ZH: Austrian Economists' Advice On Deflation: "Just Go With The Flow"
"First, in historical fact, deflation has had no clear negative impact on aggregate production. Long-term decreases of the price level did not systematically correlate with lower growth rates than those that prevailed in comparable periods and/or countries with increasing price levels"
My answer: See 1929-1939 when GDP fell by -25% in three years amid unparalleled deflation
"Second, it is true that unexpectedly strong deflation can incite people to postpone purchase decisions. However, this does not by any sort of necessity slow down aggregate production"
A: Is this fake news? I've heard about this kind of thing before whereby people make assertions and then contradict themselves immediately afterward
"the great majority of the population—will by and large buy just as many consumers’ goods as they would have bought in a nondeflationary environment"
A: See next paragraph whereby he asserts that mass bankruptcy is not a problem. And then jump back to this section and pretend that it's not a hindrance on buying consumer goods.
In actual fact, then, consumption will slow down only marginally in a deflationary environment
A: It slowed down by -25% of GDP by 1933
And this marginal reduction of consumer spending, far from impairing aggregate production, will rather tend to increase it
A: Of course
Third, it is correct that deflation—especially unanticipated deflation—makes it more difficult to service debts contracted at a higher price level in the past. In the case of a massive deflation shock, widespread bankruptcy might result. Such consequences are certainly deplorable from the standpoint of the individual entrepreneurs and capitalists who own the firms, factories, and other productive assets when the deflationary shock hits. However, from the aggregate (social) point of view it does not matter
A: We'll see you in the riots
Fourth, it is true that deflation more or less directly threatens the banking industry, because deflation makes it more difficult for bank customers to repay their debts and because widespread business failures are likely to have a direct negative impact on the liquidity of banks. However, for the same reasons that we just discussed, while this might be devastating for some banks, it is not so for society as a whole.
A: We'll see you in the riots
In the light of the preceding considerations it appears that the problems entailed by deflation are much less formidable than they are in the opinion of present-day monetary authorities.
A: Batten down the hatches
