Less Than Zero: The Case for a Falling Price Level in a Growing Economy (Hobart Papers)

In "Less Than Zero: The Case for a Falling Price Level in a Growing Economy," George Selgin articulates a compelling argument for why a falling price level can coexist with economic expansion. Throughout the book, Selgin critically examines the prevailing consensus that stable or mildly inflationary price levels are essential for macroeconomic stability. He explores the historical and theoretical underpinnings of this belief, meticulously dissecting common misconceptions regarding deflation.

Selgin argues that moderate and predictable deflation resulting from technological advancements and productivity gains should be differentiated from harmful deflation that stems from monetary contraction. By doing so, he illuminates the potential benefits of allowing price levels to fall in a structured economic environment. Through historical examples and economic models, Selgin provides evidence to support his thesis that a declining price level, under the right circumstances, promotes efficient resource allocation, increases real wages, and enhances overall economic welfare.

• The distinction between 'good' and 'bad' deflation is critical; the former arises from positive supply shocks, while the latter is a result of demand contraction.
• A falling price level can lead to tangible benefits, such as improved purchasing power and higher real incomes, particularly when driven by productivity improvements.
• Monetary policy should be flexible enough to accommodate deflation driven by economic growth, rather than adhering to a rigid inflation target.
• The historical aversion to deflation is largely based on inaccurate associations with economic downturns, ignoring instances of benign deflation.

"The specter of deflation has been more imagined than real, a bogeyman that serves to keep alive the inflationary bias of modern monetary policy."

"Recognizing the difference between harmful deflation and beneficial price decreases is crucial for forming sound monetary policies."

"Less Than Zero" is significant because it challenges mainstream economic beliefs and urges policymakers to reassess the automatic association of deflation with economic harm. In an era where monetary policy plays a pivotal role in economic strategy and planning, understanding the nuances of inflation and deflation is more crucial than ever. George Selgin's book equips readers with a deeper appreciation for how falling prices, in a context of productivity advances, not only signal but can also spur economic prosperity.

Moreover, the book contributes to a broader dialogue about the goals of central banking and the metrics by which economic health is judged. By advocating for the acceptance of benign deflation, Selgin proposes a paradigm shift that could have far-reaching implications for economic policy and global financial stability.