Deflation as a Recipe for a Prosperous Europe

Abstract

In the following text we will analyze the problems stemming from incorrect definitions of inflation and deflation.Then we will put forth a taxonomy of deflation, which will enable us to abandon the confused "macro" view of the deflation issue and to show the flawed comparison between two evils: the smaller one - inflation, and the bigger one - deflation. The analysis will enable us to demonstrate the complete impossibility of justifying an "antideflationary" (i.e. inflationary) policy from an economic point of view, and to prove the thesis about the grave and disastrous consequences of state interventions in the field of money. Short case-studies will shed light upon the main monetary problems in the U.S. and Argentina, and it will also help to understand the necessity of a methodologically anchored, and therefore economically sound, analysis of the deflation problem.

Keywords: Inflation, deflation, bank credit, economic growth

JEL Classification: E31, E58