By J.K. Baltzersen
We hear from the mainstream all too often how bad price deflation is.
We also hear that it’s been a big problem for Japan.
In light of this, an article today in Dagens Næringsliv, one of Norway’s major business dailies, is interesting. The article is by the newspaper’s finance editor, Terje Erikstad.
Mr. Erikstad says:
From 2000 till 2007 the value creation per capita was somewhat greater in Japan than in the U.S. That’s really interesting, because it’s in this period that Japan has had a declining price level. Deflation has in other word not killed growth in the “Land of the Rising Sun.”
He hurries to say that there are problems with price deflation. It makes carrying debt harder, and it does allow for “traditional monetary policy.” Well, we see the problems created by cheap credit. It is not obvious, to say the least, that a higher burden of carrying debt is a problem. The central bank not being able to carry out “traditional monetary policy” is not a problem either, whereas setting the interest rate below the rate that the market would set does give problems. Check out the Austrian theory of the business cycle.
The author claims that the best thing is to avoid price deflation, and he ends the article with:
But the numbers from Japan suggest that it is also possible to live quite well with deflation.
Yet, the article is indeed interesting. It comes from the mainstream business media. And it debunks the myth that price deflation spells doom.