Deflation: Pros, Cons and Responses

The headlines have started picking up on the D-word, and generally they follow the same story line: Lower prices are bad, because people start putting off purchases and investments. This sets off a vicious cycle in which the more people wait, the faster prices fall, and the more people wait. The economy grinds to a halt.

Also in the headlines today, retail sales have dropped by a record 2.8%. Also assumed to be bad.

I’d like to ask a few awkward rhetorical questions about all this:

If people are waiting to purchase something, doesn’t that mean that they don’t really need it? Doesn’t this primarily affect speculative purchases? (and yes, I know from personal experience that a lot of people are having to hold off on things that they do need, including rent and food)

Won’t consuming at a slower rate mean that it takes longer to consume whatever we have left, including everything from oil to salmon to trees?

Wouldn’t a decrease in consumption go a long way towards giving us more time to deal with the urgent need to develop new fuel sources before we run out of petroleum? Wouldn’t this also slow down climate change, which is in the news again because an entire nation, the Maldives, is getting ready to abandon ship over the next generation or so.

Wouldn’t it be just for us to reduce our consumption to something closer to what the rest of the world consumes? Especially when the rest of the world is less insulated from the environmental impacts of our consumption?

Wouldn’t it also help out with the general problem we have with debt in this society, from the individual to national level?

Aren’t lower prices better for the poor, even more than they are better for everyone else?

Now, of course it isn’t that simple. For example, many poor have high debt, and eventually deflation will lead to lower wages and the effective increase of that debt. That’s bad. In the short term, it will lead to layoffs, meaning fewer people have any income at all, and the burden on public assistance will increase at a time when government is also going broke. That’s even worse.

However, nobody ever said that breaking an addiction would be easy. When it’s as big and intense and all-pervasive as our debt habit, and our economic model that is based on perpetual growth on a planet with shrinking abilities to sustain us, you know that there are going to be some really nasty shakes before we get this crap out of our system.

And continuing with this analogy, I might add that it would be smart to get our debt intake down as much as possible before events force us to go cold turkey.

I’m sure that this line of reasoning is pushing all sorts of buttons for all sorts of people, and I’m sure that many people don’t want to hear someone advocate for them to try to make ends meet without a credit card. But I want to point out that I’m not advocating for something, so much as pointing out something that is happening.

It’s as though I am observing that the sun is setting, and people are pointing out that without the sun the crops won’t grow. This is true, but without the night the crops will burn up. We’ve been burning up the earth at a terrifying rate, and it needs a rest from us. The earth will take that rest, regardless of our efforts to postpone it. Arthur Waskow observed that we can either find ways to rest with the earth, or it will drive us out and rest without us (a process that has already begun in some places).

We’ll be better off if we find ways to adjust to the coming night, rather than fighting it. We need to stop resisting the symptoms of systemic collapse, identify the causes of that collapse, and make changes where needed. 

So what does that look like?

Well…um…I don’t know.

And with that, I’m sure I’ve angered everyone who wasn’t already angry, but it’s the truth. I don’t have the answers. We all need to be working on this from the ground level, wherever we are. “Yes we can,” remember?

But here are a few models to stir your imagination.

First, look into alternative currency, which keeps wealth in the community regardless of whatever stupid thing is happening with the value of the dollar. These are generally linked to hours of labor, and therefore have an equalizing effect because everyone is paid the same. Barter facilitation is going to be imporant, because people will keep needing goods and services regardless of how scarce or worthless money becomes. These were popular in the Great Depression and Argentine Collapse of 2001-2, and have existed even during our recent boom times as a supplement to build a local economy:

We also need to start finding ways to produce food that is not for sale. My current favorite example of this is Urban Farming in Detroit, which is running 20 urban micro-farms on vacant lots, providing fresh produce that is shared freely with the neighbors and food banks.

Finally, I want to point out a couple of solutions from the Great Depression that would be appropriate for a situation that is more dire than what we are currently facing. I still think it is good for us to be thinking ahead like this, not so much to worry about things getting worse, but to reassure ourselves that there are models for how to hold community together if they do.:

Whatever the long term trajectory of This Mess, the next year or so is going to be rough. We need to pull together with as much generosity, creativity and pluck as we can muster.

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2 Responses to Deflation: Pros, Cons and Responses

  1. Pingback: Good news at last! « Cooperate and No One Gets Hurt

  2. King Robert says:

    Dear Sir,

    Why do world leaders want an inflation rather than deflation?
    It is like better to have an erection than a ……….
    But after every erection & ejection, the penis will automatically deflate.

    Bizmen are greedy & cunning and they want to push the prices up & up to dizzy heights at a level when consumers find difficulties to buy. THEY JUST WANT TO MAKE ALOT OF MONEY.
    Many are due to SPECULATION rather than real price esp in real estate & stocks. They even employ the media, accountants etc to talk up the stocks like ENRON etc
    When you have un-realistic price it has to be corrected.
    You don’t stand on solid ground.
    Inflation pushes millions into POVERTY.
    Inflation is a form of SLAVERY.

    So called economists say deflation will adversely affect the FARMERS.
    But farmers & fishermen told me that they get pittance for their produce and it is the shrewd middlemen who make most of the money. This can be easily rectified by improving the system from production to the consumers.

    Nations are bailing out crooks & conmen to the tune of BILLIONS in the Banking, Insurance, etc. And the public is paying for their mistakes & con.
    Will they give money to the people if they make money ?

    The normal solution is to print money out of trouble.
    IS THAT SO EASY ? Then every nation should invest a big Mint rather than trying to produce goods & services.
    I think you can fool people some of the time but not this time.

    Let the prices come down to its realistic level in relation to the average income of the majority of people in the country.
    Tell the bizmen that they should acquire their wealth SLOWLY & SOLIDLY rather than QUICKLY & OVERNIGHT through SPECULATION & CROOKED MEANS.
    Profiteering can be self defeating.

    Politicians must NOT over-ride on biz for which they have power to do so in various ways. This causes prices to rocket!!!

    Dr. H C Chan

    +6 012 221 5771

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