincalinca 03:39, 9 October 2007 (UTC)
  • Oppose: Many things other than economies can deflate: tyres, balloons, gas cylinders, inflatable lifejackets, inflatable boats, etc. Anthony Appleyard 10:44, 13 October 2007 (UTC)
Comment all of these cases are subject to the same type of deflation, which is physics, and as I indicated, the account for less than 5% cumulatively of the links directed to the non-disambiguated page. --lincalinca 10:48, 13 October 2007 (UTC)

Discussion

Any additional comments:
  • Comment deflation is clearly a physics term, as the opposite of inflate, and where the economics term derives from. 132.205.44.5 03:30, 9 October 2007 (UTC)
    • Comment THough that may be the case, the antonym page, Inflation is about the economic term also, not the physics term. Plus, we're not in a habit of merging meanings on one page. That's what Uncyclopedia is for. --lincalinca 03:48, 9 October 2007 (UTC)
The above discussion is preserved as an archive of the proposal. Please do not modify it. Subsequent comments should be made in a new section on this talk page. No further edits should be made to this section.

…4:32 p.m. e.s.t. If deflation has something to do with Commonities and or Product then could Individual people represent the same Matter cause. More of one thing and not enough of the other.

Ok go ahead carry on with that I would like to capture some response from an economical standard point of view.

D.G.DeL_Dorchester Mass ...When and where does what happen 4:35 P.M. E.S.T.David George DeLancey (talk) 21:36, 18 March 2008 (UTC)revised spellingDavid George DeLancey (talk) 13:13, 22 September 2011 (UTC)

wgBold text —Preceding unsigned comment added by 118.95.63.95 (talk) 10:12, 9 September 2008 (UTC)

autoarchive

Discussion here very old, I am establishing an autoarchiver and archivebox.--Gregalton (talk) 08:49, 8 October 2008 (UTC)

Deflationary spiral

I merged "deflationary spiral" with "deflation", redirecting the old entry, as they are obviously the same issue, and thus do not require two separate (and potentially confusing) entires. --TallulahBelle (talk) 18:55, 22 November 2008 (UTC)

Economics box

Any way to make the economics box on the right a little narrower? On my screen it takes up most of the width of the page.

WriterHound (talk) 09:24, 24 November 2008 (UTC)

Deflation is not a falling of prices

Deflation is not a falling of prices. It is a revaluation of a states monetary unit. A falling of prices is simply an effect of deflation. The opening line is therefore plain wrong, and needs to be changed. "Deflation is a contraction of the money supply......An effect of deflation, and how it is often measured, is a general falling of prices." Im no english major, so the wording my not be right, but I am an economics major, and this page is wrong - plain and simple. —Preceding unsigned comment added by 130.207.180.81 (talk) 02:50, 5 December 2007 (UTC)

So, what you're saying is that prices aren't falling, rather it is the currency's value rising, right? Is there a difference? DOR (HK) (talk) 02:13, 5 June 2008 (UTC)
Claiming that deflation is not falling prices and is a symptom and not a cause is not NPOV, it is very definitely an Austrian POV. It might be more NPOV to state something like "deflation is observed as falling prices and that the causes are debatable", but the determination of if there is deflation or not is not via watching the currency exchanges or quantity of money, but through watching prices. Even if the root cause is elsewhere, the way it is defined is by falling prices. Lamontcg (talk) 07:53, 8 October 2008 (UTC)
Britannica Concise Encyclopedia would disagree entirely - "Contraction in the volume of available money or credit that results in a general decline in prices. A less extreme condition is known as disinflation. Attempts are sometimes made to bring on deflation (through raising interest rates and tightening the money supply) in order to combat inflation and slow the economy. Deflation is characteristic of depressions and recessions." This clearly defines deflation as declining prices caused a reduction in volume of credit or money. Declining prices from other causes are not deflation so this not "debatable" 68.14.92.82 (talk) 19:35, 4 December 2008 (UTC) vedder110

Though I'm not an economist, I agree with Lamontcg. I think that credit companies are defrauding customers. It should be made unlawful to not make sure that the ignorant consumer signs a credit contract without knowing its honest terms in plain, all-inclusive language. User:pahawkowl (User talk:pahawkowl) 15:37, 13 November 2008 (EST)

If deflation is such a big problem

If governments are so scared of deflation why dont they just counteract it by switching on the printing presses to increace the money supply and therby return the economy to an inflationary state ? 213.40.217.126 (talk) 22:58, 5 December 2008 (UTC)

See liquidity trap and google for articles on that. Intuitively, put a different way, if all consumers (holders of money) believe the value of money tomorrow will be greater than it is today (deflation), they will not spend, but hoard that money. How you break out of that expectation requires, umm, unorthodox approaches - it is insufficient to print too much money today, there has to be a commitment to print too much money for a very long and extended period. (This is a vast over-simplification, of course - see Krugman's writings on Japan and the liquidity trap for a much better explanation).--Gregalton (talk) 08:48, 6 December 2008 (UTC)
To stabilize the economy under deflation the nominal values of all constant real value non-monetary items in the economy have to be decreased in line with the increasing real value of money and in line with the decreasing general price level. That means that salaries, capital, taxes, etc all have to be decreased monthly in line with deflation. Workers will not want to have their salaries decreased monthly and companies and banks will not want to have their capital decreased monthly and the government will not want to decrease taxes monthly to keep the economy stabilized even though that is what is needed. In the markets all market prices will decrease as the markets adjust to deflation automatically as a result of the market process.
If companies and banks follow International Financial Reporting Standards and change to the Constant Purchasing Power Accounting model instead of the current very destructive Historical Cost Model, then the deflationary economy will automatically stay stabilized as salaries, capital and taxes will automatically be decreased in line with deflation and prices as a result of the CPPA model as authorized in IFRS and it will be easier for monetary authorities and the governement to get the economy out of deflation back into very low inflation till we know how to run our economies at zero percent inflation. Obviously the CPPA model as authorized in IFRS will also stablize the real or non-monetary economy under inflation. Unfortunately not a single accountant of all the millions of accountants all around the world who implement IFRS chooses the CPPA model as authorized in IFRS except when they implement IAS 29 under hyperinflation as required by the IASB. Constant Purchasing Power Accounting does not even appear in Wikipedia although it has been authorized since 1989 by the IASB. The very destructive Historical Cost Accounting model and the imensely destructive Historical Cost concept have lots of exposure in Wikipedia.—Preceding unsigned comment added by PennySeven (talkcontribs) 10:49, 6 December 2008 (UTC)

PennySeven (talk) 10:52, 6 December 2008 (UTC)

Tagged lacking Resources

Whole pages of the introduction drone on and on without citations. I know there are conflicting schools of thought on this subject but at least we can find some sources to represent each side.

(Jediborg) 12:25, 9 January 2009 (UTC) —Preceding unsigned comment added by 98.201.116.49 (talk)

Deflation is a contraction in the volume of money and credit relative to available goods and services.

I strongly oppose the removal of items from article without discussing it first. If I revert the item removed without discussing it, then I will be blocked for "edit warring". The person who removed the item does not get blocked for "edit warring" and for being a "disruptive editor. The person removing the statement without discussing it first, is not labelled a "disruptive editor".

So, let´s discuss this matter. I think the statement: "Deflation is a contraction in the volume of money and credit relative to available goods and services." should stay in the lead since it accurately defines what deflation is.

Discussion regarding all the above matters invited.

