The good news of deflation is starting to get around. At the Wall Street Journal's MarketBeat blog, Paul Vigna gets the shakes over the Bush-Obama Administration's failure to destroy the dollar:
I think we're closer to deflation, both here and abroad, than most people realize or care to acknowledge.
In fact, by some measures, we are experiencing it. But nobody wants to talk about that, because deflation is about as big a threat to the economy as there is, and to talk about it, to give it currency, is to court disaster. To the ruling class, perception is reality.
The Fed remains determined not to let deflation take hold, because it knows how dangerous it is, and apparently will spend any amount to prevent it. And they should, because there is nothing that will wreck the recovery and the economy like deflation. Ask anybody who lived through the Great Depression.
Consider this: what do you think the picture would look like had the government not intervened with trillions worth of various stimulants? They did, and despite that injection, the economy is still too close to deflation for our comfort.
Thanks for showing up, Paul!
Vigna's amazement that the trillions of "dollars" worth of stimulant hasn't been enough to stave off deflation is quaint, as is his assumption that we would now be experiencing horrendous deflation if not for the burial of all that Monopoly money. It's true that there's an apparent disconnect between the weakness of the dollar in international currency markets and its strength at your local Safeway. That's because the international markets are geared to respond to the sudden appearance of vast oceans of U.S. government debt. But since, among other things, this debt immediately gets bought by the Federal Reserve, no new money is actually printed.
If, on the other hand, you are participating in the dollar-denominated economy -- if you are spending actual dollars and nickels and quarters and all those other trinkets that supposedly don't matter in this post-scarcity, long-now age of abundance -- you are not willing to pay more than a dollar and a half for a gallon of milk just because Ben Bernanke's friends are getting a lot of free virtual money. Even Americans aren't that stupid.
There's a glaring error on page 2 of Das Kapital, in which the father of modern mass murder tries to refute the classical economic idea of relative value in favor of intrinsic value:
A given commodity, e.g., a quarter of wheat is exchanged for x blacking, y silk, or z gold, &c. -- in short, for other commodities in the most different proportions. Instead of one exchange-value, the wheat has, therefore, a great many. But since x blacking, y silk, or z gold &c., each represent the exchange-value of one quarter of wheat, x blacking, y silk, z gold, &c., must, as exchange-values, be replaceable by each other, or equal to each other.
The fault here is that obviously these other commodities are not of equal value to everybody. A pre-industrial economy has no need of "blacking," a silk exporter will value silk differently than a silk importer, and a society of meat eaters may have no interest in wheat at all. (Goldbugs make the same error; intrinsic value is a lie as bitter as love.)
It's perfectly reasonable that the dollar might hold different values for different people. If you're trading vast quantities of the bullshit electronic "dollars" being pumped into the economy, you're going to treat the buck the way Bernanke and Geithner want you to treat it -- as a nearly worthless marker of value. But if you actually work for a living, you know that the greenback has gotten a lot harder to earn lately, and you are less willing to spend it.
If creating inflation were as easy as the Fed would like, or if avoiding deflation were as important as Vigna thnks it is, then why does a two-liter bottle of Coca-Cola cost today exactly what it cost during the Carter Administration? For as long as I've been drinking Coke, a two-liter bottle has cost about 99 cents at the low end to $1.50 at the high end. If you pay more than that you're getting ripped off.
That's without inflation adjustment. They've tried changing the shape. They've tried changing the formula. They've dumped Mentos into it. And yet if you go to the supermarket right now, you will almost definitely find that they are offering two liters of the Real Thing for $1.99 -- with a two-for-one purchase offer. If thirty years ago you had taken $2,000, put $1,000 in one pillowcase and used the rest to buy 1,000 bottles of Coke, the Coke would now be worth the same amount as the money (though it might be a little flat). And it has never gone to zero! Let's say that again: The price of Coke has never gone to zero.
It's a good bet nobody planned for Coke to be the one commodity that tracks the dollar precisely -- in fact, it does that because nobody planned it. It costs what the market will bear -- a concept familiar to everybody who's visited a yard sale, but alien to the government, the Federal Reserve, and apparently the Wall Street Journal.