The Problem is not the Specter of Deflation, the Problem is the Inflation Rate Is Too Low
Okay, this is no longer amusing. Can we stop the nonsense about deflation. It doesn't make a f***ing bit of difference whether prices are rising at a small positive rate or whether they are falling at a slow rate, except for the fact that the inflation rate is lower.
This really should not be hard to understand. The inflation rate is a composite of millions of price changes. When the inflation rate is very low, as it is now in the euro zone, a large portion of these price changes are already negative. Since the overall inflation rate is positive, it means that the increases are either somewhat more numerous or larger in absolute size than the decreases.
However, suppose the ratio shifts, from say 55 percent increases against 45 percent decreases, to the reverse. How can this shake the economy? Many businesses were already looking at falling prices, now a few more are looking falling prices, so what?
The point should be simple, the problem the euro zone is an inflation rate that is too low, which means the real interest is higher than would be desirable given the weakness of the economy. Having the inflation fall further makes matters worse, but crossing zero does not matter. Crossing zero does not matter. Someone please tell the NYT's editors and reporters . It should not be hard to get this one straight. ( Here 's the I.M.F. on the topic for those who care more about authority than evidence and logic.)
The Problem is not the Specter of Deflation, the Problem is the Inflation Rate Is Too Low
by Dean Baker, Center for Economic and Policy Research
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Dean Baker is tired of lousy journalism...
I once wrote a story about how economists are never happy. Accountants are never happy. Farmers are never happy. TV preachers are never happy. Gloom and doom seem to follow these people wherever they go. No matter what happens, they focus on the down side.
If the farmer's wheat crop is producing a bushel per foot, he's not happy-- abundant harvests drive down the price of wheat. If his cows all have twins, he's not happy, because it costs more to feed them. If his chickens all start laying twice a day, he's not happy, because a "heavy lay makes the hens weak".
TV preachers delight in telling everyone that they're going to hell and must repent. Even if someone behaved perfectly, all day, they have original sin to fall back on as a means for condemning someone.
Everything that happens has some good and some bad to it. I just don't pay any attention to them any more. I don't need that kind of negativity in my life.
"The Dismal Science"...