PennySeven (talk) 17:07, 11 January 2009 (UTC)

I added back the definition based on money supply, and made the price level change a result of that. (first use is now bolded rather than seconds). Does anyone have an economics dictionary we can cite as a reference of the definition of deflation? RJFJR (talk) 17:33, 11 January 2009 (UTC)
I looked and none of my science dictionaries include deflation in economics (they talk about geology) so I used the online collection of general dictionaries at dictionary.com. Now if can determine if they have a common meaning we can use their reference to reference the intro definition. RJFJR (talk) 17:40, 11 January 2009 (UTC)
Ok, I did see the definition of deflation as contraction of money supply already in teh article before I removed it as redundant: it's in the second paragraph as definition used by the classical economists.
We should pick a definition and add a citation from a dictionary (preferably an specialty economics dictionary).
I may be wrong, but I think this talk page is about reaching concensus here on the talk page before adding or removing statements to the article. Who agrees with your removal of the statement: "Deflation is a contraction in the volume of money and credit relative to available goods and services" ?

PennySeven (talk) 18:02, 11 January 2009 (UTC)

Ideally various editors should partake in the discussion and not just two. I state again, RJFJR, who agrees with you to remove the statement: "Deflation is a contraction in the volume of money and credit relative to available goods and services"? Remember, I did not put it there in the first place. Another, third party, editor put it there. He/she and I agree that it should be in the article. You take it out. Democratically that is 2 against one. The statement should stay. Please put it back, thank you.

PennySeven (talk) 18:16, 11 January 2009 (UTC)

Actually, you should put the statement back and only remove it after we have reached a concensus here on the talk page to remove it. At the moment you are the only one who feels that it should be removed - or stay off - since you have already removed it.

PennySeven (talk) 18:27, 11 January 2009 (UTC)

Definition

(I went to my town library on Monday evening and here are the results for Deflation in the economics dictionaries we had:)

Oxford Dictionary of Economics, John Black, 2nd edition, Oxford University Press, 2002, page 112

Deflation 1) A progressive reduction in price level. This would make real interest rates exceed nominal interest rates, which might make it impossible to lower nominal interest rates during a slump sufficiently to make real investment appear profitable. This is known as the *liquidity trap.
2) A reduction in activity due to lack of effective demand. This could be brought about deliberately by the monetary authorities in order to reduce inflationary pressure, or could occur through a collapse in confidence which the authorities were unable to avert. see also debt deflation.

No entry in the New Palgrave Dictionary of Economics 1987

The Encyclopedic Dictionary of Economics, 3rd edition, The Dushkin Publishing Group, Inc. 1986 Library of Congress number 85-072121, page 52

Deflation, a decrease in the general level of prices or an increase in the value of money in terms of goods and services. In a deflationary period, falling prices are usually accompanied by declining levels of both output and employment caused by a deficiency in the amount of spending in the economy. The main problem with deflation is that as output decreases, people have less goods and services available, and individuals have a greater chance of losing their jobs than in a stable economy.
As with inflation, deflation has a redistribution impact on income in several ways. For example, those people that have fixed incomes, such as pensioners, benefit by a deflationary period, because it raises their real income or purchasing power. Deflation also benefits creditors as the expense of debtors, who pay back the money originally borrowed. A third distribution effect of deflation is that it increases the value of savings in the same way that it aids creditors. - William D. Wagoner. see also Inflation.

Contradicting definitions

Another definition from the NYTimes op-ed page contradicts the main definition currently in this article:

"...deflation (or inflation) refers to the sustained rate of change of prices, not the price level." source

I think we need a broader section in this article on competing or contradictory definitions of 'deflation' found in various sources. As with most social science terms, there is no one wholly accepted definition. To keep with the spirit of NPOV, we should represent as many authoritative definitions as is reasonable so that readers understand that there are differing meanings.—Perceval 20:15, 4 May 2009 (UTC)

Deflation and Depression

Don't know how to cite, but here is some source for: "However, historically not all episodes of deflation correspond with periods of poor economic growth" Deflation and Depression: Is There and Empirical Link? http://www.minneapolisfed.org/research/sr/sr331.pdf —Preceding unsigned comment added by 95.88.155.228 (talk) 21:54, 9 July 2009 (UTC)

Thank you. I added it. JRSpriggs (talk) 12:37, 10 July 2009 (UTC)

Deflation v Décroissance

There appears to be no mention of décroissance and thus a neutral point of view is not given. That growth is good is not accepted by many. Not least from a Green political perspective. The article should be written with this in mind to make it neutral, or at least a critique where deflation is a good thing rather than always a problem. As there does not seem to be a good link in the english wiokipedia i have added a link to the french wikipedia. Perhaps someone that understands economic theory and an ecological perspective and french can look through to bring these aspects in? The English Décroissance article woudl alse need rewrtting as at the moment its "degrowth" is a bad translation of décroissance. I suggest using the french term as its more accurate. —Preceding unsigned comment added by 92.16.131.114 (talk) 21:42, 23 December 2008 (UTC)

Green politics are not "mainstream economics", so I can't see how including Green politics perspectives in an economics article would be "NPOV". Mainstream economics is not leftist, green, nor rightist. Though it would be fair to say that it slightly favours neoliberal ideas. In addition, sustainable, non inflationary growth is good - this is accepted by all mainstream economists. 58.105.40.77 (talk) 10:07, 19 April 2009 (UTC)

NPOV means including all points of view propounded by notable, reliable sources, including those who are in the minority. It definitely doesn't mean restricting the article's POV to what is "mainstream". BillMasen (talk) 00:16, 20 April 2009 (UTC)

It does not matter if it is mainstream or not, it matters whether it is economics or not. A green political perspective does not belong in an article describing deflation. In defining economic terms, one should always use positive economics, which attempts to describe the world as it is. Normative economics advocates policies or positions that attempt to change the world (by making it better according to one's beliefs). In economic discussions NPOV should not be "mainstream" nor “minorities” nor even notable & reputable, it should simply be describing the world as it is. Deflation should be defined and explained for what it is.

Green economics is by definition normative economics and should be discussed elsewhere. Economic systems, like all systems, cannot be static for any length of time. They either grow or they decline. To say, "That growth is good is not accepted by many", by definition means that those "many people" believe that economic decline is good. Which is fine, I do not disparage (nor endorse) the belief, but economics studies the "efficient allocation of resources", which results in growth. One can talk of sustainable economics, but deflation that cause economic decline is a problem for all economic systems, because economic decline is always a problem. 159.214.124.1 (talk) 19:26, 23 June 2009 (UTC

But wouldn't, for example, monetarist or Marxist economists have their own (positive) perspectives on deflation, which are no doubt influenced by their normative/political prescriptions? BillMasen (talk) 00:11, 24 June 2009 (UTC)

It’s too much of a stretch to say green politics are not mainstream. However, décroissance (something like “sustainable stagnation”) is clearly outside of the broad sweep of mainstream economic thinking. I can’t think of any serious support for denying the prospect of improved health, education, safety, livelihood or security to billions of people around the world. The simple truth is that the absence of economic growth kills people who might otherwise live. DOR (HK) (talk) 04:07, 23 September 2009 (UTC)

Nobody said it "is with the mainstream of economic thinking"; I'm saying that whether it is or it isn't it should be contained in the article. BillMasen (talk) 12:27, 23 September 2009 (UTC)

Bernanke quote in "Effects of Deflation" section

I integrated the Bernanke quote into the flow of the article, but I don't actually see the point of having it there. It is from a talk he gave in 2002 where, among other things, he said this: "I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons. The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow. Flexible and efficient markets for labor and capital, an entrepreneurial tradition, and a general willingness to tolerate and even embrace technological and economic change all contribute to this resiliency. A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape." We now know that most of that is remarkably naive (never mind recent media hype about whether or not we are facing deflation now). So, we have a quote from a naive talk about how to solve deflation placed in a section on the effects of deflation. It doesn't seem to add anything, either. Thoughts? 145.116.8.66 (talk) 17:02, 21 December 2008 (UTC)

I do not think it should be part of the article except in a historical context. We all make mistakes and learn all the time. This is a work in progress.PennySeven (talk) 17:26, 21 December 2008 (UTC)

Surely we should be talking about disinflation? Increasing interest rates will lower inflation, and would never actually cause deflation. —Preceding unsigned comment added by 77.44.84.194 (talk) 08:28, 11 March 2009 (UTC)

Disinflation (a horrible word) is lower inflation, period by period. So, if January sees 100% inflation, and in February it's only 80%, that's disinflation. Deflation, on the other hand, is an out-right fall in prices. DOR (HK) (talk) 04:09, 23 September 2009 (UTC)

Should we have a section on "Deflationary spiral"?

