Economists and others are fond of warning of the dire consequences of deflation and how it contracts the economy leading to high unemployment. Well guess what, in the US,

(From Meltdown by Thomas E Woods Jr)

"the decade ending in 1879 saw 6.8 percent real national product growth per annum and a 4.5 percent average annual increase in real product per capita. US Census statistics show manufacturing employment increasing from 2.47 million in 1870 to 3.29 million in 1880. The agricultural labor force is listed as having increased from 12.9 million to 17.4 million during the same time. What appears to have made historians conceive of this period as one of unmitigated "depression" is the ongoing decrease in the price level by about 3.8 percent per annum.

The trouble, according to economist Murray Rothbard, is that "most historians and econmists are conditioned to believe that steadily and sharply falling prices must result in depression: hence their amazement at the obvious prosperity and economic growth during this era. Milton Friedman and Anna Schwartz, who are not inclined to an Austrian perspective, suggested something similar about the 1870s:

'The contraction was long and it was severe - of that there is no doubt. But the sharp decline in financial magnitudes, so much more obvious and so much better documented than the behaviour of a host of poorly measured physical magnitudes, may well have led contemporary observers and later students to overestimate the severity of the contraction and perhaps even its length. Observers of the business scene then, no less than their modern descendants, took it for granted that sharply declining prices were incompatible with sharply rising output. The period deserves much more study than it has received precisely because it seems to run sharply counter to such strongly held views.' (Milton Friedman and Martha Schwartz, A Monetary History of the United States, 1867 -1960, Princeton University Press, 1971 "

Going back to Friedman, if inflation is always and everywhere a monetary phenomenon then what matters is real prices not nominal movements in the price level up or down.

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I like this Friedman quote:

The record of 1879–1896 was very similar to the first stage of the alleged great depression from 1873 to 1879. Once again, we had a phenomenal expansion of American industry, production, and real output per head. Real reproducible, tangible wealth per capita rose at the decadal peak in American history in the 1880s, at 3.8 percent per annum. Real net national product rose at the rate of 3.7 percent per year from 1879 to 1897, while per-capita net national product increased by 1.5 percent per year.

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That Krugman quote you got is unbelievable.

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Wait til I start with Krugman's "war is good for the economy" quotes...

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Some quotes from Meltdown on war is good:

"And no, World War II didn't end the Depression, either; rationing goods in order to build ships and planes that consumers don't use doesn't create prosperity..."

He includes a good deal more showing that while war spending increases GDP, it clearly reduces prosperity.

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I cannot believe that people still are in thrall to the horsebollocks theories of Milton Madman.

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He won a Nobel prize for proving that inflation is everywhere and always a monetary phenomenon. That part of his work I accept, as regards the rest...I don't really have an opinion.

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If deflation is so evil and leads to industries collapsing and no consumer spending and the death of your firstborn child and plagues of locusts...then explain to me the last 20 years of the IT and electronics world.

I don't think this is a thread honouring the late Milton; simply pointing out that historically falling prices and growth have occured together.

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exactly, with falling prices you can spend more of your money on other goods, buy more goods or save.

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