Tuesday, July 6, 2010

Deflation?

Now that I'm not making predictions anymore (thank you, Nassim Taleb), what is there to do but indulge my predilection for pessimistic expectations in idle conjecture? I will ignore all the negative economic news timed to help us celebrate the Independence Day holiday (for the moment), and refer you to an editorial in today's New York Times by Yves Smith and Rob Parenteau.

Now, those guys were not exactly making predictions, but the data they cite is kind of interesting. From my negative perspective, it sounds a lot like continuing drop in demand. Drop in demand, of course, leads to deflation. (Smith and Parenteau, by the way, seem more concerned that deflation could lead to Depression than to a US take on Japan's "Lost Decade.")

Well, as an old fart on a fixed income, deflation doesn't sound that bad to me, personally — but I do have kids, and I still care about the rest of you. It follows that I kind of like Smith and Parenteau's idea for "an aggressive tax on retained earnings that are not invested within two years."

What's good for a tiny minority is very unlikely to be good for the rest of us.