As you’re probably well aware, news has not been good about the economy this week, and there has been a lot of talk about the potential for deflation.  The best way I’ve heard deflation described is as an economic coma.  The latest unemployment report indicates that there’s a major lack of jobs, which results in Americans spending less.  That, in turn, pressures companies to lower their prices.  While lower prices may seem like a good thing, consistent devaluation of goods can encourage people to forgo spending even more, as they wait for prices to drop more, which will further impede growth. 

The Wall Street Journal released results from a new economic forecasting survey Thursday afternoon (“Economists Want Policy Makers to Back Off“) that suggests the economy is headed towards deflation.  Over fifty economists were surveyed, and when asked about the biggest risk facing the economy, the most common response was “too few jobs, too little wage income and too little consumer spending.”  They are pessimistic despite the massive government spending on economic recovery.  Thirty of 48 responses by the economists stated that our economy does not need any more fiscal or monetary stimulus.  Basically, the government just needs to get out of the way of economic recovery so that the private sector can rebound.  Considering that money spent by the private sector has a higher multiplier effect (adding jobs, profit, more consumer spending), I couldn’t agree more.