I know you’re on my side, the whole change the language change the debate thing is a sore spot with me. Hopefully people who read the post, and the comments can learn the pitfalls of the false definition of inflation and deflation.

Thanks for a great debate, and please keep the good comments coming!

I think more people use the new, manipulated definition, no matter what their economic beliefs are so it might be better to use that definition- either that or just write a quick sentence or two saying that inflation has nothing to do with supply/demand.

I am on your side here, just trying to help get the message through to everyone :)

There’s a difference between the natural evolution of language and the deliberate manipulation of it for political ends. The former is desirable, as it shapes the language for the reality of the day. Look at the French, who try to preserve their language against such evolution but fail. The latter is a way for those who favor certain ideas to rob the other side of the ability to debate them, and that is the reason it must be resisted.

I understand why you use the original definition of inflation as it was first and it shows the flaws of Keynesian theory, but the meanings of words do evolve. You gave me an example of it with “liberal.” Back in the day you would’ve been labeled a liberal, but now you wouldn’t. So would you call yourself a liberal today, since it was the original definition of what you stand for? In the same way maybe the word “inflation” has evolved (whether or not the left did it for their benefit doesn’t matter because it has evolved.) If you use the original definition of inflation, then I think it should be clear what you mean by it so that people don’t get confused and take your piece in the context of the “new” definition of inflation, like I mistakenly did.

To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. . .I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared.

– Thomas Jefferson

The reason I’m so persnickety (with apologies to the curmudgeon) about using a definition of inflation/deflation that completely separates it from supply and demand is because the consensus definition, that includes supply and demand as part of the equation, is a construct of the Keynesians specifically designed to make their theories work.

In this case, inflation and deflation are more than just words. Explain them Austrian way and you reveal that the US Government has been placing a shadow tax on its citizens for decades. Explain them the Keynesian way and you convince people inflation is just some fact of economic life. This kind of manipulation of language is straight out of Orwell’s 1984.

The left knows that if you change the definition of words, you can change the idea underlying them. Take away a word, you take away the ability to express that thought. A century ago, the people writing this site would’ve been called liberals, and those hearing the word would’ve known that this meant people who supported liberty. Now, liberals are pro-government socialists who see liberty as an obstacle. Liberalism now has nothing to do with liberty. We poor souls who believe in liberty are stuck with the moniker “libertarian”, which the left has managed to convince the populace means “whackos who support drug use and are willing to let the poor die in the streets in the name of free markets”. (I exaggerate, but not by much.)

Words matter, especially when someone is trying to steal a word to hide the truth.

persnickety curmudgeon –

I find the idea behind changeflation very true, and indeed that’s exactly what’s happening now.

Your thoughts on what the US Government will do to keep up the sham of perpetual prosperity are also right on. The market could no longer bear the insanity of the perpetual prosperity sham and so forced the credit supply into its current contraction.

The contraction needs to occur so that lenders can gain some control about which credit risks are on their books and in what amounts. It also needs to occur to force things that are overvalued down in value and clean some pollution from the price system.

You’re right on base with the idea that the deflation will force redeployment of capital in a more efficient manner, and that this is a good thing.

Last comment first, – re tearing down and rebuilding houses – that was somewhat tongue-in-cheek. HOWEVER here in Michigan it is the state sport when times are tough. Make work jobs which make use of Federal Money stolen (err taxed) from us – laundered through Washington and returned only after much begging by our congresspeople. All it ever gets us is some short term paychecks for unskilled labor and destruction of valuable edifi.

On the rest of your comment – I think we are mainly agreeing here. My word is CHANGEFLATION but the point is the economy has become so efficient that capital and capacity swamp any perceived profit center with tsunami like force and speed. Govt regulations can’t keep up – nor can tax policy nor a lot of the labor force.

I’m not making a value judgment nor was it the point of my post but these efficiencies require a flexible mobile workforce and we are up against a Baby Boom demographic used to a whole different way of life. They will protect their status quo and will hold sway for quite a few more years still.We will have economic disruption as they shift from spending their money on IRA’s, cars, houses, work clothes, business lunches and go to leisure, clothes, healthcare, travel etc.

I was just pointing out that some things are inflating while others are deflating. Capacity or supply will eventually squash each bubble in turn but will also leave over capacity or supply in place at the previous bubble which government will then protect.

As for inflation v deflation, the general trend of our economy is still inflationary because our govt. cannot function without it and they will see that we have it. And so, noticing a glut of cars and houses and tv’s, a prudent lender might say since no one needs those things for the next 5 years or so lets get that capital and put it into computers, and health care, and energy production and infrastructure or whatever. BUT NO! Our government does not want capital redeployed it will just print more money for those new growth industries and not require the old economy to relinquish theirs.

This is why there is a good case for allowing some general deflation. It’s the best way to rest some power from the hands of government and the old economy. FORCE the more rapid deployment of capital to efficient sectors of the economy. Can’t afford to support money losing endeavors for long if their is less debt monetizing and currency bastardization going on.

