The New York Time’s Disgraceful Reporting about Deflation

By William K. Black

This is the third and final installment of a series of columns discussing the latest harmful policies and articles about eurozone deflation. This column discusses the March 31, 2014 article in the New York Times entitled “Another Worrisome Drop in Euro Zone Inflation.” I have already discussed the extraordinary sentence in the article in which the head of the European Central Bank (ECB), Mario Draghi, is cited as claiming that deflation is desirable for eurozone nations suffering Great Depression levels of unemployment. Draghi claims that deflation will cause reductions in working class wages and prices that will lead to increased exports and economic recoveries. I explained in prior columns that this is contrary to the ECB’s written policies and economic theories and the views of virtually all economists. The NYT article does not report these facts.

I noted in my first column that the NYT article is more sophisticated than the AP story on deflation, but is even more disturbing in its analytical failures.

I noted in my second column that the NYT article does not contain the words “demand” or “fiscal.”

That means the article does not discuss either causality or the effective options to counter the cause of the eurozone’s critical problems (including deflation) – grossly inadequate demand. That’s an astonishing failure and it should be unacceptable for journalists.

The article also uses the word “unemployment” only once and even that usage ignores the eurozone nations with Great Depression levels of unemployment and the resultant grotesque human misery that the troika has gratuitously inflicted upon these victims. That too should be unacceptable for journalists.

To sum it up to this point, the troika-trolls spoon feed the U.S. journalists supposedly covering Europe’s disastrous response to the financial crisis a narrative in which everything a reader needs to know is systematically removed from the articles.

The NYT article does not tell us what is causing deflation (a current reality in Spain). That is bizarre. It is like writing a lengthy article about climate change that ignores its causes. There is no particular mystery to deflation – it is caused by grossly inadequate demand. While the article does not use the word “demand” it contains this passage that implicitly admits that the issue is demand.

“When prices are falling on a broad front, consumers delay major purchases because they expect prices to drop even more. Companies suffer declines in sales and cannot invest or create jobs.”

A “delay [in] major purchases” is a reduction in demand – in a context in which demand is known to already be grossly inadequate.

The article, with an exception I discuss next, treats deflation as something that only matters, and then matters enormously, when inflation turns negative (the definition of “deflation”). It refers to the “precipice of deflation.” No economist believes in such a “precipice.” The exception in the article that admits that extremely low and falling inflation could prove exceptionally damaging is correct, but the quoted reasoning is insane.

“Subdued inflation means that governments, businesses and individuals in the vulnerable countries will find it even more difficult to repay their debts. A little inflation is good for borrowers, because it chips away at the overall debt burden.

‘For me that’s the biggest concern,’ said José Manuel Campa, former secretary of state for finance in Spain and now a professor at the IESE Business School in Barcelona and Madrid. Low inflation ‘just puts a much larger burden on the adjustment that needs to take place,’ he said.”

Campa makes a small, bizarre, point, but it is revealing. He once held a senior position inflicting the disastrous austerity on Spain. His “biggest concern” ignores the Great Depression levels of unemployment and the resultant suicides, spousal abuse, and alcoholism caused by those austerity policies further reducing already inadequate demand. His “biggest concern” is not that deflation would make this worse. No, his “biggest concern” is a tiny marginal effect on bond and consumer interest rates. God protect Spain from the madness and inhumanity of these troika-trolls.

The NYT travesty posing as an article fittingly ends on this insane note:

“Jens Weidmann, the Bundesbank’s president and a member of the European Central Bank governing council, said recently that he did not rule out some form of quantitative easing as a last resort.

Such talk is intended to demonstrate European Central Bank resolve, and speech alone is likely to be the preferred policy for the time being. ‘The big balancing act for the E.C.B. right now is getting this message across without doing anything,’ Mr. Brzeski said, ‘and keeping their fingers crossed.’”

Here is the “logic” chain of these last two paragraphs:

Deflation would be disastrous (the author has forgotten Draghi’s position)
The ECB wants to “demonstrate [its] resolve” to prevent deflation
The eurozone is on the brink of deflation, Spain is already suffering from it (if you are asking “why” at this juncture you have proven yourself to be unfit to be a troika-troll or a NYT financial reporter)
Even the ECB does not have any confidence it could successfully lead a recovery from deflation
Therefore (?), the ECB’s decision is to not to even try to “do[] anything” to prevent deflation. Instead, the strategy is to talk a lot about the ECB’s steely “resolve” to prevent deflation. (Again, this ignores the small fact that the article quotes Draghi, the head of the ECB, as saying the opposite.)
But it gets better, for when all this fails (as it has) the ECB actually does nothing to prevent deflation even as the inflation rate sinks to roughly one-quarter the ECB’s purported “target” and deflation arrives in Spain. Instead, the ECB response to its failures is to hope for luck (“keeping their fingers crossed”).
The troika-trolls are paid very large salaries to say things like this that are facially delusional – what’s the NYT’s excuse?