tag:blogger.com,1999:blog-53246864840716464.post3965104194820547155..comments2024-02-29T00:46:38.800-08:00Comments on Washingtons Blog: We've Already GOT Deflation - The Only Question is Whether It Is the Good Kind or the Bad KindUnknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-53246864840716464.post-11884483175608128312008-11-21T10:38:00.000-08:002008-11-21T10:38:00.000-08:00Actually, I changed my mind on that last point. Yo...Actually, I changed my mind on that last point. You can't force people to voluntarily consume, but you can force people to part with their money against their will, and give it to companies/industries in defiance of consumer values, priorities, and financial context. That's what the government is doing - using taxes (confiscated money) to give to whatever industry is begging at the moment, attempting to take the place of consumer spending. But government spending is fundamentally a different thing from consumer spending, and the realities of that will never go away. You either play by the rules of reality, or shoot yourself in the foot until you learn (or die). <BR/><BR/>Hey, Washington: there's a reason we're not spending. We can't afford it. So neither can you.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-53246864840716464.post-67055714757944040612008-11-21T10:25:00.000-08:002008-11-21T10:25:00.000-08:00I'm not too knowledgeable in economics, but it see...I'm not too knowledgeable in economics, but it seems to me that the raw numbers of prices isn't the best indicator of a collective entity's financial health. Shouldn't it be framed in the context of real prices - i.e. what people can (and do) buy with what they earn? That is, how price changes affect the standard of living?<BR/><BR/>As an obvious example, in the computer industry prices for the same item/performance/service consistently and often dramatically decrease in a short period of time, which is a good thing - we can buy more for our money. If this phenomenon were true in all sectors, prices would fall across the board. Perhaps wages would also fall as a result, but the buying power and standard of living would increase (and possibly sky-rocket). <BR/><BR/>So, the question is: are we getting more for less? Or less for less? The former can be a long-term phenomenon, provided it's due to long-term planning and not (panicky) loss-cutting. <BR/><BR/>The latter is not sustainable. Obviously, fewer people are buying right now. For forecasting purposes, their reasons for saving are important to identify. In the short-term, producers are motivated to cut prices. If that doesn't elicit enough sales, producers will be motivated to produce less, so eventually there's going to be less to buy. Then, those that still want to buy will face higher prices (real prices), especially for goods in industries that utilize economies of scale. And across the board, if people's finances continue to be pinched (due in large part to contracted credit), then people will either be unable or unwilling to shell out for as much stuff. So it becomes 'less for more' - i.e. inflation. Yes? <BR/><BR/>Sounds like a contraction of the economy to me. Isn't that what (the bad kind of) deflation is supposed to signal?<BR/><BR/>This is why I think any "spending stimulus" plan is bollux. It doesn't recognize the fact that in a certain sense, supply actually produces demand; oftentimes companies have to educate consumers as to why their product is useful and valuable to them - i.e. how it makes their lives better. Of course, it has to be done smartly, i.e. taking into account the values, priorities, and financial context of likely consumers. Which is why propping up a bloated, inefficient, out-of-touch company or industry (I'm speaking to you, Detroit), is also a bad idea. You can't force people to consume, at least not for very long.<BR/><BR/>Apologies for length....Anonymousnoreply@blogger.com