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Don't Fear Deflation; Fear Central Banks


The always interesting and informative Richard Ebeling is doing regular commentary at EPICTiMES. His most recent is “Don’t fear Deflation, Unless Caused by Government.” Here Ebeling effectively refutes arguments made by Bernanke and Yellen that the Fed’s massive monetary base expansion was necessary to fight recession and prevent deflation.


Rather than assisting a post-recession recovery, these policies – plus other market-harming government interventions, regulations, and manipulations including ObamaCare – have made this the most sluggish recovery, especially in terms of employment, in the entire period since the end of World War II in 1945.


A free, competitive market economy is always rewarding successful entrepreneurs with profits for having made new, better and less expensive goods to earn consumer business. Thus, the normal trend in a free, competitive market is a world of gently falling prices as innovative businessmen bring improved and less expensive goods to consumers.

A truly free market economy, therefore, is one that tends to have the “good deflation,” and we should look forward to it, if only government intervention and central banking would get out of the way.

An archive of Ebeling’s contributions can be accessed here and is well worth bookmarking.

For the best available presentation of the Austrian view of deflation see Joe Salerno’s An Austrian Taxonomy of Deflation—With Applications to the U.S.. Also useful is pp. 37-40 in Salerno’s A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis.

John P. Cochran (1949-2015) was emeritus dean of the Business School and emeritus professor of economics at Metropolitan State University of Denver and coauthor with Fred R. Glahe of The Hayek-Keynes Debate: Lessons for Current Business Cycle Research. He was also a senior fellow of the Mises Institute and served on the editorial board of the Quarterly Journal of Austrian Economics.

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