March 2, 2011 3:44PM

Deflation Dread Disorder

A recent piece in the Economists’ Voice by Ed Leamer, who runs the Anderson Forecast Center at UCLA (one of the better forecast shops), diagnoses a new mental illness: Deflation Dread Disorder. Deflation Dread Disorder is characterized by an almost irrational concern over the almost zero chance of actual deflation — that is, falling prices.

Professor Leamer briefly addresses each of the usual reasons given for fearing deflation: impact of falling prices on business profits, impact on nominal debt burdens, and concerns that consumers will delay spending due to an expectation of lower future prices. The piece demonstrates why each of these concerns is misplaced in the current environment, and it does so in a manner easily accessible to non‐​economists. As it is a very brief piece, you’re better off reading it for yourself