Deflation is Always Good for the Economy

by Frank Shostak

For most experts, deflation, which they define as a general decline in prices of goods and services, is bad news since it generates expectations for a further decline in prices.

As a result, they hold, consumers postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy.

Hence, such commentators hold that policies that counter deflation will also counter the slump.

If deflation leads to an economic slump then policies that reverse deflation should be good for the economy.

Reversing deflation would imply introducing policies that support general increases in the prices of goods, i.e., inflation. This means that inflation could actually be an agent of economic growth.

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