When it comes to deflation, mainstream economics becomes not the science of common sense, but the science of nonsense. Most economists today are quick to say, “a little inflation is a good thing,” and they fear deflation. Of course, in their personal lives, these same economists hunt the newspapers for the latest sales.
The person who epitomizes this fear of deflation best is Ben Bernanke, chairman of the Federal Reserve. His interpretation of the Great Depression has greatly biased his view against deflation. It is true that the Great Depression and deflation went hand in hand in some countries; but, we must be careful to distinguish between association and causation, and to correctly assess the direction of causation. A recent study by Atkeson and Kehoe spanning a period of 180 years for 17 counties found no relationship between deflation and depressions. The study actually found a greater number of episodes of depression with inflation than with deflation. Over this period, 65 out of 73 deflation episodes had no depression, and 21 out of 29 depressions had no deflation….To Read More….
My Take - When Bernanke took over the FED it was reported that he was an 'expert' on the Great Depression. My first thought was....great....perhaps so many of the errors made by FDR's worshippers of Keynesian economics will be avoided. FDR was like his uncle Teddy, whom he admired and wanted to emulate, in three ways. Both were economically clueless and failed in just about every business investment either of them made, and set in motion public and economic policies that worked to destroy the restraints of the Constitution on the federal government. And both were socialists in practice and action, and FDR clearly agreed with Teddy in his view that the U.S. Constitution was an impediment to mankind’s progress. At any rate, I wished now that I had tracked all the things this guy has done over the years because I kept saying to myself time and time again; "I thought this guy was supposed to be an expert on the Great Depression. He may be an expert but I wonder if he really understands what happened." Nothing has changed my mind.