March 22, 2013
THE eND OF hISTORY IS INHERENTLY DEFLATIONARY:
Why Global Economies Face an Age of Deflation (A. Gary Shilling Mar 20, 2013, Bloomberg)
Posted by Orrin Judd at March 22, 2013 5:46 PMDeflation is a peacetime phenomenon.The U.S.'s bouts of inflation, however, have historically occurred during wartime. That applies not only to shooting wars, but to the Cold War and the War on Poverty. These are periods when vast overspending by the federal government is combined with a robust private economy. These aren't the conditions we have today, when government stimulus can't offset private-sector weakness.In the 95 wartime years since 1749, wholesale price increases averaged 5.7 percent. In the 168 peacetime years, they fell 1.2 percent annually on average. As the U.S. withdraws from Iraq and Afghanistan and as defense spending declines, peacetime conditions are likely to prevail.Furthermore, we tend to have biases that cloud our perception of inflation. When we pay higher prices, we think inflation is at work, but we believe lower prices are a result of our smart shopping and bargaining skills.