Wednesday, 18 February 2009

The Puncturing of New Labour's Ugly Balloon

What's the matter with deflation? It's nice to go to the shops and find prices have fallen. With no debt and a fixed income you are a net gainer and laughing all the way from the bank. Many people are on both earned and fixed income, as well, so things compensate.

Of course those in debt find themselves with a higher debt burden in real terms unless their interest rate falls faster than the price level. But debt can be paid off faster, as a priority. If none of your income is fixed then lower prices will mean lower income and lower asset values - falling prices are usually the result of low demand relative to capacity, a lower level of activity, and lower levels of employment. But if your only income is earned then debt needs to be very carefully considered, and represent only a small proportion of outgoings before being undertaken.

Never-ending economic growth as another pillar of economic policy hasn't done the Earth much good either.

All in all New Labour's economic and political goals and means are destructive of lives and destructive of the planet.

2 comments:

Blue Eyes said...

Socialists hate people who save because they are harder to control. Brown's economic management can be summed up in the words "moral hazard".

Caronte said...

The matter with deflation is that many people are on fixed income, and therefore would gain, do so only if they keep their job. But the conditions surrounding deflation are also those favouring unemployment. No good having fixed income if jobs are not also fixed.

You actually said it: "falling prices are usually the result of low demand relative to capacity, a lower level of activity, and lower levels of employment." But then somehow you seem to neglect this cost in the balance sheet of deflation.