Tweetstorm on Deflation

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Tweetstorm on Deflation

By Per Bylund

Posted January 26, 2020

Will #deflation be the end for business? Hardly. Deflation is only a problem for businesses in an inflationary economy. Sounds contradictory, but the point is that business is properly operated aimed toward (meeting or creating) the future–not to repeat but to leverage the past. Entrepreneurs and managers continuously forecast and try to position their businesses with respect to the future market situation. In today’s heavily distorted, #inflation-suffering markets, businesses have learned to anticipate that prices will continue to rise: buying (factor, input) prices as well as selling (output) prices. This is more than simply relying on experience, which is a shaky foundation for predicting the future. In present markets, government through central planning of national currencies promise to enforce inflation. The policy is to always inflate the currency, and this is the context for business. Thus, should deflation occur, despite government’s attempts to go in the opposite direction, businesses are unprepared to handle it. Because they have not and also should not have considered deflation. Deflation will consequently be hardest on businesses in an inflationary economy. But this is not an argument against deflation per se. Any unhampered market is always deflationary: the purchasing power of wage earners’ salaries increases over time while prices fall as a result of competition and innovation. This does not lead to overall failure, as macro-‘economists’ would have us believe. Instead, businesses learn to deal with this just like they learned to deal with a politically controlled and constantly inflated currency. The problem lies in the government’s promise to cause inflation through policy (which is really a hidden tax and makes us all poorer). And the costly uncertainty caused by the monetary and fiscal policy where this promise fails (which also makes us poorer). Without these, business would thrive.

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