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Understanding Deflation: Treating the Disease, Not the Symptoms

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  • L. Randall Wray
  • Dimitri B. Papadimitriou

Abstract

Most recent discussions of deflation seem to overlook the main dangers posed by a deflationary economy and appear to offer superficial solutions. L. Randall Wray and Dimitri B. Papadimitriou argue in this brief that, barring drastic changes in asset and output prices, deflation itself is not the main problem, but rather the recessionary conditions that sometimes give rise to deflation. Whether or not prices are falling, the proper remedy for a recession is the Keynesian one: government deficit spending, used to finance useful programs and tax cuts. These measures will reduce unemployment, increase growth, and relieve deflationary pressures.

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  • L. Randall Wray & Dimitri B. Papadimitriou, "undated". "Understanding Deflation: Treating the Disease, Not the Symptoms," Economics Public Policy Brief Archive ppb_74, Levy Economics Institute.
  • Handle: RePEc:lev:levppb:ppb_74
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    1. Wynne Godley & L. Randall Wray, "undated". "Can Goldilocks Survive?," Economics Policy Note Archive 99-4, Levy Economics Institute.
    2. Dimitri B. Papadimitriou & Anwar Shaikh & Claudio H. dos Santos & Gennaro Zezza, 2002. "Is Personal Debt Sustainable?," Economics Strategic Analysis Archive 02-11, Levy Economics Institute.
    3. Dimitri B. Papadimitriou & L. Randall Wray, "undated". "What to Do with the Surplus: Fiscal Policy and the Coming Recession," Economics Policy Note Archive 98-6, Levy Economics Institute.
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    1. L. Randall Wray, "undated". "Deflation Worries," Economics Policy Note Archive 03-5, Levy Economics Institute.

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