You mean an environment heavy with government intervention? Like gold revaluation by decree and paying farmers to dump products like milk out instead of selling it at a reduced price?
Yeah, free markets suck.
That doesn't answer my question.
wages weren't allowed to fall with said deflation, essentially putting in place a very high minimum wage that exacerbated the unemployment problem.
Also, it's not really an apples to apples comparison you're making here--Austrians don't suggest that severe deflation is a good thing, at all, but that a mild, continual deflation benefits everyone...to suggest that they're in favor if any deflation (let alone one created by the government) is fallacious.
The post I was responding to made the claim that deflation is good, and I thought that by asking him a question which would force him to study an empirical example of the problems associated with deflation, he might have gone back on his original statement or at least clarified it. Surprisingly enough, it didn't work.
I admit that your point about low, stable deflation being potentially beneficial does have some merit. The most important part of a monetary system is its stability, having a low stable inflation or deflation rate is much better than having large fluctuations in either direction. I tend to believe that low inflation is better than low deflation for a couple of reasons:
1-The economy already works under the assumption of low inflation, the transition to deflation would cause many problems for lenders and borrowers. How many more people would default on their mortgage if their wages kept going down and their payments were to remain the same? To justify such disruptions in the market, you’d need a very good reason to initiate the transition, and I don’t see one right now.
2-Prices have an easier time adjusting higher than adjusting lower. This may be for purely psychological reasons, but it’s much easier to suppliers to raise their prices than to lower them because it’s easier to give their employees a pay raise than a pay cut, even if the absolute purchasing power of their wages remains the same.
I guess that a culture which would be exposed to a deflationary environment for long enough would eventually adjust to it, but I don’t see how the potential benefits of such a system justify the huge costs of its transition.
I think it's much easier to focus on reforming the Fed by narrowing down its number of mandates and level of discretion rather than to try to reform the entire monetary system from the ground up.
