Friday, 21 November 2014

Quotes of the day: On deflation

imagePictures of people not buying due to falling prices

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“Economists have come up with the bizarre concept that falling, or even stable, prices squelch demand and deter consumption. The idea is that if consumers know that something will cost less in the future (even if it's just 2% less) they will defer their purchases indefinitely, perhaps waiting for the cost of their desired product or service to approach zero. They argue that this can push an economy into a deflationary spiral of falling prices and diminished demand which may be impossible to escape.
    “But this idea ignores the time value of a product or service (people will tend to pay more for something they can enjoy sooner rather than later) and the economic law that shows how demand goes up as the price falls. But common sense has absolutely nothing to do with the current practice of economics. Instead, the dominant argument is that inflation is needed to seed the economy with demand. 
    “However, this argument is merely a smoke screen. The only thing that inflation can do is to help governments spend.”
- Peter Schiff, ‘Governments Need Inflation, Economies Don't

“Traditionally, deflation has been defined as a decrease of a supply of money which has previously been artificially inflated.”
- Jörg Guido Hülsmann, Deflation & Liberty

“There are two kinds of ‘deflation’: progressive and destructive. Central banks and their 'stabilisation' make the first impossible, and the second more likely.”
- Peter Cresswell

“Thanks to the spread of electricity and other such wonders in the final quarter of the 19th century, prices dwindled year by year at a rate of 1.5% to 2% per year. People didn’t call it deflation – they called it progress.”
- Jim Grant, ‘We’re in an Era of Central Bank Worship

“Deflation is usually thought to be a synonym for falling prices. There could be no more serious error in all of economics. Calling falling prices "deflation" results in a profound confusion between prosperity and depression. This is because the leading cause of falling prices is economic progress, whose essential feature is an increasing production and supply of goods and services, which, of course, operates to make prices fall.”
- George Reisman, ‘The Anatomy of Deflation

“Both deflation and inflation are … zero-sum games. But inflation is a secret rip-off and thus the perfect vehicle for the exploitation of a population through its (false) elites, whereas …the true crux of deflation is that it does not hide the redistribution going hand in hand with changes in the quantity of money. It entails visible misery for many people, to the benefit of equally visible winners. This starkly contrasts with inflation.”
- Jörg Guido Hülsmann, Deflation & Liberty

“As for mass unemployment: If there is a deflation, in the correct sense of a decrease in the quantity of money and/or volume of spending, then falling prices, so far from being the cause of deflation/depression are the way out of it. … Confused concepts result in catastrophic consequences.”
- George Reisman, ‘Deflation & the Gold Standard

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
- Henry Hazlitt,’ Economics in One Lesson

“You should not be afraid of deflation. You should be afraid of policies attempting to fight it.”
- Mike “Mish” Shedlock, ‘Is Debt-Deflation Just Beginning?

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