The ‘Enemy of the People’ Is At It Again

by | Apr 2, 2024

The ‘Enemy of the People’ Is At It Again

by | Apr 2, 2024

media interview

My old friend Michael Malice just shared an AP headline on Twitter that read: “Who wouldn’t like prices to start falling? Careful what you wish for, economists say.”

Malice’s commentary: “The corporate press is the enemy of the people.”

He’s right, of course. If they wanted to, these reporters could find other economists who say there’s nothing wrong with falling prices, but since they’re lackeys for the status quo, they don’t want us entertaining the possibility of prices that trend downward rather than upward, because then maybe we’ll start questioning the regime under which we live.

The arguments advanced by “economists” like this, who say falling prices are a bad thing, are unpersuasive, to say the least.

Thus Duncan Weldon writes in The Guardian: “Falling prices might sound like a good thing, and in individual cases they often are”—hey, he throws us a bone there!—”but a falling general price level is usually associated with severe economic strains.”

Where’s his evidence? Not one word of proof is supplied, because “deflation causes depressions” is just something all right-thinking people know and doesn’t require evidence.

I have a novel idea: how about we check the data?

Economists Andrew Atkeson and Patrick J. Kehoe actually bothered to look at the record in a May 2004 article for the American Economic Review called “Deflation and Depression: Is There an Empirical Link?” They evaluated the evidence from 17 countries over a period of 100 years.

Their conclusion: “A broad historical look finds more periods of deflation with reasonable growth than with depression, and many more periods of depression with inflation than with deflation. Overall, the data show virtually no link between deflation and depression.”

So much for that argument, then.

Then Weldon warns about falling prices by asking, “Why buy anything today if it will be cheaper next week?”

He thinks your thought process, in an economy with falling prices (the kind we had until the experts decided to put themselves in charge of the money, by the way), would run like this: “I’m not ordering a cup of coffee this morning because I bet tomorrow it’ll be five cents cheaper!” And when tomorrow comes you’d in turn say: “The coffee people must think I’m a sucker! No way am I buying today if it’ll be two cents cheaper tomorrow!”

What actually happens in the real world, as opposed to Weirdo Economist Fantasy Land, is that the phenomenon of time preference exists: I prefer goods in the present to the same goods in the future. So I’m going to break down and buy that cup of coffee rather than forego consumption in perpetuity.

Even today, in one of the rare sectors of the economy that still has falling prices, we buy laptop computers even though we know they’ll be cheaper and better a year from now. You need the laptop, so you buy it. But in the Bad Economist version of the argument, none of us are going to buy anything until we’re on our deathbeds, and then we’ll finally grab an iPad just as we’re expiring.

Another argument would be that it’s hard for businesses to make a profit if prices are falling. That’s of course not true. All that matters is the price spread between the thing you’re selling and the costs to make that thing you’re selling. That price spread between costs and selling prices can still exist even when prices are falling.

Remember, too: one of the important tasks of the entrepreneur is to take resources and allocate them in ways that he anticipates will please consumers. It’s up to the entrepreneur to anticipate output prices. Making his best entrepreneurial appraisal of the situation, he bids for the factors of production.

If he thinks, my widgets are going for $5 each now, but I think next year they’re going to be down to $3, he won’t be willing to spend as much to buy the widget-making machine as he would have before. He’s going to lower his bids for the widget-making machine and any other inputs he needs. This pushes the cost of his inputs commensurately downward, the same way the price of his outputs is headed downward. In that way, the price spread between output and cost is preserved.

But even if one day it turns out that all entrepreneurs simultaneously fail to anticipate that their selling prices are going to crash, and this leads them into difficult financial straits, what happens? They enter bankruptcy proceedings, and their resources are simply shifted to other owners. The resources don’t just vanish into thin air. They’re still there. They’re just owned by different people now. And from the aggregate point of view of the economy, it doesn’t matter who the individual owners are.

Now there are other arguments against falling prices, too, such as the “sticky prices” argument, but I’ve reviewed them elsewhere and they don’t work any better than the ones we’ve considered here.

And ultimately, it’s a question of whether you believe these economists, or your own eyes.

The period that includes the great inventions of the Industrial Revolution, the steam engine, trains, macadamized roads, the powered loom, sewing machines, modern printing, electricity, the automobile, was one of falling prices. Two of the periods of the most robust economic growth in U.S. history were those from 1820 to 1850 and 1865 to 1900. And prices fell about in half in each case.

Falling prices were one of the great boons of the pre-Federal Reserve era, so the Fed lackeys who pose as economists today have to undermine the very idea of a falling price level so we don’t get subversive ideas like: why do we need this institution when it’s taken our falling-prices economy and turned it into a rising-prices one?

They’ll also try to tell you that the economy was so much more unstable before the geniuses at the Fed took over—sometimes you’ll get that, but you can answer that after reading my free book Our Enemy, the Fed.

Remember, it was monetary issues that got Ron Paul into politics—and also Javier Milei.

But you’re thinking: reading about it must be the most boring thing in the world.

Have faith in ol’ Woods, dear friend!

And because the Fed has ruined the value of your money, I’m being a sport and not even asking for any. Doesn’t cost you a cent, and it’s full of truths the SOBs won’t tell you; what’s not to love?

This article was originally featured as a Tom Woods newsletter and is republished with permission.

About Tom Woods

Thomas E. Woods, Jr., is the 2019 winner of the Hayek Lifetime Achievement Award from the Austrian Economics Center in Vienna. He is a senior fellow of the Mises Institute and host of the Tom Woods Show. Tom holds a bachelor’s degree in history from Harvard and his master’s, M.Phil., and Ph.D. from Columbia University.

Our Books

latest book lineup.

Related Articles


Last Weekend, Iran Changed Everything

Last Weekend, Iran Changed Everything

On April 13, Iran responded to Israel’s attack on its embassy compound in Damascus that killed seven Iranian officers, including a very senior military official, General Mohammad Reza Zahedi, by launching over 300 drones and missiles at Israel from Iranian soil. U.S....

read more
FISA Exchanges Real Liberty for Phantom Security

FISA Exchanges Real Liberty for Phantom Security

House Speaker Mike Johnson betrayed liberty and the Constitution by making a full-court press to get a “clean” reauthorization of Section 702 of the Foreign Intelligence Surveillance (FISA) Act through the House. Section 702 authorizes warrantless surveillance of...

read more
Embracing Deflation

Embracing Deflation

In recent years, the specter of inflation has loomed large over the global economy, fueled by unprecedented monetary stimulus measures and supply chain disruptions. As prices have surged, concerns about the erosion of purchasing power and the threat of runaway...

read more
One Hundred Years of IRS Political Targeting

One Hundred Years of IRS Political Targeting

One hundred years ago, Senator James Couzens, a Michigan Republican, took to the Senate floor to denounce the Bureau of Internal Revenue for abusing its power and trampling innocent taxpayers. Couzens launched a sweeping Senate investigation of federal tax collectors....

read more