The Case For Deflation

The Case For Deflation PDF Version
Inflation is the current problem and fear. That is fine for mainstream economics. But, thinking is not allowed in economics. First, deflation is not bad for an economy. Inflation favors the wealthy, government and others who have borrowed. Deflation favors the working class. In a free market, economy power naturally shifts back and forth from one sector to the other. Deflation occurs naturally when the productivity of labor increases. Inflation occurs politically. When power starts to shift in the direction of the working class, the upper class can and does create inflation politically as a means of maintaining its advantage.

“During the period between 1873 and 1879, prices dropped by nearly 3% every year, yet real national product growth was around 7% during the same time period. However, despite this economic growth and the rise of real wages, historians have called this period “The Long Depression” because of the presence of deflation.” Investopedia

Prices dropped profoundly during the 1970s during a long period of economic growth. Real wages increased significantly. At this time procedures for enhancing economic activity by way of “stimulus” had not yet evolved. A degree of economic power did shift to the working class for a while.

In our modern era, the Federal Reserve has been fighting deflation since the Reagan administration.  Increases in the productivity of labor have been monumental.  Yet, real wages have stagnated. Profit margins of corporations have increased. Prices have been very stable until recently. This is no accident. The working class has been robbed of the productivity bonus it would have received had prices been allowed to fall. This has all been accomplished politically. Now it is politically expedient to create inflation as a means of shrinking the debt size of heavy borrowers.

Deflation has been defeated for 40+ years but deflationary forces are still present and have increased.  Unlike other economies where runaway inflation has taken hold, the United States has massive production capabilities which can be used. An enormous amount of demand has been in non essential goods and services. There are also plenty of substitutes for all we buy and consume. Creating ever rising prices will be an enormous task.

One of the many negatives with respect to stimulus is that resources become more and more inefficiently allocated over time. Recessions occur because businesses are not getting the profits they expect from what they are currently producing.  Recessions disappear and business finds more productive ways to use its resources.  Inflation prevents this from happening.

In economics, if we prevent what will occur naturally, what would occur naturally occurs anyway eventually.

Notice, I am not citing numbers or pointing to lines on charts. I don’t need to. Instead, I think things through and as always am focused on what causes numbers to be what they are instead of thinking the statistics just happen to fall into place the way they do.

So, I am expecting things to reverse. Inflation will give away to deflationary forces and the overall price level will fall. Lets see what happens.

We are facing a depression, not a recession. Deflation, honestly is more likely.

 

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About Fantasy Free Economics

James Quillian independent scholar,free market economist,and teacher of natural law. Who is James Quillian? Certainly I am nobody special, Just a tireless academic and deep thinker. Besides that, I have broken the code with respect to economics and political science. Credentials? Nothing you would be impressed with. I am not a household name. It is hard to become famous writing that virtually no one in the country is genuinely not in touch with reality. But, if I did not do that, there would be no point in my broking the broken the code. If you read the blog, it is easy to see that there are just a few charts, no math and no quantitative analysis. That is not by accident. Given what I know, those items are completely useless. I do turn out to be highly adept at applying natural law. Natural law has predominance over any principles the social science comes up. By virtue of understanding natural law, I can debunk, in just a few sentences , any theory that calls for intervention by a government. My taking the time to understand the ins and outs of Keynes General Theory is about like expecting a chemistry student to completely grasp all that the alchemists of the middle ages thought they understood in efforts to turn base metals into goal. Keynesian theory clearly calls for complete objectivity. Government can only make political decisions. Keynesian techniques call for economic decisions. So, why go any further with that? Fantasy Free Economics is in a sense a lot like technical analysis. Technical analysis began with the premise that it was impossible to gain enough information studying fundamentals to gain a trading advantage. Study the behavior of investors instead. Unlike technical analysis, I don't use technical charts. What I understand are the incentives of different people and entities active in the economics arena. For example, there is no such thing as an incentive to serve with life in the aggregate. In the aggregate, only self interest applies. It is routinely assumed otherwise. That is highly unappealing. But, I am sorry. That is the way it is. I can accept that because I am genuinely in touch with reality. Step one in using Fantasy Free Economics is for me to understand just how little I really know. A highly credentialed economist may know 100 times what I do based on the standard dogma. Compare the knowledge each of us has compared to all there is to know and we both look like we know nothing at all. There is always more than we don't know than what we do know. I am humble enough to present myself on that basis. Why? That is the way it is. I am not bad at math. I have taught math. What I understand is when to use it and when to rely on something else. Math is useless in natural law so I don't use it. While others look at numbers, I am busy understanding the forces in nature that makes their numbers what they are. That gives me a clear advantage.
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Anonymous
18 days ago

I don’t mean to sound glib or callous, because this is horrible, but I can easily see how clot shot mass casualties could be highly deflationary. I have been closely following the research of Edward Dowd, a financial analyst who is noting big spikes in life insurance claims. I feel like the damn has to break soon but so much of the public simply will refuse to see what’s right in front of them.