"The World Turned Upside Down," an American RadioWorks documentary about deflation, with MPR's Steven Smith and Chris Farrell. Contains various interviews and commentary.
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6 minutes now past 12:00 major funding for Minnesota public radio's documentary fund is provided by Phyllis Taylor in memory of Walter stremmel and you're listening to the world turned upside down in American radio work special report on the end of inflation and the Specter of deflation in an economy. Like ours prices are always going up and down typically prices for a tube of toothpaste a gallon of gasoline or some other product goes up when demand is strong and supply low prices drop when Supply outruns demand inflation is something different. It is a general rise in prices deflation is inflation's mirror image deflation is a broad decline in prices.In the coming hour will report on how the world economy got to where it is today will revisit to disastrous deflationary episodes in US history and examine the impact of deflation on consumers workers and investors today to keep things in perspective will also check in periodically with a support group for people coping with deflation. In 1965 in AM FM clock radio like this one plastic cabinet analog clock would have cost you about 40 bucks or 204 in today's dollars. In 1998 a simple AM FM digital clock radio Target runs about $10 and it sounds a lot better. MSN the US economy these days is becoming a lot like our radio lower prices and higher quality over the past year new car prices are flat and used car prices are down a burger and fries cost less so does a soda or a beer computers and other high-tech goods are Cheaper by the month after adjusting for inflation a gallon of gas in a sport utility vehicle cost less today. And when your dad's car had fins these numbers tell a story the age of inflation maybe over that's right the age of inflation maybe over business airfares have risen by an average of 40% since the beginning of 1996 according to the American exam prices are going up such as airline tickets or Hospital stay and statisticians calculate the change in overall prices. The Consumer Price Index is up less than 2% compared to 5% in 1990 and 14% in 1980 with low cost. Facture Goods heading our way from the troubled economies of Asia Latin America and elsewhere in the developing world. The US is closing in on a zero inflation economy. Imagine for some for decades A specter of inflation has haunted America the energy crisis soaring food bills mortgage rates in the high-teen. How about Gerald Ford and his whip inflation now buttons or Ronald Reagan echoing the fears of a Nation traumatized by inflation of great proportions. We suffer from the longest and one of the worst sustained inflation's in our National History. It distorts our economic decisions penalizes Thrift and Crushers the struggling Young and the fixed income elderly alike. It's retton's to shraddha the lives of millions of our people how was inflation tamed from the 1980s on an arsenal of domestic and Global forces were Unleashed against inflation from The Tight money policy of the Federal Reserve to brutal domestic and international competition inflation is now at its lowest level in three decades. Michael Shannon is Chairman of Ecolab a leading supplier of industrial cleaning products. We have very little pricing flexibility just as we are not accepting increases from our suppliers. Our customers are not accepting increases for us when unemployment at a three-decade low and workers paychecks Rising smartly many Economist remain fearful that inflation will break out. Get a growing number of Economist have a different worried that the shock waves from the Relentless spread of Asia's financial crisis to Russia and now Latin America could lead to a phenomena and we haven't seen in the US for 70 years deflation among the Warriors is fed. Chairman Alan Greenspan unaffected by world that is experiencing greatly increased stress. The prospect of a broad-based decline in prices is real says William woman Chief Economist at businessweek. The fact of the matter is that for most of my life Economist had been under estimating the rate of inflation in the current. What strikes me as the economist are sort of underestimated the amount of deflation forces in the world economy. So I do think there are very strong deflationary forces in the world economy at work right now with one-third of the global economy stalled in the world Capital markets at risk the Federal Reserve cut into Raise the counter the tide of investor despair, but the FED felt free to ease monetary policy because inflation is well-contained. Here's how it came about a global investment. Boom was triggered by communism Collapse by the Embrace of for your Market by much of the developing world and by the long u s economic expansion even before Asia stumbled factories everywhere, we're supplying consumers with more computers cars and other manufactured goods than they want it now about a quarter of the world's population is in recession or even depression at least trouble nations are pushing hard for more exports by cutting prices. Well, you got to