Saturday, October 16, 2010
Thursday, October 7, 2010
Putting the deflation before the prices
I've had recently a discussion on reddit with a mainstream guy on matters of deflation and its dire[him]/benign[me] consequences. Obviously no one convinced anyone of anything, but that's just... business as usual.
I'm mentioning it here, mostly because I'm bored, but also because this exchange of opinions offered me a glimpse into the way of thinking of deflation bashers/haters. Unless, I'm mistaken (of course) the deflation for them is not something that happens because stuff can be produced cheaper, so it has to be sold cheaper in order to be sold in a greater quantity, something which firms will usually do in order to increase their profits.
For them deflation means just that every firm "will be selling the same quantity of goods for a lower price." *facepalm.jpg*
It seems to me that the only way to came to this conclusion is to consider that first deflation happens, then all prices have to lower, because... because, don't you know there's some deflation haunting around.
What's funny is that such an a conclusion would have been entirely legit with the old-school definition of deflation, as a reduction in the total quantity of money. Money deflation. Except that, even under such circumstances the sooner the price deflation will have happened the better the global outcome will be, since obviously with less money the new market equilibrium will require lower prices. But such a view makes no sense at all, if we speak of modern (price) deflation. But I guess that's what thinking in aggregates does to some.
And... here, I guess, should go a pathetic, pompous conclusion... A task which is left as an exercise to the reader.
I'm mentioning it here, mostly because I'm bored, but also because this exchange of opinions offered me a glimpse into the way of thinking of deflation bashers/haters. Unless, I'm mistaken (of course) the deflation for them is not something that happens because stuff can be produced cheaper, so it has to be sold cheaper in order to be sold in a greater quantity, something which firms will usually do in order to increase their profits.
For them deflation means just that every firm "will be selling the same quantity of goods for a lower price." *facepalm.jpg*
It seems to me that the only way to came to this conclusion is to consider that first deflation happens, then all prices have to lower, because... because, don't you know there's some deflation haunting around.
What's funny is that such an a conclusion would have been entirely legit with the old-school definition of deflation, as a reduction in the total quantity of money. Money deflation. Except that, even under such circumstances the sooner the price deflation will have happened the better the global outcome will be, since obviously with less money the new market equilibrium will require lower prices. But such a view makes no sense at all, if we speak of modern (price) deflation. But I guess that's what thinking in aggregates does to some.
And... here, I guess, should go a pathetic, pompous conclusion... A task which is left as an exercise to the reader.
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