As of late, it seems like the word “deflation” is being used daily by even the most reliable economists. At first it seems safe to think everything we buy tomorrow will be less expensive than last year. If we listen to the most popular subjects for the last couple of years like housing, cars, appliances, etc., everything is priced at a discount. Housing is down by more than 25%, supermarkets have slashed the base prices of most items, and almost every car dealership is currently offering 0% financing in some way.
Why is all of this so risky? Mainly it has to do with jobs. With unemployment already at one of the worst levels in the past, corporations have gotten used to manufacturing products with decreased workers. In some ways that is good because as an economy we are manufacturing products more efficiently. Unfortunately, that also means that thousands of products are now being manufactured abroad. Thousands of American jobs are farmed overseas due to decreased pay. Furthermore, the feeling of the American consumer is, why would they want to buy anything today when in a couple of months they can get it for half the price? Or why would I buy a house when chances are the interest rates for mortgages will be in the high 3%? This type of hesitation represents a tremendous hit to the economy because everything goes inactive. The wait means factories are not able to move inventories produced, construction remains at a stand still and more jobs are being cut. This is a chain reaction that our economy cannot afford at these already weak levels.
So what is the remedy
? The answer is simpler than one might think. As per the Census Bureau, 3 out of 4 jobs in the US are created by the mall to medium size business. Currently, there are no tax incentives from the current administration for this field to hire workers. Moreover, the finance committee just spent months crafting the reform that essentially precludes business from obtaining loans to spur more research and development and job growth. Imagine the possibilities of bringing those thousands of jobs back into the US. Or the normalization of the housing market, the single biggest variable for progress.
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