On 9 April 2009, Michael93555 (talk · contribs) removed a section titled "Deflationary spiral", saying "→Deflationary spiral: NO references or sources.". The section said:

A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. The Great Depression was regarded as a deflationary spiral.
A deflationary spiral is the modern macroeconomic version of the general glut controversy of the 19th century.

Michael is correct that there were no references; and personally, I doubt that such a phenomenon can actually occur. However, there are many links to this section; obviously many people believe in it or at least want to talk about it (if only to reject it). So should we have a section on it anyway? JRSpriggs (talk) 12:06, 24 June 2009 (UTC)

I support a section on "Deflationary spiral". In my opinion the easiest would be to google for references on the subject and replace the section with the reference(s).
Deflation is even less understood than inflation. We will only find the correct way to describe it when we keep on trying. It is a noteworthy subject. PennySeven (talk) 21:12, 24 June 2009 (UTC)
I too would be interested to see such a section. While on the one hand deflation can discourage spending due to higher unemployment, higher savings rates in proportion to price rises etc., there are also strong incentives towards spending during a deflationary period due to lower prices. I imagine things get even more complicated when you throw credit and lending rates into the mix.Pragmatism24 (talk) 15:52, 5 November 2009 (UTC)
On 25 June 2009, I restored the section Deflation#Deflationary spiral with some changes. Perhaps I should have mentioned that earlier. JRSpriggs (talk) 18:24, 7 November 2009 (UTC)

On ``a slow-down in the inflation rate (i.e. when the inflation decreases, but still remains positive)

There is a problem with this phrase in defining "disinflation" within this deflation article. I take slow-down to mean "decreasing". However, if the rate of something decreases, that does not mean that the quantity will decrease. It is like acceleration is the rate of change of velocity. Just because the acceleration is negative does not mean that position will be negative. —Preceding unsigned comment added by Cihan (talkcontribs) 23:02, 4 October 2009 (UTC)

That is the point which the article is trying to make. Having disinflation (a slow down in inflation) at a certain time does not imply that one has or will have deflation. And having deflation does not necessarily mean that one is currently disinflating.
However, if one has inflation at one time and deflation later, then some disinflation must have occurred in between, but not necessarily for the entire interval. JRSpriggs (talk) 13:26, 6 October 2009 (UTC)

"citation needed" tags

I have undone the addition of many "citation needed" templates by three sock puppets of banned User:PennySeven, namely: User:NapoleanTheGreat, User:Sallie Little, and User:A bunch of red roses.

If no one replaces the remaining templates by references between now and Tuesday morning next (May 18, 2010), I will conclude that no one intends to provide references. In that case, I will feel free to remove or change the tagged clauses at my discretion. If you object to this procedure, then say so here and now. JRSpriggs (talk) 06:26, 14 May 2010 (UTC)

No references were added by my deadline, so I removed or modified some of the tagged clauses. I was removing things which I thought were false or very dubious. Others may wish to deal with the remaining citation needed tags. JRSpriggs (talk) 07:43, 19 May 2010 (UTC)

How does deflation affect bank savings?

Under effects of deflation- Just check: Deflation discourages or encourages bank savings? —Preceding unsigned comment added by 202.166.87.174 (talk) 15:16, 19 July 2010 (UTC)

The article says that deflation "Discourages bank savings and decreases investment". The key question is <<relative to what?>>. Indeed bank savings are discouraged relative to holding cash (in a wallet, in a wall safe, or in a mattress) because nominal interest rates paid by bank accounts are normally lower during deflation and the risk of default (bank runs) is higher. On the other hand, bank savings probably look more attractive relative to investing in a business or buying a durable good (e.g. a car, refrigerator, or washing machine). But cash is the proper thing to which to compare. JRSpriggs (talk) 07:39, 20 July 2010 (UTC)

Bias.

I added a bias tag in order to call attention to the very strong bias toward Keynesian economic ideology and words used as moral judgements rather than description of economic processes.174.101.49.64 (talk) 02:58, 18 September 2010 (UTC)

The Case against deflation in developed economies

This section was deleted as being opinion; however, the argument can be well supported, with much more information and references than originally posted. I wonder if whoever undid it actually read any of the references? The references are first quality. Admittedly parts of the argument the complete argument are outside the field of orthodox economics; however, that is why the argument is important.

Deleted section as follows:

Rising productivity and reduced transportation cost created structural deflation during the peak productivity era of the last quarter of the 19th century until the establishment of the Federal Reserve in 1913. There was inflation during World War I, but deflation returned again after that war and during the 1930s depression. Most nations abandoned the gold standard in the 1930s.

Today there is little reason to expect deflation, aside from the collapse of speculative asset classes, under a fiat monetary system with low productivity growth and depleting resources like oil. The great gains in productivity occurred almost a century ago with electrification and the beginnings of mass production, which expanded on scientific management, followed by internal combustion powered agricultural mechanization and the green revolution.[1]

- - Almost all physical work is now done by machines, with fossil fuel energy exceeding animal and water power by 1870.[2] Application of the American system of manufacturing, which relied on interchangeable parts, machine tools, more efficient factory processes and steam and electrical power, reduced the labor in manufacturing to a minimum. For example, the implementation of Ford's assembly line greatly reduced the cost of building the Model T; however, costs fell relatively slowly after that. Because of agricultural mechanization, at $50 per barrel, the cost of oil represents almost half the cost of growing crops while labor represents a very small percent. At $100 $/bbl oil cost are three quarters the cost of growing crops. Similarly, the cost of cotton represents up to 25% of the cost of producing clothing items in China. Cotton yields have stagnated and the cost of cotton will only increase with higher oil and fertilizer prices.

- - Energy efficiency was a major factor in increasing productivity. While the Newcomen steam engine of 1711 was less than one percent efficient, electricity could be generated and transmitted at 35% efficiency on average in the 1960's, the level today being only slightly higher and near theoretical limits. Also, the efficiencies of manufacturing many basic materials such as steel, aluminum, paper and chemicals are approaching thermodynamic limits.[3]

- [2]

- - Real wages in the U.S. have stagnated since the early 1970's; however, since then nominal prices have increased by a factor of more than 5.[4]

- - The effects of technology on productivity and the economy is a subject of Kondratiev wave thoery. —Preceding unsigned comment added by Phmoreno (talkcontribs) 17:32, 20 September 2010 (UTC)

Wikipedia does not publish original research or synthesis of disparate material to support an original conclusion. Even if the 'the argument is important', publication of the same argument in reliable sources is required before it can be included in Wikipedia. As an encyclopedia, Wikipedia distills and mirrors reliable sources, and is not itself a venue for the presentation of original work. LK (talk) 04:57, 21 September 2010 (UTC)
The reason I deleted it is that providing citations for the steps in an argument is not sufficient to avoid Wiki's ban on original research. Reaching a new conclusion is considered original research, even if each step in the argument is supported by previous research. See WP:SYN. Rinconsoleao (talk) 08:17, 22 September 2010 (UTC)
I am not sure this is either a new idea or original research because M. King Hubbert wrote about this in the 1930s and Cesare Merchetti in the 1970s and 1980s, although they were writing about productivity and limits to growth of the economy rather than deflation. See references at Wikipedia: Kontratiev wave. The link betwen Productivity and deflation are well known have been discussed by Spurgon Bell (Brokings Institution 1940) and recently by Bernard Beaudreau (1996) and many economist in between. Again, links at Kondratiev wave. Also, there is a whole branch of economics dealing with resource depletion. Some researchers in this field are Charles A.S. Hall, Robert J. Cleveland and Robert Kaufmann who wrote Energy & Resource Quality: The Ecology of the Economic Process. The barrels of oil per foot drilled was going to be referenced as it was published in the 1980s.Phmoreno (talk) 16:03, 22 September 2010 (UTC)

Deflation bad?

