Must-read: Justin Fox: “Stuff Keeps Getting Cheaper”
Must-Read: There is one way in which durable-goods deflation can be a minus for the economy: Since capital-goods investment overwhelmingly takes the form of the creation of durable goods, the depreciation of nominal capital values generated by durable-goods deflation reduces the nominal return on investment. It either needs to be countered by a higher overall inflation rate or it leads to secular-stagnation problems: we cannot afford to have holding your money in idle cash appear to be a better investment than committing it to building useful and productive capital:
Stuff Keeps Getting Cheaper: “The great durable-goods deflation is what I’ll focus on today…:
…It does not appear to be driven by central banks and their ability to create and destroy money…. Durable-goods prices… follow such a different trajectory than other prices. So what does explain it?… Goods (both durable and nondurable) are tradeable while services generally are not…. So the rise of China as a giant new low-cost producer of manufactured goods in the 1990s and 2000s put lots of downward pressure on durable-goods prices, but not so much on nondurable goods… and none at all on services….
Manufacturers of durable goods keep getting better at making them…. Productivity growth… has been much higher for the past few decades in durable-goods manufacturing than in nondurable-goods manufacturing. Productivity growth in services… seems to have been lower…. Durable-goods manufacturers have gotten more efficient in making things… [and] they churn out products that are often vastly superior to those of the past, most notably computers and other electronic devices…. Yes, an iPhone costs a lot more than a Princess telephone did 25 years ago, but it is capable of exponentially more…