Rick Newman at Yahoo *COUGH COUGH WHEEZE WHEEZE* "News" wrote a piece recently about the horrors and catastrophes of "deflation."
Yes, this economic scourge is so dangerous, so devastating that people unfortunate enough to experience it suffer:
Higher standards of living
An increase in the value of their money
Increased purchasing power
a stable currency
Sarcasm aside, you don't need to be an economist to figure out that the "deflationary spiral" is a Keynesian canard because the WHOLE POINT OF ECONOMICS AND SOCIETAL ADVANCEMENT IS TO MAKE THINGS CHEAPER! It's the SOLE PURPOSE of economics. Increasing standards of living through efficiency. So already you know when somebody warns about the "horrors" of "deflation," you know they're either
1. An ignorant journalist who doesn't know jack about economics or
2. A politician or political operative trying to dupe you
(Mr. Newman is the first, despite his degree in economics, which was no doubt dripping with Keynesianism)
However, this simple logic to find out if believers in the Deflationary Spiral are devils or dupes, does not expressly explain or disprove their claims. That claim being that deflation lowers demand by delaying purchases as people "know" prices are going down and simply postpone those purchases indefinitely into the future. And while it may seem logical on the face of it, that's all it is - logical. Not empirical.
First, in order to believe the Deflationary Spiral exists you have to believe that Americans are financially conscious and savvy enough to know about prices, inflation, etc.
ARE YOU KIDDING ME?????
The average American doesn't even know who's in congress or where Canada is, let alone what the CPI is doing!!!! They are so stupid and so doped up on bread and circus BS that the last thing they're doing is reading Federal Reserve minutes. They are the most economically ignorant population in the history of humanity (but they're experts in the Kardashians and ESPN post game shows).
Second, since the average American is clueless about finances and economics, they spend money like...well...Americans. They save practically nothing,
and (despite enormous debt forgiveness during the financial crisis) have managed to rack up cumulative household debt back above 100% GDP.
Third, Americans lack the capacity for delayed gratification. In the now now now me me me mine mine mine society, nobody is conscious, let alone psychologically capable of budgeting, conserving or postponing purchases.
And finally, women. (Yes, sorry, we're going there, because it's germane and true). Depending on what statistics you want to use, women account for anywhere between 55-80% of all household purchases. And most of them are on worthless and unneeded trinkets and crap. I have NEVER, EVER heard a woman utter "deflationary spiral" because it has never occurred to a newly wed wife to postpone purchases of curtains for her new home, a power tripping NYC marketing executive to postpone purchases of her Pravda shoes, or a naive and clueless college student to postpone the purchase of her $200,000 "Masters in Latina Transgendered Anthropologic Poetry Unicorn Studies."
But the ultimate argument against the Deflationary Spiral is simply one of empircism.
It does not exist.
While I know economists, journalists, politicians, and everyday sheeple just like to repeat things they heard in college or the news, it doesn't make them true. And if you look at spending versus inflation, THERE IS NO RELATIONSHIP.
This chart shows the velocity of money (the rate at which a dollar is spent and re-spent, indicating demand). It is juxtaposed against inflation. To the untrained eye you might be tempted to detect a pattern or relationship between the two, and according to the Deflationary Spiral believers as prices go down you should see a decrease in the velocity of money.
However, THERE IS NO RELATIONSHIP BETWEEN THE TWO. When correlated against one another the correlation coefficient is -.04, meaning no relationship at all.
Naturally, I don't expect my little blog here, let alone this little post to correct the thousands of erroneous pages in economic textbooks. I don't expect this FACT to change politicians' or journalists' thinking (or incentives). And I doubt that anybody at the Federal Reserve will remove their lips from Keynes' dead ass long enough to consider this data. But I do expect my readers and anybody who really cares about politics and economics to know the Deflationary Spiral just doesn't exist. And that the next time you hear somebody trying to "scare-tactic" you using the "Deflationary Spiral" to know it's a calculated political move to allow for more government debt and printing of money.