The perspective taken by this article suggests that deflation is always a bad thing, but what about deflation due to productivity gains? Nothing wrong with that, is there???????????

--206.248.176.147 (talk) 01:20, 5 May 2010 (UTC)

If deflation is a result of growth in the private sector combined with self-restraint in monetary and fiscal policy by the government, then I think that it is good, indeed highly desirable. However, most economists (at least those favored by the government) think that deflation is very dangerous. This article reflects that "mainstream" point of view. See User talk:Lawrencekhoo/Archive 4#Effects of deflation for my discussion with an academic economist on this point. JRSpriggs (talk) 03:55, 5 May 2010 (UTC)

Deflation is always bad because of Historical Cost Accounting, namely the stable measuring unit assumption, i.e. Japanese accountants assume and all Historical Cost accountants would simply assume that there is no deflation, never was and never will be: they simply assume money is perfectly stable as far as the valuation of constant real value non-monetary items, e.g. companies´ capital and retained profits are concerned exactly the same way as HC accountants simply assume there is no inflation for the same purpose.

Historical Cost accountants´ stable measuring unit assumption it the second enemy in the economy (besides deflation or inflation), but, it is a stealth enemy: it is camouflaged by authorization in International Financial Reporting Standards which state in the Framework, Par 104 (a) "Financial capital maintenance can be measured in either nominal monetary units or in units of constant purchasing power." The second part to the same statement supplies the only and perfect solution, namely, financial capital maintenance in units of constant purchasing power.

Japan is at war with deflation for the last 15 years or more. Japan´s accountants implement the 700 year old generally accepted traditional Historical Cost Accounting model: like the rest of the world - supposedly excluding Venezuela which is in hyperinflation. However nothing can be further from the truth in Venezuela: they still implement HCA - during hyperinflation!!

Back to Japan´s deflation: CNN ran a story of a social website that allows Japanese housewives to almost always buy the lowest price groceries in their area thus driving down prices even more and increasing the deflationary pressure.

Where is the imperfection in the market and what would the perfect market solution in Japan be?

The imperfection in the market is the Historical Cost Accounting model: the Japanese Yen is in deflation. Thus, accounting non-monetary items at their historical costs, i.e. implementing the stable measuring unit assumption meaning Japanese accountants assume there is no deflation in Japan – instead of lowering all non-monetary item values to reflect the increase in the real value of the Yen, maintains the deflation the Bank of Japan is unable to stop because constant real value non-monetary items never updated (decreased in nominal value during deflation to maintain their constant real values constant) are treated like monetary items (cash) by Japanese accountants: thus, their real values increase all the time during deflation.

Deflation creates more real value in money, the Yen, in Japan – because of the monetary nature of money. (Don´t laugh at the expression: it is correct.) :-)

When Japanese accountants stop measuring financial capital maintenance in nominal monetary units, i.e. when they abandon the traditional Historical Cost Accounting model and with it the dreaded stable measuring unit assumption, they will adjust all constant real value non-monetary items´ nominal values with deflation: they will automatically lower the nominal values of salaries - for example, but, the real value of the salaries will remain the same because of deflation in the Yen: it is increasing in real value all the time.

That means that Japanese consumers would stop to gain from delaying their consumption while they wait for deflation to automatically increase the real value of their salaries. The Japanese real or non-monetary economy would stabilise as all non-monetary items would see their values adjusted downwards evenly in the non-monetary or real economy. That would stop deflation.

This cannot happen automatically while Japanese accountants measure financial capital maintenance in nominal monetary units as they have been authorized to do in IFRS in the Framework, Par 104 (a) in 1989. The only way Japanese accountants can stop treating constant real value non-monetary items, e.g. the capital and retained profits of all Japanese companies, like money during deflation, is with financial capital maintenance in constant purchasing power units as they have been authorized in IFRS in the same Framework, Par 104 (a) in 1989. —Preceding unsigned comment added by 93.108.18.28 (talk) 00:00, 16 May 2010 (UTC)

In the U.S. it is common to hear of "good deflation" and "bad deflation." The "good" is largely a historical event that peaked (or bottomed) in the late 19th and early 20th centuries in developed economies. This was due to the enormous productivity gains of that period. Workers prospered during the "good" because their buying power increased significantly, even when adjusted for fewer working hours. The "bad" is that associated with financial crises. To bankers all deflation is bad because people don't have to deposit money. What seems to have happened in the Great Depression and earlier in the Great Sag of the 1870s-90s is that there were sharp downward adjustments in prices due to cumulative productivity gains. If you read Hubbert's piece in Technocracy you will see how some viewed it at the time. Hubbert thought the solution was a four hour work day, but he didn't foresee the new consumer products and the age of consumerism. Hubbert also saw the productivity miracle as a "one time event". While not totally correct, there was a lot of truth in Hubbert's view. For example, consider spinning at the time of the spinning wheel, which increased the productivity over hand spinning by a factor of 10. The spinning technologies of 1st Industrial Revolution, the spinning jenny and spinning mule, also increased productivity by 10 and another 10 (for simplicity), so that the latter was 999 times more productive than hand spinning. However, the latter two only reduced the absolute amount of labor by 9.9% compared to hand spinning. This is an illustration of the exhaustion of the benefits of technology to improve productivity. Productivity gains today mostly take place in the production of new products and services. Computers not having been able to significantly increase productivity is known as the productivity paradox.Phmoreno (talk) 15:57, 30 September 2010 (UTC)
In the historical deflationary period of the late 19th and early 20th centuries the increases in productivity created unemployment, the laid off workers eventually finding employment in new industries, but sometimes there was a considerable time for new employment opportunities to appear. Throughout the period living standards rose for the majority. Phmoreno (talk) 16:57, 30 September 2010 (UTC)

Milton Friedman on "The Great Sag of 1873-96"

See Deflation#Deflation in the United States.

I am not sure that deflation of that period has not been explained. The (reconstructed) data have been revised several times and historical economists have done a lot of research in recent decades. We now know that this was a period of high productivity that matched the deflation. Steel prices fell dramatically because of the Bessemer process and McCormick reapers were greatly increasing agricultural productivity, just to name a few. People at the time did not understand what was happening because there was no collection of economic data. Today we do a much better job of collecting data and still don't understand what's happening. —Preceding unsigned comment added by Phmoreno (talkcontribs) 02:35, 25 September 2010 (UTC)

This article is incompetent

Was this article about Deflation as well as the one about Inflation written by a student of Ben Bernanke? If so it is completely off as are the academic theories of Mr Bernanke. His theories are biting dust when faced with reality and particularly the Deflationary one. References to some books that are wrong don't make this article right. Deflation is about monetary base, not prices. The whole article is about CPI, not deflation.

