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Line 1: − + − '''Deflation''' is the opposite of [[inflation]], but liberals consider deflation to be worse. The [[Great Depression]], for example, was characterized by deflation.+ − But some disagree with the liberal view of this. As one observer points out, "[t]he period of the greatest growth in the U.S. during the nineteenth century, from 1820 to 1850 and from 1865 to 1900, was associated with significant deflation."<ref>http://mises.org/library/what%E2%80%99s-so-scary-about-deflation</ref>+ + + + + + + + + + + + + + + + + + + + + + + + − + +
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'''Deflation''' is when the value of paper money (e.g., a dollar bill) increases over time. The cost of goods "deflate" in their prices, so that what cost $1 last year may cost only 80 cents this year.
'''Deflation''' is a reduction of the amount of amount of [[money]] in circulation.
When the cost of goods decreases over time, and thereby "deflate" in their prices. For example, deflation would exist when something that cost $1 last year then costs only 95 cents this year. The value of paper money (e.g., a [[dollar]] bill) may increase during deflation because of the shortage of dollars in circulation.
Deflation is the opposite of [[inflation]], but liberals consider deflation to be worse. The [[Great Depression]], for example, was characterized by deflation. [[Japan]] has struggled with deflationary forces since the mid-1990s.<ref>http://www.japantimes.co.jp/opinion/2017/03/29/commentary/japan-commentary/the-truth-about-deflation/#.WV7wq-kpCUk</ref>
Some properly disagree with the [[liberal]] opposition to deflation. As one observer points out, "[t]he period of the greatest growth in the U.S. during the nineteenth century, from 1820 to 1850 and from 1865 to 1900, was associated with significant deflation."<ref>http://mises.org/library/what%E2%80%99s-so-scary-about-deflation</ref>
== Forces of deflation ==
Forces that push an economy towards deflation include the following:
*high [[unemployment]], or low overall employment that can occur even if reported [[unemployment]] is small. This prevailed in 2017.
*extreme price-cutting by sellers, which can be encouraged by technological factors such as the [[internet]] or be due to intense competition such as [[price war]]s between [[Wal-Mart]] and [[Amazon.com|Amazon]], or between [[Apple]] and [[Google]] (now owned by Alphabet).
*[[invention]]s that sharply and quickly increase productivity, as occurred shortly after the [[Civil War]].
*a lack of inventions combined with competition by low-wage foreign jobs can prevent real wages from increasing, which precludes inflation.
*the loss of manufacturing and other good-paying jobs, which results in less income for consumers and fierce shopping for bargains.
== Effect on [[gold]], [[interest rate]]s, [[stock market]], and [[bond]]s ==
Deflation causes declines in [[gold]] prices and interest rates, but increases in the value of long-term [[bond]]s and potentially the [[stock market]] as investors seek higher rates of return than bank deposits offer. However, rates of default on bonds can increase due to deflation as borrowers have difficult paying back the principal.
== Food deflation ==
Food deflation was rampant in 2016, due to increases in supply and low-cost competition.<ref name="Forbes">https://www.forbes.com/sites/phillempert/2017/02/01/food-deflation-is-changing-the-face-of-retail/#2818fc3326ec</ref> Retail grocers lost in value despite increases in the stock market overall, including [[Wal-Mart]]. "Kroger, Whole Foods Market, Sprouts Farmers Market, and Supervalu lost 17%, 29%, 8%, and 31% of their respective value" in 2016.<ref name="Forbes"/>
== See also ==
*[https://www.investopedia.com/terms/d/deflationary-spiral.asp Deflationary spiral]
== References ==
== References ==
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[[Category:Inflation]]
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[[Category:Economics]]