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But Malthus says...
Short answer is we live in a deflationary period because we have previously lived in an inflationary period. Where market efficiencies should have lead to reduced pricing of goods and services we live in an inflationary period influenced by monetary policy which has led to artificial raising of prices.
Still have no idea how any one can say we are not in an inflationary environment.
Take a look at overall money supply versus velocity and you will understand the paradigm.
Inflation has manifested itself in asset prices. You say SPX is up a few hundred percent? There is your inflation.
agreed, we should be in a deflationary environment, but we have taken steps to counteract this.
I'm not sure that a deflationary goods and services environment is inconsistent with what is certainly a hyper-inflationary asset market. Excess liquidity has undoubtedly created an asset bubble in almost every asset class, from equities to commercial real estate. But a lot of that investing is also being driven by meek sentiment about economic activity as a whole and the recovery from the recession. People are investing to save for retirement, etc. and not spending money, which is a big portion of why inflation has been so laggard.
The deflationary goods and services environment is also being driven by slow wage growth, regulatory burdens, and piss poor Fed Policy since Yellen took over. Slow wage growth is largely being driven by technology and transitional dynamics in the way a lot of jobs are going to be done in the next two decades. More jobs will be part-time and part of the gig economy, and a lot of roles will become obselete with tech development. That slow wage growth, even with low UE, is a big reason people are spending less too and why they're so cautious about the recovery and general economic sentiment. I do also think that a good portion of the current deflationary environment is driven by Fed policy miscues. By keeping rates low and not winding the balance sheet down they've created negative signaling that is also helping to keep spending low and general sentiment about the economy as a whole. Furthermore, Yellen's terrible communication skills and inability to drive the board along a single path has created a great deal of investor uncertainty that is further crimping broader sentiment.
These factors have created a really dangerous situation of sluggish G&S growth and therefore pretty mediocre aggregate earnings growth as well. Yet, because a lack of consumer (and business investment) spending has created so much excess liquidity, the only viable thing to do with that liquidity is to invest. So yes, investors have bid up the prices of equities and real estate in particular, but also fixed income and alternative assets.
So basically, we're fucked and going to have a massive bubble. And the worst part is that Yellen hasn't yet unwinded the balance sheet or raised rates, so when we do have the crash, the Fed won't have reloaded either of its biggest policy "guns" and we're all going to be even more fucked.
I disagree with point 3. Post WW2 saw an economic boom, inequality wasn't really growing, the middle class was.
Whether people like it or not, offshoring/immigration, tax heavens and monetary creation via loans put an enormous power in the hands of the capital owner at the expense of the salaried worker, to the point that Marxism is relevant again.
Combine that with the fact that the majority of millennials have been brainwashed into believing socialism is the path forward thanks to the US college system, and prepare your popcorns.
I'll probably be in the minority here, but there's reasonable grounds to think that income inequality is contributing to the deflationary environment.
My personal opinion is that the whole deflationary fear might be a big overreaction to Japan's idiosyncratic experience, plus propaganda of CBs whose worst fear was an inflation during their easings. Yeah I may be one of those conspiracy theorists but f JPM for what theyre doing in the metals market.
I highly recommend everyone checks out "How an Economy grows, and why it crashes."
The book is all about how Keynesian economics may not be the be all end all of economic theory, how Austrian economics has some valid observations, and how government intervention and forced inflation may not be the best for the world.
Obviously, take it all with a grain of salt, the author is a notorious libertarian and hates big government. Nonetheless, his explanations and examples are thought provoking and provide a counterpoint to current economic theory. The book on a whole is a pretty good read and can be tackled in a day or two.
LINK
Solid thoughts. Don't think you can claim we are in a broadly deflationary environment if the staples (food, health, housing, water, energy, education) have stable or rising prices. It means we are in a deflationary environment for consumer goods - important but not THE single most important class of goods.
Also think you're too sanguine about the environment here. Remember that global warming is the one threat modern civilization has never faced before. It caused 4/5 last mass extinctions and we're already in the middle of human induced mass extinction #2 (due to habitat loss, not yet global warming). Think its a huge blind spot to just assume we will figure out this issue. I'm willing to bet humans find a way to survive, but it matters whether that means ~9B humans continue to have a good time with occasional monster hurricanes or w/e it means 1B rich humans live in ultra-protected enclaves and everyone else is fucked
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