Uh... "Deflation is about monetary base, not prices."
How many macroecon courses have you taken, exactly? Your statement is absurd. But Ron Paul would agree with you... (of course, he's never taken an economics class either). 67.211.130.184 (talk) 08:59, 8 January 2009 (UTC)
Who writes text books for those macroecon courses?
It's absurd? I take it nothing affects the price of consumer products except inflation and deflation? For the record, Ron Paul is simply echoing the philosophy of Ludwig von Mises and the "Austrian School" of economics. There are many modern economists that share his view. 66.215.216.61 (talk) 22:40, 24 April 2009 (UTC)
Well, then fix it:-) You won´t get far discrediting the whole of Bernanke. But, good luck. I also find some aspects of current economic and accounting theory and practice completely wrong. I think we are all open to open discussion. PennySeven (talk) 23:56, 31 December 2008 (UTC)
When I fix it, some robot reverts my edits. Happy New Year to you as well.
You start from a weak position not being willing to sign your contributions:-) PennySeven (talk) 23:59, 31 December 2008 (UTC)
Irony, FTW "—Preceding unsigned comment added by PennySeven (talk • contribs) 00:01, 1 January 2009 (UTC)" 66.215.216.61 (talk) 22:40, 24 April 2009 (UTC)
Happy new year :-) PennySeven (talk) 00:08, 1 January 2009 (UTC)—Preceding unsigned comment added by PennySeven (talkcontribs) 00:01, 1 January 2009 (UTC)

People do get it wrong, sometimes. Milton Friedman’s assertion that “inflation is always and everywhere a monetary phenomenon” is currently being hauled out with the rest of the trash. First-half 2009 US nominal GDP -1.9%, CPI -0.5%, M1 up 14.9%, M2 +9.1%, MZM +11.3% . . . doesn’t add up. DOR (HK) (talk) 04:19, 23 September 2009 (UTC)

The velocity of money can also change. See the equation of exchange: JRSpriggs (talk) 08:55, 24 September 2009 (UTC)
In addition, it's worth noting that changes in the money supply rarely manifest themselves in aggregate price changes for any less than 12-15 months and potentially longer. Quantitative easing has begun to have an effect on the US economy, in line with the introduction of anti-inflationary monetary policy introduced back in 2008. The effects of Obama's monetary policy on prices in order to address the problem of inflation will become apparent in 2010 as the US cleanly escapes the deflation nightmare. It's highly unlikely that monetary policy in the early years of the Obama administration could be having an impact on prices yet; what is more plausible is that money supply increases in 2008 are beginning to counteract the deflationary effect of the credit crunch.Pragmatism24 (talk) 15:48, 5 November 2009 (UTC)

This article is not only incompetent, it assumes a Keynesian bias from the beginning. Some honest soul might undertake to separate out the Keynesian understanding from the Austrian one as exemplified by the Rothbard chapter listed at the bottom. —Preceding unsigned comment added by 71.241.232.106 (talk) 16:14, 3 July 2010 (UTC)

Yes, unfortunately, this appearance of incompetence is unavoidable due to a number of wiki policies which are often robotically/unthinkingly applied by various editors. As is typically the case in the space of articles on political economy, the assumption of the capitalist/bourgeois perspective as a universal obtaining currently and in perpetuity except in those backward areas it has yet to conquer blocks exposition of the phenomenon for the simple epi-phenomenon that it is, an artifact of the capitalist mode of production. In a system of money based strictly on accounting and an assignment of prices based on that accounting instead of the capitalist market there would be neither inflation nor deflation but computed price/costs with whatever mathematical accuracy the method of computation provided. This kind of elemental reasoning can't make it into main space for the aforementioned reason(s). 72.228.177.92 (talk) 17:42, 4 August 2010 (UTC)

Socialism versus Capitalism

To 72.228.177.92: Having prices imposed from above by a robotic planning agency (instead of being agreed upon by the seller and buyer) inevitably results in massive waste and widespread shortages. This is seen in every socialist or communist state which has ever existed. JRSpriggs (talk) 10:05, 7 August 2010 (UTC)

Including the PRC? Your opinions appear superficial and ill-considered but this is a public forum and I want to give you a chance to appear intellectually competent to discuss this matter. Planning as opposed to not planning can be discussed in a rational and informed manner without falling back on canards and ignorant presuppositions which are contrary to reason (i.e. that planning is inherently more inefficient, purposeless, robotic, whatever than not-planning). My entrance to this discussion was to explain an inevitable appearance of incompetence in the exposition of the subject in the article due to thinking within a narrow mindset which you have so admirably illustrated. "It is glorious to get rich", all the more so in a presumptive workers state. Less so perhaps in an ossified, moron dominated, plutocracy. In my thinking, "buyer" should mean society and seller should mean the individual. Then not having some rational framework for setting prices, allocation of production, determination of what to produce, etc. is as unthinkable to you as is my conception of the buyer and seller relations in planned production. 72.228.177.92 (talk) 14:46, 12 August 2010 (UTC)
Before PRC discarded most aspects of socialism, it also suffered from extensive waste and shortages. Only after they allowed private ownership of the means of production and removed price controls did they begin to grow rapidly.
The issue is not: planning versus no planning. The issue is: centralized planning by a few people ignorant of the facts versus dispersed planning by billions of people who know with what they are dealing because it is what they work on every day. Socialism begins by wasting the minds of the vast majority of people by effectively excluding them from the decision making processes. This is all explained in the writings of the Austrian school of economics.
As for your suggestion that "society" (i.e. the government) should act as a monopsony (exclusive buyer), this disregards the fact the only the consumers individually know what they really need. And it also disregards the fact that consumption and production cannot be separated without creating a moral hazard which would destroy the ability to produce. JRSpriggs (talk) 17:14, 12 August 2010 (UTC)
There would be no point in replying specifically point by point, but acknowledging your various regurgitations of your understanding of concepts like "socialism" and your confusion and conflation of a number of concepts, but I do want to stress that the totality of consumers is society, the whole set of buyers, who may should they reach a sufficient level of consciousness, act in concert. "Governments", i.e. nation states, are institutions set up to defend the order whose cant you are parroting. Lycurgus (talk) 17:44, 12 August 2010 (UTC)
Please stop insulting me. Personal attacks are prohibited by WP:Civil.
If you restate your argument in a civil way, then I will answer it. JRSpriggs (talk) 12:05, 13 August 2010 (UTC)
Je suis fatigue. As I said there would be little point. User:Lycurgus/POV (expand/show) "terrestrial political perspective" for my take on what you've newly titled this subthread. 72.228.177.92 (talk) 14:10, 13 August 2010 (UTC)
Yes, I am also tired. Tired of those who think they know everything when they know next to nothing. A deus. JRSpriggs (talk) 18:40, 13 August 2010 (UTC)
FTR, I don't concur with any implications this editor makes in the subthread retitling except to the extent that "socialism" would be defined as the retraction of the general world view, the kind of the assumptions and presuppositions he makes. Fortunately I did not look at anything personal about him until now and based my replies only on text here as I might have been disposed to give greater credit for his opinions in this based on his main profession. Rather, I contrast the bourgeois/capitalist perspective with a general consideration of political economy from first principles, a larger perspective than for example Marxism and my definition of the terms in question has been noted/linked. This is the kind of perspective which would be required for a highest quality encyclopaedic treatment of the subject, my original point. Pealing back layers of received culture to examine a subject isn't really OR but it's often perceived as such, to anticipate the other likely (and contextually valid) objection to an examination of this article's subject from 1st principles. 72.228.177.92 (talk) 12:06, 14 August 2010 (UTC)
I'm really just an observer in this particular article's discussion, because I share the view that this article has a bias (it flew up huge red flags when I read the sentence that stimulus was *the* answer to the problem of deflation). But just to comment on what I'm positive is the view of anybody reading your responses -- if you spent less time trying to make every sentence sound as "clever" as it possibly could be, and more just to the point of whatever it is you're trying to say, you wouldn't come off as hard to read and pompous as you do. 70.114.203.183 (talk) 05:23, 18 October 2010 (UTC)

