[tatsuke95]

>"In fact we see deflation in specific markets like housing which helps to clear out the bad decisions and mistakes and set the base for future expansion."

Periods of asset deflation after over-investment/economic distortions may act as a balance, but it isn't "good". Having your net worth halved is crippling.

>"The simple fact is that no economy and social order has ever imploded due to deflation"

No economy implodes due to deflation or inflation alone. Countries like Germany or Zimbabwe had production capacity collapse. That led to printing money (to stave off deflation), which in turn led to hyperinflation. Too much money chasing too few goods, remember? In order to have too few goods, the country's production has to go into the toilet.

Saying deflation isn't bad flies in the face of many of the greatest economic minds we know, with tons of research and theory to back it up.

[brc]

Careful with reading bias into what I have written.

I have not said deflation is good, or said that it is not bad.

I have merely stated it creates winners and losers, and that inflation isn't automatically better. The same as a 'high' or 'low' currency - the goodness or badness depends on the reference frame.

The assumption that inflation is automatically better is 'common knowledge' based on theories of economics developed that classify savings as bad, and spending as good, based on the assumption that deflation will cause consumption to be postponed, but which hand-waves away the problem of inflation bringing forward consumption with the trite statement of 'in the long run we are all dead'.

My point is that deflation isn't the bogeyman many have been trained to believe it is. Spending-based assumptions of economics have led the world down a garden path of unsustainable debt in the name of endless 'stimulus' and inflationary policies. Periods of mild deflation and creative destruction would have served the world better than endless shots of new cheap money.

[tatsuke95]

>"The assumption that inflation is automatically better is 'common knowledge' based on theories of economics developed that classify savings as bad, and spending as good, based on the assumption that deflation will cause consumption to be postponed, but which hand-waves away the problem of inflation bringing forward consumption with the trite statement of 'in the long run we are all dead'."

That's only part of the argument.

Another part is that wages also must decrease with deflation (wages are an input price). And that's very difficult to pull off in a modern economy, and leads to unemployment. We are seeing that right now.

The fact of the matter is, we should be indifferent to either inflation or deflation, as long as we can see the changes coming and adjust quickly enough. In reality, we can't. Hence an ever-increasing money supply (to coincide with an ever-increasing demand for money) is the best bet.

>"based on theories of economics developed that classify savings as bad"

I've never encountered that argument.

>My point is that deflation isn't the bogeyman

Look at this thread. Look at Seeking Alpha. Look at Reddit. You think people are over-reacting to deflation? People everywhere are hyperventilating over out of control inflation, when, in fact, our current problems are associated with a deflationary event ($3.5TT wiped from the collective financial sector sheets).

[csense]

> Having your net worth halved is crippling.

"Having your net worth halved" happens in the inflation scenario. Deflation increases your net worth.

If you have $10,000 and there's inflation, then eventually it will only buy half as much stuff. If you have $10,000 and there's deflation, then eventually it will buy twice as much.

[tatsuke95]

>""Having your net worth halved" happens in the inflation scenario. Deflation increases your net worth."

Interesting. We've been in a positive inflation environment since I've been born, and my net worth has increased exponentially.

Deflation will increase the purchasing power of your money due to the fall in prices, but decrease the value of assets you own priced in that currency. Something people seem to be forgetting around here are that wages also fall during deflation, and that results in lower purchasing power and unemployment. Your "work" isn't worth as much anymore. You get paid less. Good deal!

What happened when the housing bubble collapsed and there was massive deflation in home prices? Did those people get wealthier? Did it become easier for other people to spend their dollars on homes at the new low prices? The answer is no and no.

[csense]

> Did it become easier for other people to spend their dollars on homes at the new low prices?

Why is the answer to this question "no"?

[solistice]

I'm actually genuinely curious what research and theory you are referring to, and I wouldn't know where to start looking. Could you give me some pointers?

[tatsuke95]

You can start with anything by Bernanke related to the subject, both writings and speeches.

[cmccabe]

You could start with Friedrich Hayek and the Austrian school if you're interested in a serious defense of anti-Keynesianism.

Note: I'm not saying I agree with them, just answering your question.