Saturday, January 10, 2015

Consumption will be postponed because of deflation? How much truth… how much nonsense?

We so often read of central banker’s being very scared of deflation because the expectation of lower prices would cause consumption to be postponed and therefore economic activity to be reduced. How much truth is there in this… and how much nonsense?

I guess no one in the upper 1% would postpone one iota of their demands because of this… nor is deflation much likely to affect the products and services they demand.

I guess that all who have unsatisfied needs, by far the largest proportion of the population, will just appreciate the possibility of satisfying more of these needs, and also not postpone one cent of their aggregate demand.

And I guess that of all those who could perhaps benefit from some purchase postponement, but who suffer the instant-gratification virus, will also not postpone satisfying any demands.

And so we come down to trying to estimate how much of the population have satisfied their current demands sufficiently; and who at the same time are sufficiently disciplined not give to in to instant gratification, and who therefore would save and net postpone some purchases.

And the savings resulting from those postponements, where would these go?

To sum up... I have no idea!

But I do know that inflation... is a tax that primarily hurts the poor... and so in a world full of Pikettys, it is sort of strange hearing central banker's wish for it... just as hearing central bankers who one normally think of in terms of being very thrifty fellows... wanting to rob value from their children's piggy banks. 

PS. Europe, should oil reach US$ 150 a barrel so as to allow ECB to celebrate having reached its inflation target?