General causes

I removed new items added to the subsection Deflation#Basic types of deflation of section Deflation#Causes of deflation. They were not appropriately placed there. The new items were:

  • Asset deflation. Price of stocks, bonds or real estate decline while consumer prices stay flat or increase. Examples are the 1970s when bond prices declined dramatically and stocks' nominal prices stagnated (loosing most of their inflation adjusted value) until the early 1980's while consumer prices rose at a high rate. Today housing prices and commercial real estate prices and rents are falling while consumer prices are flat.
  • Unfavorable demographics: An aging population, no population growth or declining population. See: Demographics of Japan Economist note that spending declines as people approach retirement.[5] Aging population and very low population growth a modern phenomenon and are not unique to Japan, but Japan is further along the path than some of the European countries that are headed in this direction. Tylecote (1991) devotes a chapter to effects demographics as they relate to the long economic cycle, but not specifically deflation.[6]

These items are too specific to be in this subsection. Asset deflation has to do with what prices are declining, not why they are declining. Re demographics, a declining population should result in less demand for money and thus tend to cause inflation rather than deflation. Also elderly people are usually unemployed and thus produce less goods or services to exchange for money. Hence lower demand for money. Hence inflation. JRSpriggs (talk) 09:48, 23 September 2010 (UTC)

Elderly people are supported through social programs paid by the working population, which the retired once were part of. Whether social security programs are inflationary or not depends on whether they are in current surplus or deficit.Phmoreno (talk) 14:09, 23 September 2010 (UTC)
Requiring workers to pay taxes to support social security does not change the result of my analysis. Those workers cannot produce more merely because they are taxed. Rather they are compelled to accept a lower standard of living while the elderly have a higher standard of living. A social security tax discourages work because the after-tax pay is less, and it reduces the capital available which reduces worker productivity. Thus it tends to cause even more inflation. JRSpriggs (talk) 15:13, 23 September 2010 (UTC)
Once again, you are introducing original research into this article. Please don't introduce the results of your analysis unless they coincide with the arguments made by notable economists in reliable sources. LK (talk) 07:31, 24 September 2010 (UTC)
To Lawrencekhoo: Whom are you addressing? JRSpriggs (talk) 11:10, 24 September 2010 (UTC)

Excerpt from: http://www.financialsense.com/contributors/james-j-puplava/money-never-sleeps

"In The Great Wave: Price Revolutions and the Rhythm of History, historian David Hackett Fisher described how he found the same sequence in the development of inflationary cycles. They all begin in periods of prosperity and they all end in shattering world crises. They are all preceded by population growth. The inflation first surfaces in a demand and rise in price for life's necessities: food, shelter, and energy. The rapid price rises first appear in the price of food, shelter, and raw materials."

It is reasonable that if population growth is inflationary, then population decline would be disinflationary. Notice I said disinflationary and not deflation because we are dealing in fiat currency.Phmoreno (talk) 02:16, 26 September 2010 (UTC)

That historical sequence may well be true. But remember that post hoc ergo propter hoc (after this, thus because of this) is a fallacy. It is likely that the increase in population was accompanied by other factors which were responsible for the inflation such as: an increase in the supply of money or a general decision to draw down savings (i.e. increase the velocity of money) in order to pay for raising children. JRSpriggs (talk) 11:45, 26 September 2010 (UTC)
RE: Asset deflation. In the U.S. house prices were removed from the CPI and replaced with owners equivalent of rent, which is more stable. Now changes in house prices no longer show up in the reporting, so the rise in house prices was not reflected nor was the fall. That is why asset inflation is worth mentioning, besides that it is a common term used by the investment community.Phmoreno (talk) 16:05, 30 September 2010 (UTC)
CPI is an imperfect measure of inflation, not inflation itself. So I would prefer that you put this comment in a separate section dealing with ways in which measures of inflation can obscure the facts. JRSpriggs (talk) 09:00, 1 October 2010 (UTC)

Perhaps deflation is not a monetary phenomenon

The effects of “good deflation” are better illustrated by using purchasing power of a work hour. Using data from Lebergott (1993), which I approximately converted to 2010 dollars, an hour of work in 1900 bought $3 worth personal consumption expenditures. In 1990 one hour’s work bought $22 worth. Because we can define deflation without any reference to money supply, and because past episodes of deflation occurred during periods of productivity growth, I am beginning to doubt the existence of "bad deflation" as anything but a short term phenomenon. However, I do think the recent and ongoing financial crisis could have caused, or might cause, something different from the past deflations, that is total financial collapse. Phmoreno (talk) 15:15, 1 October 2010 (UTC)

If financial collapse means a loss of trust in institutions which do not deserve trust, then it may not be a bad thing either. JRSpriggs (talk) 07:35, 2 October 2010 (UTC)
Some hold the belief that such a crash is good because it destroys most wealth, the debtors declare bankruptcy and so the formerly wealthy are then equal to the formerly insolvent and a new cycle can begin. However, when this happened in Germany after the great inflation of the 1920's the political outcome was not so good, and I am not so sure that a wealth redistribution occurred either. Regardless, the the real point of my post is: Should we mention the value of an hour's work as a measure of good inflation?Phmoreno (talk) 12:19, 2 October 2010 (UTC)
I certainly do not agree with destruction of wealth, and defaulting on one's debts should be avoided whenever possible. However, it is wrong for government to try to preserve an unwarranted confidence in institutions by bailouts such as TARP.
No, the labor theory of value is a serious error which I would not want to encourage by using man-hours as a unit of value for the purpose of measuring inflation. Inflation would thus be underestimated by the amount of increased productivity. JRSpriggs (talk) 12:57, 3 October 2010 (UTC)
"Inflation would thus be underestimated by the amount of increased productivity." That is exactly my point. This is the "good deflation."Phmoreno (talk) 13:13, 3 October 2010 (UTC)
I see what you are saying, but I would not want to generalize about any particular amount of a price or price-index being good or bad. That depends too much on the circumstances. Rather I would say that the process by which a price is arrived at is good if it is based on voluntary choices informed by accurate data and rational thinking. JRSpriggs (talk) 02:50, 4 October 2010 (UTC)

Overproduction in the 1920's

From the section In the United States

"The deflation of the Great Depression, as in 1836, did not begin because of any sudden rise or surplus in output."

There was a lot of overcapacity from the mid to late 1920s due to mass production. One specific instance is the opening of the Ford River Rouge Complex. Ford's market share had shrunk from 50% to 15% and he was hoping to recapture market share with the Model A. Also, the extensive electric street railway system (that has been completely forgotten in history) started to loose ridership after motor busses and automobiles. See Spurgeon Bell(1922), Beaudreau (1996) and Hounshell (1984).

