A Flaw In The Media's Deflation Argument

[Sinking Feeling]

It was all over the news last night in what seems like a co-ordinated attempt to hoodwink the public into believing that Gordon Brown's behemoth borrowing programme is what's needed to protect them from the ultimate bogeyman, deflation.

So why was deflation bad according to their definition? Because prices would fall and people might be tempted to put off purchases because they expect prices to fall further. All I could think is that this scenario is no different from the last 10 years; computers, tvs, cds, dvds and to a certain extent cars have all been getting better and falling in price, people were aware that their computer would be replaced by a faster less expensive model but they still bought. In short as far as credible explanations go this is a terrible one.

[dccarm]

It was all over the news last night in what seems like a co-ordinated attempt to hoodwink the public into believing that Gordon Brown's behemoth borrowing programme is what's needed to protect them from the ultimate bogeyman, deflation.

So why was deflation bad according to their definition? Because prices would fall and people might be tempted to put off purchases because they expect prices to fall further. All I could think is that this scenario is no different from the last 10 years; computers, tvs, cds, dvds and to a certain extent cars have all been getting better and falling in price, people were aware that their computer would be replaced by a faster less expensive model but they still bought. In short as far as credible explanations go this is a terrible one.

I've stopped buying food now as I expect to be able to buy it for much less in 6 months time. At a shopping bill of about £80 a week for the family, I reckon the savings could be enormous.

[Griptool]

It was all over the news last night in what seems like a co-ordinated attempt to hoodwink the public into believing that Gordon Brown's behemoth borrowing programme is what's needed to protect them from the ultimate bogeyman, deflation.

So why was deflation bad according to their definition? Because prices would fall and people might be tempted to put off purchases because they expect prices to fall further. All I could think is that this scenario is no different from the last 10 years; computers, tvs, cds, dvds and to a certain extent cars have all been getting better and falling in price, people were aware that their computer would be replaced by a faster less expensive model but they still bought. In short as far as credible explanations go this is a terrible one.

Price deflation in consumer durables over recent years was accompanied by feelings of optimism and the propensity to spend.

As economic deflation takes hold, everything falls. Employment levels - incomes - asset prices - commodities - consumer goods.

The commodity that has experienced the greatest deflation so far is confidence. So I guess 'its different this time'

[Matt Bear]

It was all over the news last night in what seems like a co-ordinated attempt to hoodwink the public into believing that Gordon Brown's behemoth borrowing programme is what's needed to protect them from the ultimate bogeyman, deflation.

So why was deflation bad according to their definition? Because prices would fall and people might be tempted to put off purchases because they expect prices to fall further. All I could think is that this scenario is no different from the last 10 years; computers, tvs, cds, dvds and to a certain extent cars have all been getting better and falling in price, people were aware that their computer would be replaced by a faster less expensive model but they still bought. In short as far as credible explanations go this is a terrible one.

Agree entirely. Its nothing to do with inflation/deflation it's all about sentiment. Current sentiment is not to spend and to pay down debt.

[beefheart]

I've stopped buying food now as I expect to be able to buy it for much less in 6 months time. At a shopping bill of about £80 a week for the family, I reckon the savings could be enormous.

hahahahahaha like £0 when you are all dead from starvation

[Lepista]

for "not spending on things" read "Not spending on houses"

[babesagainstmachines]

It was all over the news last night in what seems like a co-ordinated attempt to hoodwink the public into believing that Gordon Brown's behemoth borrowing programme is what's needed to protect them from the ultimate bogeyman, deflation.

So why was deflation bad according to their definition? Because prices would fall and people might be tempted to put off purchases because they expect prices to fall further. All I could think is that this scenario is no different from the last 10 years; computers, tvs, cds, dvds and to a certain extent cars have all been getting better and falling in price, people were aware that their computer would be replaced by a faster less expensive model but they still bought. In short as far as credible explanations go this is a terrible one.

I posted exactly this on The Times comment section, under their video explanation of why deflation is bad. It hasn't been published.

Deflation and inflation are NOT change in prices, but the quantity of debt and the velocity of money. Price changes are results of the monetary phenomena.

Edited November 19, 2008 by dazednconfused

[Sinking Feeling]

I posted exactly this on The Times comment section, under their video explanation of why deflation is bad. It hasn't been published.

Deflation and inflation are NOT change in prices, but the quantity of debt and the velocity of money. Price changes are results of the monetary phenomena.

Exactly! there are in my opinion 3 types of 'deflation":

i) Where there is an increase in production greater relative to the increase in total money supply causing prices to fall - examples newly industrialised economies i.e. Britain and the US in the late 19th Century, China over the last 20 years.

ii) Where the money supply falls causing the value of the currency to appreciate and prices to fall.

iii) Where there is massive liquidation of assets forcing prices down. Usually ii & iii appear at the same time i.e. 1919-21, 1929-1931 (possibly ownwards), now with the 'credit crunch' and downward pressure on commodity prices.

Note that the causes are generally on the supply side not the demand side, which is the version usually given to the public - i.e. the fickleness of the consumer.

[R K]

In order to sell the increased borrowing by taxpayers as "Gordon saving the country" he needs to generate some fear.

The bogeyman this time isn't WMD or Terrorists, it's "Slump". "Slump" is prowling around the world seeking out victims to punish and only Gordon knows how to save us. We must support him in his Churchillian struggle against "Slump" by letting him borrow tens of billions on our behalf to give to our economy and let us defeat this evil.

Lord Mandelson is preparing a dossier for Chancellor Darling to present to us next week which will explain how this battle against "Slump" can be won but we must put our faith in Gordon and not listen to those evil Tories who talk down our great currency and would see our glorious country cast into the wilderness.

All Hail Our Leader!!!

[uncle rogi]

It was all over the news last night in what seems like a co-ordinated attempt to hoodwink the public into believing that Gordon Brown's behemoth borrowing programme is what's needed to protect them from the ultimate bogeyman, deflation.

absolutely right sir, i spotted the same spoonfeeding overtone to the whole issue.

fact is in my not so humble opinion judged on the fundamentals we will be iceland mkII within 6 months,sustained biflation.

[babesagainstmachines]

fact is in my not so humble opinion judged on the fundamentals we will be iceland mkII within 6 months,sustained biflation.

What is this ridiculous word biflation? Iceland has a currency collapse. If you think sterling will collapse, just say so, instead of these stupid made up words.

[Wuluf]

What is this ridiculous word biflation? Iceland has a currency collapse. If you think sterling will collapse, just say so, instead of these stupid made up words.

wiki

[frozen_out]

What is this ridiculous word biflation? Iceland has a currency collapse. If you think sterling will collapse, just say so, instead of these stupid made up words.

Made up? Bihyperstagindeflation is a well documented economic phenomenon.

[babesagainstmachines]

wiki

The word biflation is normally followed with "so go buy gold" and has never been seen in respectable economics text books.

I think there will be quadflation... houses and energy and food will get cheaper, and tellies will go up in price