Post
Topic
Board Economics
Re: Is deflation truly that bad for an economy?
by
twiifm
on 14/04/2015, 09:57:32 UTC
Uh no.  If Say's Law is correct then we shouldn't see things like The Great Depression or deflationary spirals.

That's an extension of the "bookkeeping" version of Say's law which is, as I outlined above, obviously correct.

You are referring to the version of Say's law that says that all production WILL be bought, and that economy will always work at maximum output.  THAT version is of course wrong, because it goes one step further.

The "bookkeeping" version of Say's law tells us that all production CAN be bought.  However, a stronger version (in fact, the original version) of Say's law states that it WILL be bought.  Now, *that* is not necessarily true.  You might very well decide, even though you have the money, NOT to buy the production that remains to be bought, simply because you're not INTERESTED in buying it.  In other words, one can produce goods which are not in demand.  The earnings to buy them are available, but nobody wants to buy them.

I use Say's law in its more restricted version, which simply states that it is impossible to have, *by lack of earnings*, overproduction that CANNOT be bought.  I'm not using Say's original version of the law, that deduces (erroneously) from this, that it WILL be bought.

So, yes, I agree with Keynes' rejection of the strong version of it, exactly because of lack of demand.  But that was not what was discussed here.  I mentioned (the restricted version of) Say's law to contradict the statement that if wages are not high enough, there is simply not enough EARNINGS to be ABLE to buy the production. That is obviously wrong.



Sorry I have trouble following your argument.  Originally you argue that by lowering wages, the workers benefit because as a result lower prices will follow.  Where is evidence of that?  I don't know what Says Law has to do w your argument.

Lower prices can result from outsourcing labor to cheaper labor markets.  However, only things that are possible be outsourced get benefit from cheaper foreign labor markets.  Things like energy, housing & services (including education & healthcare) don't have that benefit.  So even though you can buy cheaper TVs, your housing and utilities cost don't necessarily get cheaper.  That means lower wages in likelihood hurt the workers more than benefit them.

In any case, outsourcing will happen no matter what so we have displacement of labor.  If the manufacturing sector gets displaced into other sectors their wages still should be maintained and if wages rise the entire economy should benefit because of increased consumption (aggregate demand).

IDK if you work for a living but most people today complain about making ends meet compared to 20-30 years ago despite having more abundance of cheaper consumer goods manufacutred abroad