When deflation actually has a positive effect

Deflation may be painful, but it does come with certain benefits.

The US Federal Reserve has been printing and pushing money into the US economy to stave off deflation. We are informed that limited inflation of 2%-3% is economically optimal, whereas deflation will certainly lead to economic destruction. The argument is that during deflation consumers will postpone their purchasing decisions in anticipation of lower prices. I agree; however, sometimes deflation may have some desirable effects that shouldn't be forgotten and should be considered. Maybe the inflation hawk economists should be listened to for other reasons. Maybe some positive structural reforms are occurring in Mid-Western states as a result of some needed deflationary discipline.

Central to Michigan's multi-decade economic decline are the United State's structural problems and our inability to adjust. The Federal Reserve and most economists do not possess a coherent understanding for remedies to a structurally broken system. The best theory is an enlightened or egalitarian leadership solution; however, we don't seem to be able to find the leadership. Frankly, I don't think such leadership exists. So, how do we tackle some of Michigan's structural problems? Unfortunately with a lot of short term economic pain that will force the State of Michigan into redressing its structural impediments to economic growth.

As an example, deflation will have positive long term structural consequences for states courageous enough to take on public sector unions such as Ohio, Wisconsin, Indiana and perhaps even Michigan. Deflation is forcing legislatures to finally change laws protecting the union beast. Perhaps there is also hope with other structural impediments as parents are given greater access to K-12 educational choices.

Deflation is flatly uncovering our structural deficiencies. It's painful, but we are seeing benefits.