• "Well written, well researched, and the thesis put forth is well argued.... Woods has opened up an area of historical analysis that should invite further study."
    -Journal of American History

  • "During these times that challenge our freedoms there is no one more qualified to make U.S. history relevant to the fight against big government than Thomas Woods."
    -Barry Goldwater Jr.
    Former Member of Congress

  • "I strongly recommend Woods's work."
    -The Honorable Ron Paul,
    U.S. House of Representatives

  • "Written with great clarity and fluency, making the complex philosophical and theological concepts approachable."
    -Journal of American Studies

  • "A must-read."
    -Barron's

  • "An excellent reading source for anyone interested in financial markets, and much more so for anyone interested in learning about capitalism without all the misinterpretations being thrown about in the financial media."
    -Asia Times

  • "Provocative, well-written, and deserves to be read."
    -Catholic Historical Review

  • "An engaging and important contribution to scholarship on the history of American Catholicism."
    -Journal of the Historical Society

  • "Woods and [co-author Kevin] Gutzman appeal to both left and right in this constitutionalist jeremiad…. The authors' exegeses of the Constitution and court decisions, heavy on original intent arguments, are lucid and telling."
    -Publishers Weekly

  • "A marvelous read. Every chapter taught me something new and unexpected."
    -Tom Bethell, senior editor,
    The American Spectator

  • "The hottest book today is Meltdown, by my friend Tom Woods."
    -Judge Andrew Napolitano, senior judicial analyst,
    FOX News Channel

  • "Should be required reading."
    -Economic Affairs (London)

  • "Woods, one of the best classical liberal [libertarian] scholars of his generation, has once more placed us in his debt with this lucid and tightly argued book."
    -David Gordon, The Mises Review

  • "Tom Woods is one of my dearest allies in the struggle against wrong-headed and dangerous economic policy."
    -Peter Schiff

Beware a ‘Deflationary Spiral’!

Or so we’re told. The idea is that if prices fall, people will expect them to continue to fall and will therefore postpone purchases, awaiting still better deals. The postponement makes prices fall still further, which makes people postpone their purchases still longer, and so on and on until we’re all dead.

I’ve covered the deflation issue here and there (in this video, for example, and in Meltdown and Rollback), and my LearnAustrianEconomics.com resource has a deflation section, but I like Robert Blumen’s article on the subject today. It’s in effect a deflation FAQ. Go forth and use this knowledge.

Unlearn the Propaganda!

  • kirk

    ‘inflationists’ – ‘main stream economists’ – cannot imagine a world without inflation, much less deflation, since inflation has been the official policy of the private entity, the fed, for nearly 100 years now.

    these ‘latter day economists’ have imbibed from the trough of keynesian economics for so long and have become so comfortable with inflation as ‘necessary’, they are incapable of recognizing a good thing – deflation – when it is directly in front of them.

    reduced prices may hurt in the faux world in which the ‘main stream economists’ thrive, but to citizens working and buying things to sustain life, lower prices (and a stronger currency) are good things.

    deflation is only ‘bad’ because it stops the ongoing theft that inflation represents and, in this kleptocratic society, theft, as long as it is ‘official’, is a good thing.

  • Andre Veloso

    The deflationary spiral argument is so weak and stupid that i’m wondered how they haven’t remember yet that positive real interest rates could lead to a similar depressive spiral, since savers and investors would just wait and wait…

  • Anonymous

    Expectation of falling consumer prices is not the usual story of a deflationary spiral. If deflation were only a consumer price story, bankers wouldn’t care, because falling consumer prices increase the solvency of debtors.

    The usual story involves leveraged investment rather than consumption. Falling prices create negative equity in leveraged investments, and the negative equity leads to margin calls or defaults, leading to sales that drive prices down further.

    People don’t buy less expecting prices to fall further. People sell more in response to prices that have already fallen, and buyers knowing the pressure on sellers demand lower prices. It’s a supply side story rather than a demand side story.

  • http://rosarynovice.stblogs.com/ Augustine

    I’ve worked in the IT and semiconductor industries for decades now, industries which thrive in churning out ever cheaper products and making ever more money.

    Wit Apple: when I started my career, the Apple ][ cost about thrice in nominal dollars then (or seven times, using the official CPI) than an iMac, yet Apple is far wealthier now than then. And so are the consumers.

  • Anonymous

    I completely agree. My latest gadget infatuation is with a Samsung Chromebook 303C. It has practically replaced my chunky Windows laptop for personal use, and the price boogles my mind. Adjusted for inflation, the price is around five percent of what I paid for my first PC in ’83, when I was much poorer, and the value is easily a hundred times greater. The price of my first PC was roughly the price of my first car. The price of my latest PC is a few percent of the price of my car, and while my current car is only a bit more powerful than my first, my current PC is many orders of magnitude more powerful.

    But that’s why falling consumer prices reflecting rising productivity are not what economists typically mean by inflation.

  • JFF

    So we either have “sticky prices” (a market failure) or instantaneously adjusting deflationary prices (a market failure). Awesome.

  • joe smith

    Has there ever been a time in history where the deflationary spiral has occurred?