Concerns about deflation are becoming widespread. Deflation is unwelcome because it makes loans more difficult to pay off and dampens economic vitality by encouraging hoarding of cash (some banks offer negative interest for deposits).
There were concerns about the spectre of inflation back in 2008/9 but they were held at bay until the recent drop in oil prices. Now it is difficult to encourage the optimism required to stimulate economies because the fundamental dynamics have not been addressed.
Job growth has not delivered livelihoods to people at the bottom of the pyramid. Growth in part time jobs has occurred as businesses fill needs without committing to the full cost of employment. This means people have a job but can barely save cash at the end of the week, if at all.
While people in big cities might feel more optimistic the fundamental activity of economies around the world continues to be impacted by natural resource constraints and a top heavy, over-extended economic system. The recognition of deflation is another sign that global systems have not been repaired since the financial crisis. It is worrying.
As a sustainability advocate, I also see things from another angle, which is that deflation is exactly what the world needs. The science of the biosphere is that there are too many people consuming too much for natural systems to bear. It has been possible because of oil (millions of years of sun’s stored energy) but the consequence has been deterioration of ecological systems leading to climate volatility, species loss, water shortages and the impending vicious cycle of habitat loss.
We need success without growth. That is possible, but we must all choose. Policy makers must be bold if they are to see the new paradigms that are possible. We must do more with less. We must respect and enjoy our connection with nature. As far as the banking system goes, it must continue to deleverage and become more transparent. The biggest unspoken hindrance to positive change is corruption which increases the higher up the pyramid you go.
What to do? Vote for change with your wallet – buy clean food and other goods, eschew packaging and dross. Support people who make things. Educate everyone. Enlighten culture by supporting the values that everyone knows are right. And if you are at the top, turn your organisation upside down – that will make the world a better place. Good luck.
The Economist published three articles on deflation this week, so it must be serious. Here they are:
The high cost of falling prices
Worse than nothing