Deflating Prices Not as Good as You’d Think!
So, we’re all really happy that the gas prices have gone back down to levels not seen in a few years, to that I can attest, and I personally couldn’t be happier that I’m not longer paying double what I used to for filling up my modestly sized gas tank! However, I also can’t ignore the fact that this is not a good sign for our economy, since falling prices that just don’t stop falling is not good either. It may seem like it’s a nice relief, but in fact what it does is put the economy into a further tailspin once the prices fall and people still can’t afford to buy things, or are too afraid to buy things because of the current crisis we are seeing.
Actually, the concern over deflation is well warranted. Deflation is a normal process that occurs during down economic times, but these economic times are unprecedented from what most of us have seen in our lifetimes. In fact, if the deflation keeps occurring, then we are going to be faced with more momentous problems when it comes to economic growth since stagnating prices are making it harder for companies to make money, to hire people and keep them, etc. etc. It’s also incredibly hard to get the economy out of the current situation with prices that don’t stop falling.
Some of the prices we’ve seen fall are of course, most notoriously probably, the price in gas has fallen. Also following that though are the prices for electronics, clothes and other goods that are suffering because people are just holding off on buying them. Look at what’s happened to the auto industry lately- it’s been battered in a matter of just a few months because no one is opting to buy cars any more! This is definitely a problem.
Like economists say, deflation is good if you’re in a decent or recovering economy, but when you have deflation combined with the torrent of other going on right now, and the combination of that with the bailouts and the unemployment rates and credit lockdown, then you have low prices in an environment where no one can afford to buy these things or has no desire to buy them anyways, which is definitely not a good combination for growth.
