Deflation worries?

[racolvin]

CNN Story on Deflation

If falling wages and prices are that much of an issue, why not do a wage and price freeze like Nixon did? I don't pretend to understand the ramifications of that so no flames please ...

 

[Vette73]

Look up Zimbabwe and that is what would happen.

 

[SleepWalkerX]

Prices are determined by the free market. When we say the free market we mean individuals making free choices. The price of a pound of meat is determined by how ever much the consumer is willing to spend and however much the other person is willing to sell it for. The same goes for wages. These prices are determined voluntarily between you and the other person. If either you or the other person does not approve of the deal then you both have the freedom to walk away.

Price floors/ceilings are basically saying there is a justification for having an outside party dictate what prices should be. This is called coercion and is the opposite of voluntary exchange since both parties do not have an equal say in determining value.

edit: As far as problems are concerned, well that depends on the person. From my perspective, I feel its wrong to force others in to situations that can be resolved voluntarily.

From the consumer's perspective, price ceilings are beneficial to most because they get lower prices for goods that are normally more expensive overall. However, the flip side is that the business usually gets less room for profit so they quickly sell out and run out of inventory. Afaik, this is part of the reason why we had gas shortages in the 70's. However, at the same time prices would have sky rocketed if there were no price controls which means consumers would've had to restructure their driving habits while facing higher gas prices although they might've had a better chance of getting gas.

Government intervention through price manipulation may create short term benefits for the consumer (or the business, usually this is never the case), but generally leads to some form of inefficiency because it assumes there is an objective, rational price when prices are actually relative.

 

[StageLeft]

Well, I hope not. It's strange that we're seeing a lot of good arguments for both it and inflation, but maybe they're only good because I don't understand it enough to mock one of them as it probably deserves (that or, it truly is so complex an issue as to be hard to convincingly nail down).

 

[Zebo]

Yeah I heard both arguments too. Reason is traditionally economists associate economic depression with price deflation since they make the assumption money supply will freeze since we don't need more money if businesses arnt expanding and whole neighborhoods arnt springing up.

However in this debt riddled America many think the Feds will just print money hand it out to service debt which is why we could see an inflationary depression.

I think I'm going Pheasant hunting this weekend and not worry about it. Internet and its info is depressing.

 

[SleepWalkerX]

Originally posted by: Skoorb
Well, I hope not. It's strange that we're seeing a lot of good arguments for both it and inflation, but maybe they're only good because I don't understand it enough to mock one of them as it probably deserves (that or, it truly is so complex an issue as to be hard to convincingly nail down).

There's a lot of information to soak up in this crisis. There is evidence that points to both inflationary actions and deflationary actions. However, in our current and observable predicament we are undergoing deflation. If it was inflation was prevalent then businesses would not be cutting off jobs, they would be constantly increasing the pay of every employee.

Now the Fed's policies are definitely inflationary and I have reason to believe that after the deflationary unwinding of debt we are looking at record levels of inflation. What's happening now is that banks are grabbing tons of credit at record low levels and hoarding it until they get back on their feet. Then they'll be able to start lending again. Its called a liquidity trap. But the question is, once the banks stabilize will anyone else in the world want the dollar? Plus, will we, as Americans, be ok with a massively inflated dollar?

 

[yllus]

In the couple of books I've read on the subject, wage and price freezes have always been seen as detrimental to the economy. I think Alan Greenspan's autobiography put forward to most critical analysis of the idea, though perhaps he's not one to be listened to considering our current predicament.

 

[Steeplerot]

Originally posted by: yllus
In the couple of books I've read on the subject, wage and price freezes have always been seen as detrimental to the economy. I think Alan Greenspan's autobiography put forward to most critical analysis of the idea, though perhaps he's not one to be listened to considering our current predicament.

Probably good advice to ignore the free market libertarians types, forever.
Extremes in economic theory are flawed, history shows this over and over.

 

[StageLeft]

though perhaps he's not one to be listened to considering our current predicament.

 

[dullard]

Nixon's freezes were a complete failure for what they intended to do. Inflation in 1968-1970 was between 4% and 6%. It was high, but not really too bad. By the time Nixon's freezes took effect in late 1971, inflation was already in the typical 3% range. But what happened over the next 3 years of freezes? Inflation soared to 12% in 1974. Inflation rose to levels not seen since WW2 and stayed high until 1982. The freezes did the EXACT opposite of their intent.

Now you want to try freezes again?

Right now, we are right about the point where Nixon was. Inflation earlier this year was reaching 6% on an annual basis. But, inflation has since dropped (latest data was 1% inflation since this time last year). Nixon was at 6% and dropped to 3% when he imposed his freezes.

