Post
Topic
Board Economics
Re: Were the Keynesians wrong?
by
dinofelis
on 28/01/2015, 08:10:46 UTC
Nope.  Try to pay attention.  I wasn't trying to prove anything except how utterly ridiculous it is to cite a micro example to illustrate a macro principle.

The macro "law" is the macro-economic consequence of a certain postulated type of behavior of individual economic agents.
The theorem that (even mild) deflation will lead to a deflationary spiral, is based upon the idea that individual agents will hoard more, and spend less, today, because they know that they will get "more" for the same money.  That is a postulated behavior that is at the basis of the theorem on the Keynesian deflationary spiral.

We clearly see in specific cases, such as with computers and i-phones, that that behavior is NOT universal. 
That is sufficient to undermine the theorem, which is based upon that hypothesis.

If individual agents do NOT (systematically) defer spending because of *MILD* deflation, then this will NOT induce a deflationary spiral.  The price deflation (versus performance) in the computing market is actually HUGE: it is given grossly by Moore's law, which gives you a 100% deflation in 18 months, or grossly 66% yearly deflation !!!
Moore's law has been observed to hold until very recently for about more than 4 decades.  It starts to level off a bit.

So we have seen a deflationary market (which is btw the BIGGEST ECONOMIC SECTOR ON EARTH - the electronics market) which has been deflationary for about 66% for about 4 decades, without this market to stall totally (that is, without customers stopping to buy stuff that devaluates at a rate of 66% per year !).

So if this is an indication: 66% deflation in the biggest economic sector on earth for 4 decades while it is one of the most fertile sectors economically speaking, then you might start to get a small doubt that a mid deflation of a few percent per year will trigger a deflationary spiral, no ?