Bob Pollin on QE2 and Deflation

I have been feeling guilty about having posted that funny but misleading video yesterday (they made fun of the Fed’s concern about deflation, and implied that deflation would be good for ordinary people, which is just wrong).  Anyhow, my penance is to post this very good video from the Real News Network.

One Response to “Bob Pollin on QE2 and Deflation”

• 

  Wade Kuettel says:

  November 20, 2010 at 12:02 am

  It seems that we have had an artificially inflated market(s) for a few decades now as the money supply has been growing to more than offset the deflationary effect of productivity gains. At what point do we call dropping prices as a “healthy return to a legitimate baseline” instaed of “harmful deflation”. Two wrongs don’t make a right… meaning supporting artficial price levels to prevent deflation seems like the wrong thing to do.

  Of course, if anyone thinks that we haven’t been living with an excessive, unhealthy, and unsustainable growth in the money supply, then I can understand why you might think that there is a deflationary risk that we need to avoid. I would say, however, that events of the last two years would suggest that things were excessive, unhealthy, and unsustainable.

  An alternative to allowing a corrective deflation is to get wages up to relatively appropriate levels. This won’t lead to inflation right because there is such downward deflationary pressure. There are a number of ways to increaase the relative demand for labor without consumption such as implementing workshare policies… reducing the hours in the workweek, reducing retirement age, increasing vacation and sick time, and encouraging single income households. What isn’t good is to implement harmful consumption, spending, and credit increasing policies.