Is Deflation Better?

re: Is Deflation Better?

Alex Merced — Sat, 17 Apr 2010 00:00:21 GMT

I agree, when I'm referring to deflation I'm mainly to referring to artificial reductions of fiat mneys supply, I am totally ok with adopting a commodity money no matter the supply of it.

re: Is Deflation Better?

Manestor — Thu, 08 Apr 2010 09:29:42 GMT

Deflation is necessary. We should not prevent it, we should not be afraid of it's consequences, we should welcome it.

Deflation as an artificial regulation, of couse, just works out like any other regulation, i.e very badly. But we live in an artificial fiat currency / inflationary world. In order to go back to a commodity based currency standard (it doesn't have to be gold), readjustment of the money supply is necessary. That would mean deflation, yes, and that is good. That is the desired alternative we should put foward.

When we reach a natural equilibrium with a commodity based currency, you can talk about about a no-inflation-nor-deflation policy but until then, when someone asks you if stopping inflation means deflation you should say yes. People are not concerned about what should be done in an ideal world, they want to know what you plan to do now.

You might already be aware of this. This may be a simple confusion in terms but I think it is worth pointing it out. You talk about deflation as a "manipulation of the money supply ". A more objective definition of deflation is decrease of money supply. Not necessarely a manipulation, which implies tons of regulations. You seem to be considering arificial deflation only. Any sensible economist should be against artificial regulations. But you can't consider putting an end to a regulated system like any other regulation.

re: Is Deflation Better?

Manestor — Thu, 08 Apr 2010 08:57:24 GMT

In an ideal world, I agree, there would be no inflation and no deflation either. But for now, in this inflationary / fiat currency world, deflation is absolutely necessary until we stabilze the money market. Going back to a commodity based currency is not an artificial regulation, it is precisely the opposite. That would mean a decrease in the quantity of money but this kind of deflation is necessary and should be welcomed.