Price deflation is the normal state of affairs when the Government isn't inflating the currency. It isn't a problem to be solved. A financial bubble is the problem. Japan is trying to create a bubble in its economy. Even if they succeed it will deflate at some point in the future. The bigger the bubble, the deeper and longer the recession/depression that follows the bubble.
Deflation may be the "normal state of affairs when the Government isn't inflating the currency", but that doesn't mean it isn't a problem. And that's a flawed description of affairs.
Deflation is more specifically the normal state of affairs when the government enforces a legal tender law on a scarce, slow-growing currency such as gold. It doesn't happen when the currency is fast-growing, like silver was in the late 19th century, or like tobacco was during the colonial period. And it doesn't happen in a barter system. The establishment of the gold standard was a major political effort that was only accomplished by the McKinley administration around the turn of the 20th century (having been preceded with an even less tenable system of bimetallism that finally collapsed due to the Nevada silver rush).
As for whether deflation is a problem, deflation disincents both investment and spending, which means in a very real way that deflation disincents economic growth. The situation you describe would also be possible only with a return to the gold standard, which would effectively price gold out of any kind of industrial use--something that would have negative economic repercussions in itself, and which would likely cause extremely high rates of deflation in the future.
Mild deflation is better than runaway deflation just as mild inflation is better than runaway inflation. But it seems that mild inflation is actually better than mild deflation.
I'm not impressed by think tanks: they come up with the conclusion first and the reasoning second.
I suspect the article is confusing cash and cash equivalents like savings accounts. It says that cash is 16% of the Japanese GDP. I have a hard time believing that. The Japanese have a high savings rate and the predominant means of saving is postal (government) savings accounts. (The last time I read about it was the middle of the last decade.) If I am correct, they are contemplating negative interests rates on savings accounts. They might be considering the elimination of cash to prevent people from pulling cash out of their savings accounts and putting it in their mattresses or lock boxes.
yeah just issue vouchers to redeem certain products from certain vendors. then said vendors set the price. voila, no deflation. you also just duplicated the economy of the soviet union in 1942.
I'm assuming that negative interest rates would encourage spending, but I'm wondering why this wouldn't simply encourage people to move their money to foreign banks?
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[ 3.0 ms ] story [ 45.6 ms ] threadDeflation is more specifically the normal state of affairs when the government enforces a legal tender law on a scarce, slow-growing currency such as gold. It doesn't happen when the currency is fast-growing, like silver was in the late 19th century, or like tobacco was during the colonial period. And it doesn't happen in a barter system. The establishment of the gold standard was a major political effort that was only accomplished by the McKinley administration around the turn of the 20th century (having been preceded with an even less tenable system of bimetallism that finally collapsed due to the Nevada silver rush).
As for whether deflation is a problem, deflation disincents both investment and spending, which means in a very real way that deflation disincents economic growth. The situation you describe would also be possible only with a return to the gold standard, which would effectively price gold out of any kind of industrial use--something that would have negative economic repercussions in itself, and which would likely cause extremely high rates of deflation in the future.
http://www.cato.org/pubs/policy_report/v21n3/cpr-21n3.html
I'm not impressed by think tanks: they come up with the conclusion first and the reasoning second.
It would be much harder to pull it off in more fragmented economies (except for very small ones perhaps).
Solution to Everything: introduce an Orwellian total control scheme. I like my anonymous money just fine, thank you.
To paraphrase, "I for one, welcome our future Visa overlords."
I think Japan could maybe pull it off, but I wouldn't be too surprised if it bit them hard in unexpected ways.