If The Internet Is Deflationary, Where’s The Looser Money?

Posted on  

"If The Internet Is Deflationary, Where’s The Looser Money?"

Via Tyler Cowen, a set of arguments that the Internet is deflationary. That may be so, but what I don’t understand is why this is a special feature of the Internet. Well, it’s not:

All this should not be especially problematic. That’s the whole point of technology: achieving more with less. It’s also part of the promise of technology: freeing people from annoying social structures that they wish they could opt out of, anyway. But there’s a problem: 30-year treasuries and defined-benefit pension plans don’t pay out in terms of hours of enjoyment or numbers of yoga classes—they pay out in dollar terms. A heavily indebted country doesn’t have the freedom to allow deflationary forces without facing some serious consequences.

That’s right. Generally new technologies make things cheaper. And yet, if the overall price level were consistently falling that would be a problem for people. Which is exactly why monetary policymakers normally succeed in maintaining a rising price level even in the face of improving technology.

As you can see above, in practice we’ve been on this slow and steady disinflationary march. Some of that may be attributable to the Internet in the sense that technological change does tend to drive the price level down. But at the end of the day the course of the price level is in the hands of policymakers, and the steady disinflation is a policy choice.

« »

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.