Thursday, October 04, 2007

Oh No! The Japanese Will Get Cheaper Mobile Phone Calls!

You know the economics of all too many financial journalists aren't sound when they write stories like this. Financial Times report about a big "threat" to the Japanese economy-household will get cheaper mobile phone calls. And so the problem is.......?

Well, that is a valid question and the correct answer is that it isn't a problem. It is in fact good as the purchasing power of these households will rise. But to the Financial Times journalists,David Pilling and Mariko Sanchanta, this is supposedly a problem because this will mean that the rate of consumer price deflation in Japan might rise. But first of all, with the weak yen and rising oil prices, Japan is more likely to see the CPI yearly change rise above zero than fall deeper below it, cheaper mobile phone services notwithstanding. And secondly and more importantly, price deflation driven by higher supply is not a problem. The computer industry have had it for decades and it is thriving. All too many journalists are so ignorant of sound economics and economic history to know that price deflation will only be bad for economic growth when it is caused by monetary deflation, not when it is driven by a higher supply of goods and services.


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