Grant sez..

Max Sawicky sawicky at
Tue Sep 15 14:10:23 PDT 1998

> I'd say deflation is bad for at least two reasons, one "real," one
> financial. On the real side, since production takes time, firms find that
> plans made (parts procured, workers hired) at one expected price for their
> output find themselves making smaller profits, or even losses, when the
> price level falls. On the financial side, falling prices make the
> real debt burden larger, so firms and households find themselves earning
smaller nominal incomes (as the price level falls) without any offsetting fall in their debt burden. This is the mirror image of the familiar fact that inflation makes life easier on debtors.>

Right. I presume we don't care too much about smaller profits, relative to the effects on wealth of the unwealthy. This goes to your second point, the effect of deflation on debtors, which is the flip side of the interests of creditors, and ought to be a much bigger populist issue than it has been in recent decades.


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