"Deflation" in Perspective

Good piece over at the CNN/Money Web site that puts recent talk of deflation in perspective. Macroaggregates are all well and good for econometric manipulation. But we live in a world of micro specifics. As economic actors--if not, alas, as economists--that's hard to forget.

Comments

[Brad S]

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And there's a very simple reason (oops, sorry, Reason) for that. Companies have been pushing cars on us with 0% financing since 9/11, leading to a huge excess of used cars and a huge shortfall in current demand for new cars. The likes of Dell, Compaq, H-P, etc have been making computers more rapidly than most people practically want to upgrade (not to mention the fact that Intel keeps upholding Moore's Law that chip speed roughly doubles every 18 months). And there are simply too many fast food restaurants these days. Heck, even McDonald's has had some financial difficulty lately and has had to close stores.

I found a couple of things curious in the article. The author states that "transportation" is getting more expensive. Surely he didn't mean airline travel. It's dirt cheap to fly virtually anywhere these days. And the one that shocked me was long distance rates. Are you kidding me? I don't think I've ever seen any product or service have its price so rapidly trend toward zero as long distance service, largely due to the advent of cell-phone plans that feature unlimited minutes and free long distance on weekends.

So, I say go buy an airline ticket, and while you're at the airport, call someone on your cell phone and tell them where you're going. You may even want to grab a cheeseburger before you go.

[Croesus]

Well, going Japanese isn't so bad in the grand scheme of things. I sometimes wonder if we are unrealistic about economic growth in very mature economies.

[mike]

If deflation is defined as declining prices generally (not an exact definition), no consumer in the country would complain about deflation. Deflation in that sense is a natural phenomenon, because with time goods can be produced more efficiently (Julian Simon won an important bet on that law of nature). That system benefits savers (pensioners, retirees) whose hard saved dollars buy more than they used to. Why should the State fight that?

[Mr. Stinker]

mike: because half the population (including the State itself) is in debt up their ears in debt. Apparenly the Fed thinks more easy credit is the "solution."

Mr. Stinker, worried about the economy turning Japenese (but armed to the teeth if it goes Argentine)

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