I'd be interested in an explanation as to how deflation causes busts - it seems to me that deflation is more of a symptom than a cause. I don't feel like arguing with Magner because he never actually advances arguments, he links other people's arguments which tend to have a more or less tangential relationship to his point. The argument linked may or may not be correct - I don't care to lock horns with Hayek, who is well respected, by many, including myself, for his support for free markets.
On the other hand, Hayek isn't here to answer the hard questions, such as, if the US boom in the 1920s "caused" the Great Depression (which I disagree with) then why was the Great Depression a global phenomenon? Why did it start in other countries, like Germany, before it started in the US? Why did it start in 1927-28?
But we don't have to limit ourselves to the 1920's, there have been other busts, and they remain mysterious phenomena to me. What causes busts?
If deflation causes depressions, how does it work?
Let me stress that I am not talking about the stock market(s) - I am talking about macroeconomies. In fact, I'd rather leave the Great Depression out of it entirely, partly because DJ is sick of my talking about it, and partly because history shouldn't matter if we are talking about theory. |
