The Oil Drum

Sure, I can imagine a large number of Americans having their health care costs sink way below the level that is considered customary today - how much health care did many of the workers building houses over the last five years receive? And these were literally millions of workers and their families, who just happened to be illegal. Didn't stop them from making an economic contribution, and to an extent, their being willing to work for less, not only their wages but in terms of legal rights or health care, meant that many Americans had to compete at the same level.

As for food - that is a kicker, I'll admit. For the first time in human history, we are actually burning food intentionally, instead of eating it. Hard to tell whether we are willing to starve the poor to death to keep driving to the mall (regardless of how many die, it won't keep the suburbs humming), but the question of demand destruction is at least as open as the question of supply destruction. Add in climate change, and the picture is grim. I think there is little question that the percentage of income devoted to food will rise towards its historical average - for a round number, let's use 5 times more expensive than today. Which means that a lot of other economic activity will be pushed aside, as food is a basic good. The competition for that remaining income will be fierce, to put it mildly.

Deflationary spirals are arguably not measured in monetary terms, but instead in social terms - are the number of jobs shrinking, is the wage being paid less able to maintain an accustomed lifestyle, do people start living differently because there is less available?

I still lean towards deflation, if only because it has been so long since it last occurred in America. But I don't think it will be well measured in terms of dollars, and that stagflation is almost as equally likely. What deflation means in this view is that one is demonstrably poorer in material terms, as are the other people around one.

Of course, poverty is relative - I buy things which last, generally reparable, thus lasting even longer, instead of always buying items that are trashed after a brief period. If I understand current American norms, this means I'm strange, if not a social outcast. And that this way of life is to be avoided, since it is a sign of failure, compared to buying ever more stuff to be stored in ever larger homes by ever larger consumers with ever larger debt.

Bankrupt means not buying anything, regardless of price, and I think Americans have essentially bankrupted themselves. Not all Americans, of course, but the vast majority, have been actively involved in an ever growing cycle of consumption and debt, one which is likely to end, and when it ends, it will be defensible to consider it as 'deflation.' The process hasn't started yet, though possibly, the first glimpses of how it will play out can be imagined.