Inflation and Deflation

Inflation: a rise in prices and loss in the value of money. Most simply, your dollar buys less and less as time goes on.

While normal people regard inflation as a bad thing, economists (on the whole) favor keeping inflation slow and steady…there’s a perfectly reasonable and defensible argument for this, but every time I listen to it, I just think of the boiling frog.

You’ve heard that old allegory, haven’t you? The frog in the pot doesn’t realize that the water is slowly getting warmer until it’s too late. It applies nicely to a lot of concepts in economics.

Of course, economists as a whole also believe that the only way an economy can be healthy is through constant growth, which makes me think of terminal cancer. Boiled frogs and terminal cancer — there must be better symbols for economics!

But deflation, in which money buys more than it used to buy, is generally considered to be a bad thing, linked to recessions. Not having ever witnessed anything but the most minor and brief instances of money buying more than it used to buy, I can’t really testify one way or the other.

Obviously, economists are dealing with a different world…one in which you can make money do all sorts of neat things without having to worry about tricky variables like paying for basic necessities that get expensive faster than your pay increases. Or paying more and more for a house that is worth less and less. Or putting money away for retirement only to find that the money that could have once let you retire in comfort is now barely enough for the bare essentials (even if it wasn’t lost in risky speculation or to pay for corporate bonuses along the way).

So when we’re officially told that energy prices and consumer prices are dropping (despite the obvious fact that every utility company that ‘serves’ me is raising rates, and I’m obviously paying more for groceries every week), it’s supposed to be a Very Bad Thing. Colorado takes it so seriously that they cut the minimum wage, because obviously people are making far too much money these days…

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