Re: Why growth may stay slow

Warrl kyree Tale'sedrin (
Sun, 22 Mar 1998 11:24:27 +0000

> From: "Peter C. McCluskey" <>
> A better way of understanding deflation (as opposed to the decline in
> prices of specific goods relative to some average) is to view it as a
> rise in the price of a currency. For significant deflation, think of it
> as a speculative bubble where people invest in the currency because they
> extrapolate past trends to justify holding increasing proportions of their
> wealth as currency.
> The main reason this is bad is that nominal interest rates can't go much
> below zero, so that if deflation is -10%, real interest rates are an
> abnormally high 10% or more, preventing most people from borrowing, which
> cuts off a significant source of expenditures.

There is historic evidence to indicate that advancing technology,
social economies of scale, etc. have a long-term average effect of
causing deflation in the price of goods, relative to the price of
basic labor, at about 2% per year. I don't know of any studies of
whether this has increased in, say, the last century in the
industrialized world.

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