Not sure how, but I get these occasional newsletters from CaseyResearch.com, and this recent one was rather contrarian to say the least. Casey not only says that deflation is a good thing, but he absolutely rips into my beloved Economist (not to mention all those Nobel laureates out there). That got my ire up but I wanted to see what he had to say:
Q: Doug, according to a recent article called "The Greater of Two Evils," The Economist recently stated that inflation is preferable to deflation. What is your take on that?
Doug Casey: It was certainly one of the most ridiculous articles that I have read in recent years. It is disappointing that The Economist is employing the same quality analysts that have populated magazines like Slime and Newspeak for so long -- utterly conventional, thoughtless, and statist in outlook. Everything in this article is not only wrong but the opposite, exactly the opposite of what the truth is.
You know, it is funny. It starts off with a section title saying "Inflation Is Bad, But Deflation Is Worse." No, inflation is very bad, and deflation is actually quite a good thing. I will explain that in a moment. But the first thing that drew my attention in the ridiculous article was a laudatory comment about Paul Krugman, who, they point out, is a Nobel laureate in economics.
My first comment is that the granting of a Nobel Prize in economics is as meaningless and arbitrary as the granting of the Nobel Peace Prize, which is really just a prize in political correctness and whatever appeals to the mob at the moment. These things are all very arbitrary. They have had excellent economists, and they have had anti-economists nominated for the Nobel Prize in Economics. It’s as meaningless an award as the Peace Prize -- which has been given to criminal personalities like Kissinger and Arafat, and buffoons like Al Gore.
[...]
Deflation is actually a good thing, because in a deflation prices drop and money becomes more valuable, so deflation encourages people to save money. Deflation rewards the prudent saver and punishes the profligate borrower. The way a society, like an individual, becomes wealthy is by producing more than it consumes. In other words, by saving, not borrowing. And during a deflation, when money becomes more valuable, everybody wants money. They want to save. Whereas during an inflation, you want to get rid of the money. You want to consume. You want to spend. But you don’t become wealthy by spending and consuming; you become wealthy by producing and saving.
Inflation encourages people to borrow, because they expect to pay the debt off with cheaper dollars. It encourages people to mortgage their future.
Fiery! I enjoy reading contrarian stuff, although Casey comes across as unnecessarily nasty (looks like that's his schtick, now that I check the site a bit). I don't like having to sift good ideas out of irrelevant invective. I think he does hit on a couple good points - 6-12 mos. of low deflation is probably not a bad thing with regard to increasing personal savings rates, encouraging consumer deleveraging, etc. And it certainly makes the current climate of laughable bank savings and CD interest rates more tolerable. But that's not a sustainable situation. Casey doesn't address the inherent problems of the deflationary death spiral (I love that phrase - sounds like some sort of evil econ prof's terror weapon). He also hints at being one of these guys who wants to return to the gold standard and probably has a custom-made vault in his basement to hold his hoard of bullion. The majority of stuff I've read (admittedly a tiny amount) holds that low to moderate inflation is a good thing.
Then again, I slept through Econ 1, so what do I know?
(Also, Mr Casey, the journalists at The Economist make you look like an arrogant windbag.)
