[nhaehnle]

Deflation, meet downward rigidity of wages (and other prices).

Basically, the problem with deflation is that everybody who has only one (or very few) income stream, but at the same time many expenditure streams (especially fixed contract expenditure streams) is going to fight very hard against reduction in that income stream.

And empirical data suggests that that fight tends to be fairly successful, too. This is why deflation is poison for economic activity.

[tbrownaw]

And empirical data suggests that that fight tends to be fairly successful, too. This is why deflation is poison for economic activity.

I suspect that demanding constantly increasing income would be rather less successful if the system weren't rigged to make expenses never decrease.

[nhaehnle]

The empirical data is not about constantly increasing income. It's about a number of things, but the most striking is that in a deflationary environment, wage (and other price) changes have an abnormally large peak at a change of zero; this peak does not fit into any simple assumption about how price changes should be distributed (in particular, it is clearly not a normally distributed effect).