Opinion from a Libertarian ViewPoint

Deflation Scare Tactics

Posted by Martin C. Fox on October 20, 2014

War Street Journal red alert. Deflation is raising its ugly head.

We need 2% inflation. Why?

One of the basic tenets of free market economics is the market responds to demand by increasing production. This is accomplished by improving processes and efficiency. The end result is prices go down and more products are sold.

The WSJ via Paul Krugman, the New York Times resident Keynesian, says this is bad.

Krugman has three reasons to be wary of falling prices

Falling prices cause people to hold off on purchases, waiting for prices to further decrease.

Deflation makes the dollar worth more causing debtors to pay off debts with higher value dollars.

Wages decrease with prices.


Walmart is a multibillion dollar company because they have “price reductions”. It’s customers don’t stand around waiting for the store staff to mark down prices, they buy. Major commodities that have constantly reducing price tags are, to a lesser extent, computers and, to a greater extent, televisions and telephones. According to Krugman these should be growing roots on store shelves. The reality is they are flying off shelves. Go to the TV department in Walmart before NFL pre- season.

Inflation is a tax that lowers buying power. Deflation raises buying power. Who does not want more buying power? True, debtors take a hit. But no one, even debtors, turns away more bang for their buck. Again, look at Walmart.

Deflation can be wage “sticky” but that is offset by more buying power. Inflation is definitely NOT wage sticky. When inflation goes up “real wages” do not. Inflation adjusted wages have been stagnant for decades. The dollar is worth only a few percent of what it was when the Fed was created.

According to David Stockman the energy-food adjusted inflation rate has averaged about 1.9% for a long time. A temporary dip to 1.7% is insignificant and not unusual. If you do the grocery shopping you know that if food prices were included the inflation rate would be sky-high. 1.9% is a false, feel good figure. Stockman hasn’t seen any analysis justifying why 2% is better or worse than any other figure.

So why are the WSJ/Fed so keen on inflation?

Stockman has some answers.

Inflation is 99% money printing by our Fed friends. Governments needs more, constant decreasing valued fiat dollars to pay off huge government debt. Stockman says the world’s major central banks have printed 10 trillion dollars in the last eight years. The low inflation=slow growth mantra is the latest “Big Lie”.

The debt issued can be examined from another angle by remembering Randolph Bourne’s quote “War is the health of the state”.

We are now in a state of perpetual war. It takes money to wage war. Washington’s Military-Industrial –Banking cronies don’t do charity. War is always financed by printing money out of thin air.

Murray Rothbard’s “Conceived in Liberty” describes how the revolutionary war was funded. The “Colonial”-our first dollar. The colonial was printed in vast amounts to pay war bills. It’s buying power decreased to such a great extent that soldiers and suppliers refused to accept it. We have learned nothing in 230 some years.

The WSJ, banks and the Fed’s Janet Yellen worship fiat money and detest precious commodity backed currency. They are not our friends.

Be seeing you


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