THE FEDERAL RESERVE BOARD has battled inflation for more than twenty years as consumers plunked down more cash for everything from cars to toothpaste. But now inflation is dormant and prices for all kinds of goods are stable - or even falling. Indeed, during his January 29 Congressional testimony, Fed chairman Alan Greenspan for the first time ever said the nation's central bank must not only worry about a rebound in inflation - but also deflation or falling prices.
01:00-02:11 Introduction to Program (Buzenberg & Farrell)
02:12-13:45 The Case for Deflation (Farrell)
13:46-15:26 Deflation Support Group 1
15:27-26:35 Deflation and the Great Depression (Smith)
26:36-28:02 Deflation Support Group 2
28:03-29:21 Continuity (Farrell)/Break/Continuity (Farrell)
29:22-41:12 Deflation and Consumers (Catlin)
41:13-43:11 Deflation Support Group 3
43:12-49:13 Deflation and Investors (Farrell with financial experts)
49:14-50:23 Continuity (Farrell)/Break
50:24-51:35 Deflation Support Group 4
51:36-52:53 Closing Thoughts (Farrell; text below)
52:53-54:00 Credits (Buzenberg)
The remarkable progress that has been made against inflation is sustainable. Over the past two decades, the Federal Reserve has learned what it takes to run a sensible monetary policy. Inflation-phobic investors are eager to help out the Fed by sending interest rates soaring at even a hint of rising prices. Vast technological changes, the opening of international markets, and rising American productivity are driving prices lower.
The long-term payoff from a relatively stable general level of prices could be huge. Prices would become a reliable signal that tell companies how the marketplace truly values the goods they make and the services they sell. Price stability allows for faster economic growth and higher living standards.
Of course, we could still get brief, nerve-wracking bouts of inflation. We could also suffer through dark, dismaying episodes of deflation, especially when the next recession strikes. The battle for price stability is never-ending.
In 1923, John Maynard Keynes called inflation and deflation "evils to be shunned." It is still true. This is a new world - where we have to worry about two economic threats - the risk of inflation and the risk of deflation.
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