Deflation—a sustained decrease in the general price level—has become an economic boogeyman. Central banks treat it like a crisis to be avoided at all costs, and economists invoke the specter of the Great Depression whenever prices threaten to fall. But this consensus deserves scrutiny. There are compelling reasons to reconsider whether deflation is inherently harmful, or whether some forms might actually benefit society.
The Technology Deflation We Already Enjoy
We’re already experiencing deflation in many sectors, and it’s clearly beneficial. Computing power, televisions, and smartphones have become dramatically cheaper and better over time. A laptop that cost $3,000 twenty years ago had a fraction of the capability of a $500 laptop today. This is deflation in action, driven by productivity improvements, and consumers love it.
When prices fall because we’ve gotten better at making things, everyone wins. Real wages rise even if nominal wages stay flat, because each dollar buys more. Workers can afford better lives without demanding pay increases. This is the deflation of abundance, not scarcity.
The Debt Argument Cuts Both Ways
Critics rightfully note that deflation increases the real burden of debt. If you borrow $100,000 and prices fall 2% annually, you’re effectively paying back more in real terms than you borrowed. This can be painful for debtors.
But consider the flip side: inflation systematically transfers wealth from savers to borrowers. Under persistent inflation, responsible people who save money watch its purchasing power erode year after year. The person who worked hard, lived frugally, and saved $100,000 finds it buys less and less. Meanwhile, those who borrowed heavily see their debt burden quietly diminish.Is this really more just than deflation? We’ve simply chosen to favor one group over another. A society with mild deflation would reward saving and discourage excessive borrowing—which might actually promote more sustainable financial behavior.
The Spending Delay Myth
The standard argument goes: if people expect prices to fall, they’ll delay purchases indefinitely, causing economic collapse. But this doesn’t match reality. People still bought those ever-cheaper computers and phones. They didn’t wait forever for even better deals.
Humans have immediate needs and wants. Yes, you might delay buying a new TV if you know it’ll be cheaper next month. But you won’t delay buying groceries, getting a haircut, or fixing your car. Most economic activity involves goods and services with time value. Even with big purchases like houses or cars, life circumstances—marriage, new job, growing family—drive decisions more than small price movements.
The Real Problem: Sudden Deflation, Not Gradual Deflation
What actually caused the Great Depression’s devastation wasn’t deflation per se, but the *speed and unexpectedness* of price declines, coupled with financial system collapse. Prices fell 10% annually, businesses couldn’t plan, banks failed, and the money supply contracted.Gentle, predictable deflation of 1-2% annually driven by productivity gains is completely different from a deflationary spiral during a financial crisis. We shouldn’t reject all deflation because extreme, crisis-driven deflation is harmful—any more than we should reject all inflation because hyperinflation is catastrophic.
A Better Monetary Framework
Perhaps the ideal isn’t zero inflation or 2% inflation, but rather stable purchasing power that fluctuates based on real productivity. If we’re getting better at making things, prices should fall. If we face resource constraints or disruptions, prices should rise. The price level would reflect reality rather than an arbitrary central bank target.
This doesn’t mean abolishing central banks or returning to a gold standard. It means reconsidering whether fighting all deflation, regardless of cause, truly serves the public interest—or whether it primarily serves governments and borrowers at the expense of savers.
Deflation isn’t always good, but it isn’t always bad either. The economic establishment’s reflexive horror at falling prices deserves more critical examination than it typically receives.
