Reminder: Deflation driven by increasing productivity should be an amazing thing for any society. (Even better if it is technology driven) The only deflation we need to avoid is the type that is caused by a cascading collapse of the banking system.
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I've been saying this for 20 years, but people often disagree, using what seems like macro hand-waving (negative interest rates, hoarding cash, deflationary spiral?) that I don't understand well enough to refute.
Ditto — but I’ve only been saying it for 10 years ;). Seriously though, what do either/both of you make of the “hoarding cash” problem? (If indeed it’s a problem...)
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Hoarding cash only becomes a real problem when the credit system is actively imploding. If it is a main factor in a credit crisis it isn’t happening because increased productivity caused lower price levels.
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Are “sticky wages” an issue?
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I think the big issue is “sticky debt”. https://en.m.wikipedia.org/wiki/Debt_deflation …
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to get an intuition for the "hoarding cash" problem, I recommend the story of the capitol hill babysitting co-op: http://www.slate.com/articles/business/the_dismal_science/1998/08/babysitting_the_economy.html …
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That parable lacks increasing productivity. Our premise already acknowledges the dangers of pure monetary/credit caused deflation. The point to contest would be that it is definitely good when the expected amount of money remains the same but there is way more stuff it can buy.
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That only happens if the return on investment is lower than the deflation rate. I.e., the investment has to grow faster than the economy as a whole is growing.
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I don't think it's a problem. But do modern macroeconomics believe it is?
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