a sit­u­a­tion in which prices of a broad basket of goods and ser­vices declines in a con­sis­tent manner, thereby causing all con­sumer prices to con­tin­u­ally fall. When looking at the overall economy, defla­tion causes a decrease in sales, and there­fore profits, which spurs employee lay­offs and/or wage decreases. Con­sumers then hold back on spending as the future looms with uncertainty. Subsequently, com­pe­ti­tion between firms becomes fiercer, causing price races to the bottom. Defla­tion is thus self-perpetuating: the economy falls into a “bad equilibrium, in which eco­nomic activity is shrinking.” This has been the state of Japan’s economy for 15 years [ … ]

Defending inflation

It looks like infla­tion has re-entered ~the pop­ular eco­nomic dis­course~ and will remain there for a while. It bothers me that the term is so often used in a vague, scolding way, with the inten­tion of (it seems to me) stopping conversations—investigations—rather than sharp­ening them. So, I wanted to share some tools for thinking about infla­tion that I’ve found useful: not as a pundit, econ­o­mist, or investor—I am none of those things—but simply a curious, crit­ical citizen.

The infla­tion