[srmann]

A popular modern economic theory is that if prices rise slowly over time, people will tend to purchase today instead of saving money to purchase tomorrow, since they believe the price of what they want will be higher tomorrow. If prices drop slowly over time, people will tend to save as long as possible before purchasing, since they believe the price of what they want will be lower tomorrow. Since simple economic productivity is measured by summing the amount of dollars spent, the theory is that for these reasons low inflation leads to productivity.

[mindcrime]

All of which would be perfectly reasonable if humans were completely rational actors. But we all know we're not. We're semi-rational at best. Yes we try to maximize utility, but we're not Commander Data, calculating equations in our heads down the the 999999 points of precision, and coldly make decisions based on purely financial measures.

This is even more true for some things than others... few people are going to say "Hey, deflation is on, let me wait until next week to eat" when they're hungry today.

I'm not saying deflation is good or anything, but an awful lot of economic theory is rooted in some pretty shaky foundations.