Quantcast
Home / Columnists / Berko / The U.S. consumer could use a little deflation

The U.S. consumer could use a little deflation

Dear Mr. Berko: You’ve never commented on deflation, which so many people consider evil.

What do you think about inflation versus deflation, and which would you prefer? –N.L., Durham, N.C.

Dear N.L.: There’s not a darn thing wrong with deflation. In fact, deflation is playing quite well in Japan. And, contrary to the scare tactics of Japanese banks and real estate moguls, deflation was actually good for jobs and the economy, and the Japanese consumers like it.

Deflation, which causes a persistent drop in wages, consumer goods, food, services, etc., can also have a few ill effects.

Homeowners get stuck repaying high-dollar mortgages, auto loans, personal loans and other debts as their take-home pay decreases. Properties and assets decline in value. Manufacturers and retail companies are unable to raise prices, and the consumer has a smaller nest egg.

Frankly, considering flat-to-declining personal incomes in the U.S., how much longer can consumers keep our economy afloat as prices continue to rise?

However, the Japanese are embracing deflation. While the average wage in Japan has declined, retailers are devoting successful energies to providing goods and services that are less costly but still have good value.

With lower wages, price-cutting has enabled the consumer to own less-expensive TVs, PCs, furniture, clothing, autos, etc. Today, the average Japanese household owns more appliances, TVs, clothing and autos than it did 15 years ago.

In fact, McDonald’s and Kentucky Fried Chicken lowered prices on many items by 30 percent to 50 percent in the past three years while store sales and profits increased significantly, so more Japanese are employed to produce more goods and services.

Meanwhile, Japan’s retail, appliance, food and home-accessories stores are improving their revenues with less-expensive but high-quality products and making more money.

Even though Japanese consumers are earning less, they are buying more as prices decline. There’s an important message here.

The U.S. can’t continue passing on higher labor and material costs for the goods and services it sells to the rest of the world unless the wages of the rest of the world increase to our income levels, which are inexorably pushed by higher union demands.

Inflation has been pricing the U.S. out of the world markets and forcing U.S. companies to move business and production overseas. Few folks overseas can afford our cell phone service costs, our clothing, our solar panels, automobiles, motor scooters or bicycles, boat engines, carpets, furniture and other products stamped “Made in USA.”

So now, our largest export is military equipment and, fortunately, our military industrial complex works diligently and covertly to encourage dissension around the world to keep military sales flowing.

We need to reduce prices so consumers can buy more goods, products and services, rather than continue to inflate prices so folks buy fewer goods, products and services. And we need deflation to give our dollar the power, rather than inflation, which always requires more of our dollars to buy the same market basket.

Over the past 30 years, real wages adjusted for inflation have declined, while prices for goods and services have risen. However, the three reasons consumer spending has increased in those 30 years are (1) an explosion in home equity loans, (2) two working parents and (3) a generous banking system that gives credit cards to deadbeats, home loans to prison inmates and credit lines to riverboat gamblers.

Lower prices can increase our exports, improve employment, generate more tax dollars, expand consumption, make health, life and homeowners insurance more affordable, reduce college costs, etc. Inflation, however, makes those things more costly to acquire and discourages consumption.

We’ve pursued an inflation policy for decades. Perhaps it’s time to consider a deflation policy.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

 

Scroll To Top
%d bloggers like this: