Krugman suggests deflation is bad:
http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/
But from the forum discussion here, it appears deflation is good.
Overall, which is it? Is deflation good or bad?
My advice to you is to briefly summarise the arguments that you are contrasting
lol. That’s all.
Way to go, nigraham. I really like that answer.
Good or bad is opinion.
it depends how the inflation/deflation ocurrs… changes in the stock of wheat or computers ocurr all the time and the world does not end.
Let me make a somewhat subtle point using cause and effect analysis. Deflation is often an EFFECT of recessionary economic behavior. Deflation is not the cause of recessionary behavior, it is the antidote to it. Capital resources find their true market price in the adjustment phase, and resources are distributed to the people who value them most, and thus can use them in activities that are most in line with consumer demand.
Similarly, inflation is often an EFFECT of non-recessionary (growth) economic behavior. Inflation is not the cause of economic growth, it is the result of it.
These relationships have been in tact since the gold standard ended.
When the gold standard was in use, deflation was not caused by recession-like behavior (and thus loans and debts unwinding, and thus lowering of money supply and greater demand for dollars in uncertain times). Deflation was caused back then by economic growth, as more goods and services were chasing the same amount of money. Hence, when historians look at the 1870s, they see depression, because they see deflation. The opposite is true - the deflation in that decade was the result of goods and services becoming much more abundant, and thus their price decreased.
Deflation is good - the same amount of money buys more goods and services! And it incentivizes prudent saving and economic calculation rather than fooling consumers into parting with their money prematurely because they don’t know how much it will be debased in the future (regime uncertainty).