Grant sez..

Max Sawicky sawicky at epinet.org
Tue Sep 15 08:28:42 PDT 1998



>
> Well, I guess I'll ask again. Won't somebody take pity on an
> ignoramus, and explain to me what deflation is and why everybody is
> worried about it?

Deflation is a decrease in the price level, meaning a lower average price. People often confuse a continuing rise or fall in prices with a single change, hence the tendency to worry too much that inflation turns into a 'spiral' of inflation or hyperinflation.

Deflation is worrisome because in advanced industrial economies, for broad categories of consumer goods, it is rare and usually reflects a slowdown in economic activity, even to the point of a contraction of an economy.

In a piece I did on deficit reduction, I described economic interests who stood to benefit from deflation as a 'deflation lobby.' The most obvious candidate for such a lobby is the bond market, including bondholders and the myriad of brokers who service them. There are others. Bob Woodward's book, whose name escapes me at the moment, is an interesting account of how the bondsmen, their prince Robert Rubin, and King Greenspan came to run the Clinton Administration.

MBS



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