Yaron Answers: What Impact Does Deflation Have In A Free Economy?

[CompoundingValue]

Holy shit did not expect him to speak like that

[Willsturd]

That is correct. Deflation and inflation of the money supply is always theft from somebody and ends up hurting everybody in the long run. That is why a stable money supply and the reason why free markets work best on a gold standard.

[IleneSkeen]

Yaron cited the computer industry as an example of a deflationary industry. Short-run deflation does not produce unemployment. Companies which cannot compete in the marketplace go out of business and their workers have to find other jobs. To classify that as deflation and bad even in the short-term is to say that unprofitable companies are better than profitable ones and workers working for unprofitable companies should not have to bear the risk of the marketplace in any way.

[TwinTierFinancial]

The downward spiral wouldn't continue forever. Eventually, prices get low enough for new - profitable - ventures to emerge. People find new jobs. Companies start making money again. Problem solved (after a major gut-check).

[TwinTierFinancial]

That happens in the short-term, but I disagree that all investment would cease forever or for the long-term. There would be a massive course correction, I think, followed by investment in businesses that squeeze out a profit. Sure, it would be painful, but how much more painful would an inflationary default be? Under that scenario you end up losing the currency along with everything else. There's nothing wrong with letting the reality of the situation assert itself.

[podcastbard]

but why do the prices of new cars keep going up? Unions. Computers are not made by workers in a union.

[MontyPython]

oldickeastman Unless I'm mistaken, I don't believe the crux of his position is that systemic deflation is a good thing, but that this wouldn't happen in a free market, fractional reserve system with no Central Bank ...ahem...."controlling" it.

[TeaParty]

In the context of statism, you are correct . Fortunately, youre wrong about markets.