The problem this time is that if your wages were frozen artificially high, then why would any business keep you employeed? In deflation, businesses are the ones hurt first. Thus, they have little money and little sales and your wages are artificially stuck high. Their best solution is to fire you. Now, it is your choice: (a) no work in a recession or (b) slightly decreased wages at your current job in a recession. I'd personally choose (b), but the freeze would force me to choose (a).

 

[BoberFett]

Originally posted by: TheRedUnderURBed

Originally posted by: yllus
In the couple of books I've read on the subject, wage and price freezes have always been seen as detrimental to the economy. I think Alan Greenspan's autobiography put forward to most critical analysis of the idea, though perhaps he's not one to be listened to considering our current predicament.

Probably good advice to ignore the free market libertarians types, forever.
Extremes in economic theory are flawed, history shows this over and over.

Yeah, because the big government way is doing so well for us lately. :roll:

 

[brencat]

Originally posted by: SleepWalkerX
There's a lot of information to soak up in this crisis. There is evidence that points to both inflationary actions and deflationary actions. However, in our current and observable predicament we are undergoing deflation. If it was inflation was prevalent then businesses would not be cutting off jobs, they would be constantly increasing the pay of every employee.

Now the Fed's policies are definitely inflationary and I have reason to believe that after the deflationary unwinding of debt we are looking at record levels of inflation. What's happening now is that banks are grabbing tons of credit at record low levels and hoarding it until they get back on their feet. Then they'll be able to start lending again. Its called a liquidity trap. But the question is, once the banks stabilize will anyone else in the world want the dollar? Plus, will we, as Americans, be ok with a massively inflated dollar?

I agree with your view 100%. Deflation, then massive inflation along with an incredibly weak dollar. The USD has dropped from $1.26 Euro to $1.43 Euro in just 6 trading days, while gold is soaring again.

 

[piasabird]

I dont see any deflation in the prices I am paying for groceries. All I see is the devaluation of the $$. That is the most important thing to get under control.

 

[Xavier434]

Originally posted by: BoberFett

Originally posted by: TheRedUnderURBed

Originally posted by: yllus
In the couple of books I've read on the subject, wage and price freezes have always been seen as detrimental to the economy. I think Alan Greenspan's autobiography put forward to most critical analysis of the idea, though perhaps he's not one to be listened to considering our current predicament.

Probably good advice to ignore the free market libertarians types, forever.
Extremes in economic theory are flawed, history shows this over and over.

Yeah, because the big government way is doing so well for us lately. :roll:

Both extremes suck. The big time Libertarians are no better than the big government types. They would slit their own wrists before admitting to it though.

 

[imported_K3N]

Free market is a big fat hoax. When you have big companies like oil cartels who work together to determine/influence the price of necessary commodities like oil, that's not free trade. When you have multinational corporations who control the natural resources of other nations and don't give a part of their due to the people of the country they are exploiting , thats not free market. When the money supply is privately controlled, thats not free market. The last time we had a "free market" was during the neolithic era, 10000 years ago.

 

[dmcowen674]

Originally posted by: K3N

When you have big companies like oil cartels who work together to determine/influence the price of necessary commodities like oil, that's not free trade.

Could use your input in the oil/gas thread.

It is overflowing with oil cartel apologists.

 

[Acanthus]

Originally posted by: piasabird
I dont see any deflation in the prices I am paying for groceries. All I see is the devaluation of the $$. That is the most important thing to get under control.

i noticed it with soup, corn, TP, soda, milk

 

[Craig234]

Originally posted by: BoberFett

Originally posted by: TheRedUnderURBed

Originally posted by: yllus
In the couple of books I've read on the subject, wage and price freezes have always been seen as detrimental to the economy. I think Alan Greenspan's autobiography put forward to most critical analysis of the idea, though perhaps he's not one to be listened to considering our current predicament.

Probably good advice to ignore the free market libertarians types, forever.
Extremes in economic theory are flawed, history shows this over and over.

Yeah, because the big government way is doing so well for us lately. :roll:

Predictably, Bobberfett draws exactly the wrong conclusions from the problems.

His ver framing, as if 'big government' means exactly one thing, is nonsensical.

One hint for him just to get started - whether the money is in 'government' or 'private' hands can matter less than what's done with it and who has how much power.

Why do you think one of the wealthiest private men in the country steered his sons into politics? Because starting with FDR he saw 'that's where the power is going to be centered'.

(That man being Joseph P. Kennedy).

It didn't matter so much whether the elites prosper because of a lack of the government interfering with their exercise of power, or whether the government acts as their agent.

What did help was having the public get more representation, as they did under governments such as the two Roosevelts or JFK's.