In Unthinking Economic Parrots and Deflation Fighting Madness I trashed unthinking writers who parrot the Fed’s misguided beliefs about the importance of inflation expectations and why falling prices are bad.

I specifically quoted one parrot who said “Deflation is particularly damaging to economic growth as consumers delay purchases until prices fall further.”

This was my rebuttal….

The ineptitude of Japan’s policies hoping to combat deflation is staggering. Worse yet, unthinking economic parrots talking about the “economic damages of deflation” have no idea what they are even saying.

I wish economic writers had the ability to think rather than parrot ideas espoused by Keynesian clowns.

Series of Questions

  • If your refrigerator conks out, will you buy a new one or wait 6 months to take advantage of lower prices?
  • If the transmission on your car fails will you wait 6 months to get it fixed?
  • If your pantry is bare, will you wait 1 month to buy food even if you expect food prices to drop?
  • If you need a new winter coat, will you wait and if so, how long?

The answer to that last question is “Perhaps for a bit, but you will not wait 3 years even if you expect prices will be even lower 3 years from now.”

Short of assets like stocks, bonds, and housing (and except for periods of hyperinflation) it is tough to cite any examples where inflation expectations mean a damn thing.

Miracle of Survival

Today I received an even better example from “Chris” who writes…

Hello Mish

The best argument in your “winter coat” deflation comparison is consumer electronics. Everyone knows that as soon as they buy something from the consumer electronics department the price next month will go down or the same product will be offered with more bells and whistles for the same price. Yet by some miracle Best Buy seems to survive!

Thanks Chris

Thus, the next time you hear the Fed or some parrot taking about the importance of inflation expectations and how people will hold off buying stuff if they expect prices to fall, please calmly ask them how the hell Best Buy stays in business, making a huge profit on hundreds of stores, selling merchandise that will undoubtedly be lower in price in a few months.

According to the incredibly silly “inflation expectations” model, Best Buy cannot possibly exist, so it must be a miracle that it not only exists, but thrives.

Are Falling Prices a Bad Thing?

Ask anyone on fixed income if falling prices are a bad thing. Ask students or those on minimum wage if falling prices are a bad thing. Ask anyone but the Fed, the Banks, or Government if Falling Prices are a Bad Thing. Look in a mirror and ask yourself.

Parrots trumpeting nonsense about inflation expectations and why lower prices are bad, are nothing but pawns for the wealthy, for central bankers, and for government officials all of whom benefit from inflation because of rising taxes and/or because they have first access to money.

Government in particular benefits from a bigger piece of your paycheck via rising sales taxes, rising property taxes, and rising income taxes.

In reality, inflation is theft from the middle and lower classes for the benefit of government, the wealthy, and also public union workers who have inflation adjusted benefits written into many of their contracts.

Mike “Mish” Shedlock
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