Why is Deflation Good?

[Please note there's a follow up to this post: Why Is Deflation Good, Part 2]

CalculatedRisk, the always Keynersian blogger, spotted this post from Krugman, the Keynesian Bouffon  — who also happen to be a Nobel Laureate — who writes about Why Is Deflation Bad?
There are actually three different reasons to worry about deflation, two on the demand side and one on the supply side.

So first of all: when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. ....

A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. Now, you might think this is a zero-sum affair, since creditors experience a corresponding gain. But as Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. ...

Finally, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity
Debunking Krugman's ridiculous statements:
1- People expecting price to fall become less willing to spend and less willing to borrow.

First of all, let's assume that this is true. Can anyone think it's bad for people without a job and with credit cards loaded to their ceiling on top of several hundreds of thousands of dollars mortgages to reduce spending and borrowing?

Ok, now, as usual, if you want to prove something, you need to prove that it works in 100% of the different scenarii. If you want to disprove something, you just have to find a single example where the statement is invalid. This is causality, which is beyond understanding to 99.9% of economists.
To disprove the fact that falling prices do not prevent people from buying, we can take the example of computers and mobile phones. Prices have been falling for as far as I can remember. Yet sales have been steadily going up.

Finally, here's the economics facts that Keynesians never seem to understand: In a growing economy, by definition, prices tend to fall due to improved productivity. That's how our world was since the creation of money until the creation of central banking. As far as I can remember, in the early 1910s, people were not feeding off worms and leaving in caves...

Our inflationary society is the historical exception. Our inflationary society is unsustainable. Debt cannot grow to infinity. At some point, the limit will be reached, and there's all the reasons to believe that we are at this point. Unsustainable debt will be defaulted, directly by default, or through restructuration.

2 - Falling prices worsen the position of debtors

What Keynesians and socialists do not understand, is that the lender and the debtor have contract binding them to each other. The Lender has lent the money knowing the risks. The Borrower has borrowed in the same circumstances. If the Lender was reckless, and took too much risk, he will lose money due to defaults. This is what interest rates are: the higher the risk the higher the rate.

One can also wonder why should the government be stealing from the lender through inflation to subsidize the borrower.

Side note: I will make a post about Irving Fisher, who's one of the economists which has the best record of completely wrong calls and who also has a complete lack of integrity. I can't believe his name is not associated with his lies and corrupt actions.

3- Downward nominal wage rigidity is an issue

Downward nominal wage rigidity has been created due to long term inflationary policies and a constant brainwashing at schools about why inflation is good and why the government is here to help. In a normal society, where prices generally fall, people would think the opposite way from our current society which is an anomaly and will disappear soon.

Krugman is once again inverting cause and consequence here...

Conclusion: Krugman is wrong on all accounts, as usual with Keynesian economists. I hope this will help you understand why, and help you get out of this bubble world we all have been trapped into.
Keynesian Bouffons are evil and dangerous. Hopefully, Keynesianism will disappear at the same as the collapse of this debt based society and we shall start on sound currency again.

[Update 2011-02-11] Mish has a great post about deflation in Japan: 

[Please note there's a follow up to this post: Why Is Deflation Good, Part 2]

Some reading recommendations via Amazon.com:

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