Falling prices are bad for you?

Price inflation has slowed, but that doesn’t mean prices are coming down. They just aren’t rising quite as fast as they were.

Price inflation is by design. Remember, the powers-that-be target a 2-percent reduction in the value of your dollar.

Conventional wisdom holds that falling prices are detrimental to the economy.

Once again, conventional wisdom is wildly wrong.

If you are a sane person, you understand this. In fact, most people wish prices would go down right about now. It would undoubtedly help your quality of life, right?

In reality, deflation may be bad for the government, but it’s not a problem for any normal person or for the economy more broadly.

In a recent post on X, somebody trotted out the conventional wisdom, claiming we need fiat money that the government can incessantly print because “It became a necessity when the inelasticity of gold-backed currencies failed to accommodate aggressive economic growth."

However, as economic historian Tom Woods pointed out, this is a ridiculous notion, easily disproved by looking at American economic history. The United States became an industrial power even as prices fell and operated with "inelastic" money.

Woods explained the economic reality.

“If there's more economic activity, you don't need 'more money' to accommodate it. Prices simply fall so the same amount of money can process the increased number of transactions. No big deal.”

When faced with this logic, proponents of the fiat system will tell you that hard money exacerbates or even causes depressions.

This is also wrong.

Economists Andrew Atkeson and Patrick J. Kehoe published an article in 2004 titled "Deflation and Depression: Is There an Empirical Link?" in the American Economic Review. 

There isn’t.

The authors evaluated evidence from 17 countries over a 100-year period and came to this conclusion.

"A broad historical look finds more periods of deflation with reasonable growth than with depression, and many more periods of depression with inflation than with deflation. Overall, the data show virtually no link between deflation and depression."

But don’t falling prices discourage investment? Doesn’t this prevent economic growth, or at least stall it?

No.

Falling prices don’t discourage investment because costs also fall. After all, costs are just the price of inputs. As Woods noted, as long as there is a spread between input prices and output prices, investment remains unaffected.

“Part of the entrepreneur's job is anticipating future prices. Entrepreneurs bid on the factors of production in anticipation of what they believe the finished product can fetch on the market. If they believe that price is going to be low, then they lower their bids for the factors of production, and the whole thing is a wash. If the entrepreneur fails to anticipate this, then it's like any other entrepreneurial error: in the worst case, he goes bankrupt, and his resources are redistributed in bankruptcy court. Production continues as before, but with new owners, and this obviously has no overall effect on the economy.”

The idea that falling prices are bad is nothing but gaslighting by the government and its enablers in academia and corporate media. They need constant monetary inflation to support government borrowing and spending. Fiat money is fuel for big government.

So, they want you to believe that falling prices are bad for you, even though you know in your heart of hearts that they are not. That way, they can keep printing and claim they are protecting you from the horror of paying less for things tomorrow than you are today.

Don’t fall for it!