Productivity had risen so much during the 1920's, just like in the preceding decades, that workers were working too many hours. Hours work did not return to the 1929 levels until WW2. Phmoreno (talk) 01:59, 18 October 2010 (UTC)

Effects of Deflation

In the article it says that "While an increase in the purchasing power of one's money sounds beneficial, it amplifies the sting of debt. This is because after some period of significant deflation, the payments one is making in the service of a debt represent a larger amount of purchasing power than they did when the debt was first incurred. Consequently, deflation can be thought of as a phantom amplification of a loan's interest rate. If, as during the Great Depression in the United States, deflation averages 10% per year, even a 0% loan is unattractive as it must be repaid with money worth 10% more each year." But I would postulate that this would be too subtle to notice. For example for two years I have been making $200 dollars a month and paid $100 dollars to a bank for a loan. Then for two year deflation happens at 10%. I still pay the same and make the same. So at the end of two years deflation I would have the purchasing power of $120. I think all I would notice is an increase in my purchasing ability, not that I have an opportunity lost because the loan was made at a lower valued dollar. JoeVMI08 (talk) 13:50, 17 November 2010 (UTC)

You are assuming that you would lucky enough to neither lose your job nor suffer a pay cut nor miss a pay increase as a result of the general deflation. Many people would not be so lucky. JRSpriggs (talk) 14:10, 18 November 2010 (UTC)
And you are assuming that you will you loose your job because of it. We could argue what ifs more and more but what's the point. The point is I doubt one would notice a decrease in opportunity lost and notice an increase in spending ability of the money left over. The argument is about the effects of deflation not whither I would keep my job or not. JoeVMI08 (talk) 20:57, 16 November 2011 (UTC)
The article is talking about deflation's effects on borrowers. If you had borrowed $900,000 to pay for a $1,000,000 factory, you would be very much hurt if, over the next 5 years, the price that you can sell your products for fell by 20%, and the value of that factory fell by 20% to $800,000. Deflation hurts borrowers, this is a basic textbooks fact. LK (talk) 10:04, 17 May 2011 (UTC)
I know this is facts. I'm just trying to look at it in a different way and think about it instead of just accepting what the textbook facts are. But I guess I'll just have to accept that my train of thought is flawed. JoeVMI08 (talk) 08:31, 03 JUNE 2011 (UTC)

Effects

An anon removed the below numbered list (diff.) While I'm not saying the edit is good or bad I think we might want to discuss it. RJFJR (talk) 14:59, 9 December 2010 (UTC)

The effects of deflation are:

  1. Decreasing nominal prices for goods and services
  2. Increasing real value of cash money and all monetary items
  3. Discourages bank savings and decreases investment
  4. Enriches creditors at the expenses of debtors
  5. Benefits fixed-income earners
  6. Recessions and unemployment
I saw no reason for its removal, so I reverted him. JRSpriggs (talk) 22:59, 9 December 2010 (UTC)

Counteracting deflation

It is unclear what the issue(s) are, please use {{POV-statement}} then detail issues here. This will help address them in a timely manner. - RoyBoy 00:12, 4 December 2011 (UTC)

The POV tag appears to have been added by this edit on 30 January 2007. It was the only edit by user 63.20.166.181 (talk · contribs) and the edit summary is merely "Keyes/Austrian School". So unless you can infer something from the many other changes which occurred in that edit, we can only guess what he/she meant.
I would challenge the section Deflation#Counteracting deflation on the grounds that it assumes that deflation is bad. I think it is generally good. JRSpriggs (talk) 01:52, 5 December 2011 (UTC)

Needs a Georgist section

This article is incomplete without mentioning the Georgist explanation of the credit cycle. Land values fluctuate much more than most goods and services. The example of the so called U.S. housing bubble, that was actually a land bubble, needs to be discussed.

See spreadsheet with structure and land cost for 46 U.S. metro areas:

http://www.lincolninst.edu/subcenters/land-values/metro-area-land-prices.asp

George Soros (2008) talked about the banks being more willing to extend credit for real estate when prices are rising, and less so when prices were falling.

Japan already went through their Georgist downswing and the U.S. and other nations are now starting theirs. This is real asset deflation.

At the peak of the housing bubble structures were about 15% of the value of homes in San Francisco. Today there are cities in the U.S. where the land value of existing houses is about $10,000, having lost more than 70% of its value since 2006.Phmoreno (talk) 02:59, 5 December 2011 (UTC)

The myth that deflation harms debtors

There is little historical basis for deflation harming debtors. It is more a mixed picture. Wages have been more stable than prices so most wage earners benefited, debtors and non-debtors alike. For example the U.S. deflation of 1819-21 was caused by turnpikes lowering transportation costs. Everyone benefited but turnpike investors, mainly because turnpikes were not high return investments. The deflation of 1839-43 was caused by low cotton prices and to a lesser extent low prices of mid-western foodstuffs. Debtors were hurt during the Great Depression. The work week was shortened but hourly wages were fairly stable; the fall in prices allowed workers to maintain constant spending power. Savers were the big losers in the aftermath of the depression as interest rates fell below inflation.Phmoreno (talk) 16:55, 1 January 2012 (UTC)

I think that a more accurate statement would be that unexpected deflation hurts debtors. When people become accustomed to a certain economic condition (like moderate inflation) and plan their activities and investment around the assumption that that trend will continue, then a reversal of the trend will be painful for them. Inflation encourages people to carry more debt than is optimal during deflation. But once people become accustomed to deflation and consequently reduce their debt load, the continuation of that deflation should not be a problem for them.
In short, unexpected economic changes are the problem, not deflation per se. JRSpriggs (talk) 20:14, 1 January 2012 (UTC)
Good point, JRSpriggs. To be more precise, it's a problem for them only if specifically they themselves didn't anticipate it when they got into debt, with the relevant deflation being the deflation that took place over the term of the loan. Byelf2007 (talk) 1 January 2012

As a partial retraction I should say that the deflation of 1839 & 1841 hurt those who borrowed to purchase and clear land to plant cotton and Western feed stuffs, but is was more like a bad investment making the loan harder to replay than blaming the general price level. The cotton crash plus the failure of several large canal projects was a factor in the second worst U.S. depression.Phmoreno (talk) 04:25, 3 January 2012 (UTC)

What's relevant is the expected inflation or deflation rate at the time the loan was made. If a loan was made with a contract specifying 5% interest, with both parties expecting a fixed price level (0% inflation), unexpected deflation would impose a higer real debt buden on the debtor and benefit the creditor, vice-versa, unexpected inflation would hurt the creditor and benefit the debtor. LK (talk) 09:23, 3 January 2012 (UTC)

Jim Grant's speech to NY Fed April 2012

In case any of you missed it, Jim Grant gave a speech to the NY Federal Reserve near the end of April 22 in which he succinctly defines deflation:

Deflation is a derangement of debt, a symptom of which is falling prices. In a credit crisis, when inventories become unfinanceable, merchandise is thrown on the market and prices fall.

What deflation is not is a drop in prices caused by a technology-enhanced decline in the costs of production. That’s called progress. Between 1875 and 1896, according to Milton Friedman and Anna Schwartz, the American price level subsided at the average rate of 1.7% a year. And why not? As technology was advancing, costs were tumbling. Long before Joseph Schumpeter coined the phrase “creative destruction,” the American economist David A. Wells, writing in 1889, was explaining the consequences of disruptive innovation.

Grant also discusses financial regulation. Short and excellent. A piece of My Mind by Jim Grant Phmoreno (talk) 22:10, 17 June 2012 (UTC)

History weighs in favor of Keynes: Deflation good for wages, inflation bad

In his General Theory Keynes argued that workers bargain for nominal wages rather than real wages and that this is why during deflation real wages rise while during inflation they decline. Keynes knew the past history of the late 19th century secular deflation and the increase in real wages that occurred. Looking to what has happened to real wages for the average worker, which have been flat since 1973, Keynes may have been right. Perhaps Keynes explained how the wealth disparity grew so that all the productivity gains of recent decades were not equally distributed.Phmoreno (talk) 23:50, 2 February 2012 (UTC)

