The problem with a deflationary economy is the built in rigidity
of the economic system. An inflationary economy may be very
destructive in the long run or if the inflation is very high;
however, rounds of financing, increasing profits, wage increases,
commodity increases can all be accomodated because of human
psychology. Prices go up, wages go up, commodities go up, bankers
can justify greater and greater loans, etc. There is little
flexibility on the down side. Instead of general decreases spread
out over everyone we get crashes as companies chop jobs, go
bankrupt. There's never been a flexible downside mechanism.
Wage and price controls have a poor record. There is no way of
easing the deflationary costs across the whole system.
I must admit I have a great nostalgia for the time that I believed
a dollar was a dollar and would always be worth a dollar in
purchasing power. Interestingly, as the economists know, a lot
of items cost approximately the same as they did five decades
ago.
Thanks for the tip about the SA thread. If there is an industry
shift as opposed to a company shift understanding that will do
more for us than understanding what is happening with one
company. |
