In the technology world, deflation is a given. We get exponentially more computer power, bandwidth, and storage for less money every year. The same thing happens across the economy, and it’s an equally positive force for consumers and businesses alike. Yet the government’s actions lately are 100% directed at spending and printing money. Mish’s Global Economic Trend Analysis beat me to it:
The idea of a deflationary trap is in and of itself complete nonsense. Deflation is actually a natural state of affairs. As productivity increases, standard of living rises and prices fall. Absent government intervention, productivity would actually increase the amount of goods produced, causing prices to drop. Falling prices are a good thing not a bad one.
Fed and government policies rob taxpayers by promoting policies of inflation. Look at what accompanies rising prices: rising property taxes, rising sales taxes, and rising income taxes. Is that a good thing. The answer is no, especially when wages fail to keep up, which is exactly what happened.
Who benefits from inflation? The answer is government, banks, and already wealthy because they are first in line to receive money. Everyone else is screwed. Inflation is theft from the middle and lower classes for the benefit of government and the wealthy.
Over time, the government and the Fed so distort the economic picture, that a mentality sets depicted in the often heard phrase for a few years’ back “Better get that house now, before it’s too late”.
The problem is not falling prices, the problem was the excess of debt that led to massive speculation and ever escalating prices. Krugman continues to put the cart before the horse in this regard. Indeed, Krugman Is Still Wrong After All These Years.
It is impossible for government to spend one’s way to prosperity. Proof can be found in the failed practices of Russian and Chinese central planners over the years, and more recently the failed policies of Japan.
This is not only a clear and demonstrable reason to avoid “stimulus spending,” but it also goes a long way towards explaining the rising inequalities between the upper class and everyone else. From food and clothes to medical care, the gap between what the rich and poor have access to has exponentially declined in recent years. The same forces should have created similar equality of income and net worth as well. Unfortunately, low-interest rate inflationary policy has ensured the opposite.
Thank goodness we now have an inflationary stimulus package to support the middle and lower classes though.
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