Is there some reason why you are using www.marxists.org, a website of the now discredited communist movement, as a source? JRSpriggs (talk) 22:18, 3 February 2012 (UTC)
Thanks for pointing that out. I have no communist sympathies and had no idea that the link was to a communist site. It was the first link to the article I found. I'm not interested in promoting any particular ideology, just trying to understand economics. However, in this particular case I believe that there is an irrational fear of deflation. What I fear more is unintended consequences of fiat money and excessive speculation. Without excessive speculation there would be no crashes and resultant "bad" deflation. "Bad" deflation is just reversion to the mean. Good deflation is the result of productivity. Aside from that, I do wonder how we have supposedly had productivity growth in the U.S. for the past 30 years without increases in the real median wage.Phmoreno (talk) 03:59, 4 February 2012 (UTC)
Sorry, but Marxist philosophy is perfectly legitimate and Marx was one of the great thinkers of the industrial age. I am not a Marxist or a communist but to just declare one of the great political and economic theories of the last century discredited says more about you than Marx. I don't think the leaders of China (nor most of the 1 billion Chinese citizens) or Venezuela, nor any respectable academic theorists would agree with you that Marxism has been discredited. Is your name MacArthur by any chance? — Preceding unsigned comment added by 129.78.32.97 (talk) 07:22, 8 August 2012 (UTC)
Are you perhaps not aware of the Dissolution of the Soviet Union? JRSpriggs (talk) 07:41, 8 August 2012 (UTC)
BBC have just presented "Masters of Money" series on Keynes, Hayek and Marx http://www.open.edu/openlearn/whats-on/tv/ou-on-the-bbc-masters-money-keynes; it suggested that no economist (certainly these 3 and possibly all economists of note) are 100% correct, and a probably consequence is that no such economist is 100% wrong. We do not have a clear answer about what needs to be done to restore the economic health of the world and ensure that such a crisis does not recur. Hence to look again at such economists to see if we have missed something, or misinterpreted what they were telling us does seem to be a reasonable approach. Steve Keen is one advocate of looking again at Marx. wikirpg (talk) —Preceding undated comment added 10:47, 7 October 2012 (UTC)
A stopped clock is right twice a day, but that does not mean that we should waste our time studying it. But if you really want to learn about Marx, read Thomas Sowell's book (1985. Marxism: Philosophy and Economics. Quill, ISBN 0-688-06426-4). JRSpriggs (talk) 05:20, 8 October 2012‎ (UTC)
With a background of working many years in engineering and a couple of years in information technology, I conducted an in depth study of productivity and the history of technology. I am convinced beyond a doubt that most of the productivity benefits of the scientific and industrial revolution are exhausted. Therefore, the productivity numbers may be wrong. Otherwise, we need to be looking for a black hole that is sucking up the productivity gains. Some of the productivity gains may be from measuring growth in sectors that do not produce real wealth, such as banking, land prices, government and regulatory compliance.Phmoreno (talk) 04:34, 4 February 2012 (UTC)
This is just a guess since I have no way of examining the derivation of the figures, but I suspect that a combination of ever-growing consumption/waste by government and inconsistent definitions of production/productivity is responsible for the lack of growth in real after-tax wages. Alternative possibilities would be transfers of wealth out of the US into other countries (investment by Americans or disinvestment by foreigners) or (still less likely) hoarding by wealthy Americans. JRSpriggs (talk) 06:01, 4 February 2012 (UTC)

redirected from price stability

Why does price stability direct to deflation? How is a fall in prices represent stability in price?

192.246.234.251 (talk) 22:33, 12 December 2012 (UTC)Ian (sorry for not being registered).

Since there is no article on "price stability" per se, it is natural to redirect it to the most closely related article which would be either the article on inflation or the article on deflation. Price stability would be the absence of either inflation or deflation. So a reader can learn things about price stability by considering what the absence of those two conditions would be like. JRSpriggs (talk) 04:02, 14 December 2012 (UTC)

Uncited savings claim

I removed the following claim from the section Deflation#Causes and corresponding types, uncited since 2010:

* Cash building (hoarding) deflation: attempts to save more cash by a reduction in consumption leading to a decrease in velocity of money.[citation needed]

There may be good sources for this blanket claim but I could not find them; I did find mentions ([3] page 13) of deflation causing more cash hoarding though, or qualified claims that it does in a particular non-contemporaneous system ([4] page 6). I am guessing the connection between saving and deflation is more complex than either one causing the other, so it would be helpful if an expert could phrase a sentence or two, with sources, that explains it to the reader. -84user (talk) 16:27, 30 April 2013 (UTC)

A. Gary Shilling discusses deflationary forces here and only indirectly implies an increase in savings is a cause - the paragraph order implies it - but emphasizes that demographic change is a cause and excess "supply is the root cause of deflation." -84user (talk) 16:51, 30 April 2013 (UTC)

This is just a simple application of the equation of exchange, P·T=M·V. Deflation is a decrease in P, the price level. It must be accompanied by either: an increase in T, transactions; a decrease in M, money; or a decrease in V, the velocity of money. The item you removed represented the decrease in V.
Notice that it does not say that more money is saved, rather that people are trying harder to save money by spending less. This is usually caused by fear of bad times to come: war, economic collapse, epidemic disease, natural disasters, etc.. This fear is represented by a decrease in consumer confidence, a well-known economic indicator. As the article on consumer confidence says, "if confidence is lower, consumers tend to save more and spend less". JRSpriggs (talk) 05:30, 1 May 2013 (UTC)

Ok, I've self-reverted with this diff, as although this is not my area of expertise, the above explanations "make sense". Apologies for the inconvenience. -84user (talk) 11:30, 11 May 2013 (UTC)

removing POV tag with no active discussion per Template:POV

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Don't confuse Money and Currency.

Thus we should say, in the first paragraph, that inflation causes currency to lose value over time. This is even more specific when talking about fiat currencies, but since all modern currencies are fiat this is redundant.

68.48.83.107 (talk) 17:23, 12 November 2013 (UTC)

Although there are differences of opinion, in the most accepted usage, "Inflation" and "deflation" refer to the value (purchasing power) of money, not to the quantity of money in circulation. JRSpriggs (talk) 17:55, 12 December 2013 (UTC)

Disflation vs. deflation

Are disflation and deflation "exactly" the same thing?

  1. The spell checker does not recognize "disflation"
  2. Disflation where referenced redirects to deflation
  3. No search I've made so far distinguishes between the two words (though "disinflation" is distinguished from "deflation")

WithGLEE (talk) 14:20, 16 May 2015 (UTC)

Why do you think that "disflation" is a word rather than just a misspelling of "disinflation" or "deflation"? JRSpriggs (talk) 12:32, 17 May 2015 (UTC)

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  1. ^ {{ Cite journal - | last1 = Kendrick - | first1 = John - | author1-link = - | title = U.S. Productivity Performance in Perspective - , Business Economics, October 1, 1991 - | year = 2001 - | url = http://www.allbusiness.com/finance/262030-1.html - | postscript = }}
  2. ^ a b {{ Cite journal - | last1 = Ayres - | last2 = Warr - | first1 = Robert U. - | first2 = Benjamin - | author1-link = - | title = Accounting for Growth: The Role of Physical Work - | year = 2004 - | url =http://www.iea.org/work/2004/eewp/Ayres-paper1.pdf - | postscript = - }}
  3. ^ {{ Cite journal - | last1 = Ayres - | last2 = Ayres - | last3 =Warr - | first1 = R. U. - | first2 = L. W. - | first3 =B. - | author1-link = - | title = Energy, Power and Work in the U. S. Economy 1900-1998, Insead’s Center For the Management of Environmental Resources, 2002/52/EPS/CMER - | year = 2002 - | url =http://www.iea.org/work/2004/eewp/Ayres-paper3.pdf - | postscript = - }}
  4. ^ {{ Cite journal - | last1 = Fitzgerald - | first1 = Tony G., Senior Economist and Assistant Vice President Minneapolis Federal Reserve, - | author1-link = - | title = Has Middle America Stagnated - | year = 2007, September - | url = http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=1140 - | postscript = - }}
  5. ^ Dent, Harry. "The Dent Method: Economic forecasting based on changes in demographic trends". 
  6. ^ Tylecote, Anddrew (1991). The Long Wave in the World Economy: The Current Crisis in Historical Perspective. London and New York: Routledge.