Or am I off base?

You bring up an interesting point on why your definition for inflation is more supportive of an Austrian economic theory whereas the dictionary’s definition is more conducive to Keynesian theory. As a believer in Austrian economic theory, I may start using your definition of inflation. The only problem I see with that is I would probably have to explain what I meant by “inflation” before talking to anyone who believes in other economic theories.

Based on my comment to Miraj above, I would ask that you consider what you term “changeflation” as the combination of monetary fluctuation and supply and demand for various goods.

Take, for example, gas prices. The dollar is deflating due to a contraction in the money supply, so gas prices go down. However, the precipitous drop we’ve seen is not satisfactorily explained by deflation alone. Only when deflation is considered in conjunction with the sharp decline in demand for gasoline can one begin to explain the price drop.

Take, for another example, the drop in price of a 42″ plasma TV since George W. Bush was first elected. These devices got significantly cheaper even though the money supply was constantly being inflated during that time and demand for them was increasing. Why? Supply was increasing so fast that it drove the price down in the face of high demand, and manufacturing costs continued to drop as well due to better technology and productivity on the part of manufacturers. Inflation was occurring at the money supply level, but supply and demand for this product was the governing force.

Most of what you’re talking about under the name changeflation is actually changing patterns of supply and demand due to market saturation and changing demographics. That’s not to say that those things are not concerning, but they have nothing to do with inflation or deflation.

As for this:

On a divergent note – want a quick fix to the housing problem? Start tearing down old houses. Then we have jobs to tear down and jobs to rebuild(green jobs too) as the new houses will be more energy efficient than the old [apparently the energy used to tear down and rebuild is never counted in such calculations so just work with me on this one].

Bastiat has already blown the theory apart.

Put simply, the dictionary is wrong. It’s using a definition put forth by certain schools of economics to try and obfuscate the effect manipulation of the monetary supply has on the economy.

To learn why the definition of inflation you quote is bad, consider the fundamental purpose of the price system. It communicates supply and demand through a proxy–the price people at which people are willing to buy or sell. Therefore, information in prices about supply and demand is desired information. If prices are rising due to increased demand, the price rise is genuine.

Inflation and deflation, correctly defined, are pollution in the price system. They produce price fluctuations *not* driven by supply and demand. The dictionary definition you quote lumps both monetary fluctuations and genuine supply and demand increases into the definition of inflation. It’s mixing desired information and undesired information and calling it a single thing. This does not aid understanding of the economic picture, while the definitions I’ve stated previously do.

Part of the problem, though, is the way the US Government chooses to measure inflation. The Consumer Price Index also conflates desired and non-desired information, thereby obfuscating the effect of fluctuations in the money supply. This aids in the ability of Keynesian economists to hide the damage their policies do.

Consider, for a moment, the 1970s as an economic period in the US. Prices rose due to rampant inflation, but economic output stagnated as consumer demand languished. If monetary fluctuations and supply and demand were genuinely linked, as some economists would like us to believe (and as stated in the definition above), the 1970s could never have occurred. But they did, providing evidence that inflation should be considered an entirely separate phenomenon from increases in demand relative to supply.

Milton Friedman has yet to be proven wrong on his assertion that inflation is everywhere and always a monetary phenomenon. It’s the only interpretation that fits the facts.

Don’t get me wrong, I agree with you on limiting the amount of money printed because that too plays a part in inflation. I also agree that bringing the credit level back to what it was before this economic downturn is also very dangerous.

If the flation we have was IN, ALL prices would be rising. If the flation we have was DE – ALL prices would be falling.

Instead what is flating is changing. Big Ticket items – homes, cars, electronics etc. are falling. Everyday items – food, clothes, education are rising. [ Energy is up and down as usual though it appears we are in a short term down cycle within a long term uptrend - and let's not get into Healthcare]

In any event, what we have is long term changes to patterns of consumption due to demographic changes and the satiation of current demand for the deflating items. Everyone who wants and can afford 2 cars, 2 houses, a big screen tv, a computer etc. already has them.

Look. Baby Boomers don’t need any more of that stuff – they have all the money and the good jobs and may even be looking to sell what they do have and downsize and they don’t want to buy non of that stuff no more.

We are good at making stuff but no one will buy our stuff BECAUSE – we don’t need the stuff we needed yesterday.So now either we pay unempolyment or we subsizdize obsolete industries which were needed in the past, may be needed in the future, but are not needed now (ie. automakers at current capacity).

On a divergent note – want a quick fix to the housing problem? Start tearing down old houses. Then we have jobs to tear down and jobs to rebuild(green jobs too) as the new houses will be more energy efficient than the old [apparently the energy used to tear down and rebuild is never counted in such calculations so just work with me on this one].

Thanks, that was awesome!