Douglas Carswell

14 JAN 2016

Don't despair about deflation: falling prices are good!

Here's an amazing fact: in 1955, 1MB of computer memory cost over $400 million. Today, it costs less than 1 cent. Some of the world's poorest people today have better computers in their pockets than the world's richest people could afford 60 years ago. Falling prices have made billions of people better off.

High-tech deflation has transformed our lives. Think about communication: 30 years ago, calling a friend abroad cost a fortune in phone bills. Now you can do it for free with Skype or WhatsApp. For sending messages, snail mail was the only option. Now, with e-mail, it takes no time and costs consumers nothing.

Or think about information: Google and Wikipedia have given us more information at our fingertips today than you can find in the world's best libraries. The Internet has made information so cheap, even hard copy newspapers have become giveaways to compete.

The 'freeconomy' shows that the doom-and-gloom claims about falling productivity may be a myth. As a recent piece in Prospect argues, conventional productivity statistics miss the fact that the economic productivity of communication has soared by enormous proportions.

The papers today are full of panic about falling prices: oil, houses, food. But hang on: isn't that a good thing? If you pay less for petrol, heating, and groceries, aren't you better off? If you wouldn't have to borrow so much to buy a house, wouldn't you feel more secure?

Commentators are saying another recession is around the corner – and they're probably right. But the problem isn't that prices are too low, it's that they're too high. House prices and the stock market have risen much faster than wages. They've been driven up artificially by central banks. Asset price inflation has made elites rich as the expense of everyone else.

Falling prices are what we should be aiming for. If we can get more for less, that isn't something to panic about; it's economic progress!

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