GOING DOWN?:

US is not in danger of deflation (Glenn Hubbard, October 9 2002, Financial Times)

[The] modern deflation scenario seems to make a lot of sense - until you get out your calculator. When you do, the basic features of the US economy look quite good and deflation appears unlikely. To start with, analysis of the productivity data over the past six quarters confirms some of the best news that economists have delivered in a generation--the acceleration in productivity growth that began in 1995 continues unabated. Thanks to this, today's consumers can look forward to real incomes that grow much more quickly than they have during the past 30 years--a good omen for current consumption.

It seems like Mr. Hubbard is ignoring the other side of the double-edged sword here. These incredible productivity gains have to put downward pressure on prices too. If it is really getting cheaper and cheaper to produce the same goods the savings have to be passed on to consumers at some point, don't they?
Posted by Orrin Judd at October 10, 2002 11:11 PM