ask. Where is the demand going to come from Matt's Robert reisch the former labor secretary and now professor at Brandeis University rice worries that Asia's economic collapse May set in motion a global deflationary spiral something. We haven't seen since the Great Depression if there's not sufficient demand for all the goods and the service is being produced then company. Start finding that their profits begin to a road and I have to lay people off but then the United States and elsewhere by things and obviously if they can't buy that means companies can't sell and you can see as we go on how this vicious cycle plays itself out again. I don't want to be Chicken Little I don't want to predict that any of this is going to happen, but we have to be vigilant against the possibility of accelerating deflation just as we are Vigilant and have been against the possibility of accelerating inflation. Should we worry? He's just financial crisis has spread and dangerous ways prices are falling sharply in that huge Market call China Japan the world's second largest industrial power is mired in recession capital is fleeing Latin America for the relative safety of the major industrial Nations. The US economy is slowing. Not everyone is worried about deflation far from it the Flesh and maybe a chilling words with some with visions of the bank failures farm foreclosures in long lines of unemployed workers in the 1930s America's Leading Edge businesses such as computer software Telecom gear in the internet are all thriving in a deflationary world of falling prices and Rising sales be a woman a business week cautions that the patient is not synonymous with depression the fact that matter is if you look at the United States in the late 19th century economic growth was relatively strong, even though prices were falling the price level was stable to falling for a long. Of time. So far the world financial crisis has largely benefited us consumers Commodities are cheaper foreign goods are less expensive interest rates are down sharply call it the Walmart economy a world of everyday low prices falling prices are acting like a tax cut people have more money in their pockets lower inflation means workers can buy more Goods with their earnings. Jim Paulsen is Chief investment strategist at Norwest in But management couple years ago lower the level of inflation was about the same as wages in today a little place in about 1 and 1/2 and wages are still at 4 and the result Is that real purchasing power wages of an exploding? And the reason they have is because of deflation. The Mall of America in Suburban Minneapolis is a citadel to consumerism. It's a nation's largest shopping mall Shoppers here have a clear idea of what is happening to prices and that there are plenty of ways to get your money's worth and say that prices are goods are coming down. There's just more sales. You just get bit is give you more money off because they can't get rid of the product. So you end up buying stuff on sale instead of just buying stuff at the regular price really shopping shopping for bargains and looking for the best deal. If it doesn't say sale or clearance, I don't even go into that area cuz I want the most for my money intense pricing pressure means companies are having to rethink virtually every aspect of how they do business. It's a treacherous business environment that punishes inefficiency in bureaucratic bloat and rewards speed and Imagination take Supervalu. One of the country's largest wholesale and Retail food companies the company did well, In the 1980s with prices rising at a 4% to 5% rate the real price shock in their industry came in the 1990s prices have been rising at a mere 1% pays and in 1994 Supervalu live through a year of deflation in food prices Michael Wright. The company's chief executive is 12 years ago. There were eight national food. Wholesalers today. There are three know when you go to High inflation room by whenever you go even though all that I'm in but do you know if you say 3 to 6% placement was everybody can you don't make money and seem to get along and nobody goes away in these tougher times when you've got, you know deflation or no inflation and you don't have a business like Microsoft which is going to everybody's buying new stuff the new computers and things which is a growing business you get better at Stegeman overall sales level it puts pressure on the poor operators. That's really the way system is designed to work. You know, he get rid of the week in the Strong Survive. Welcome to the age of productivity over the past two decades companies have downsize restructured re-engineered and invested heavily and high-tech gear all with an i cord cutting costs and boosting productivity business is learning how to harness the power of high technology in games and output per worker or showing up in lower prices and higher-quality. The only way companies can charge a higher price in this world is by innovating the sense of urgency at the st. Paul companies. The giant insurer is typical Patrick Healy St. Paul's Worldwide Insurance operations, since the company has a goal of boosting productivity by 5% a year more than enough to offset its 3% to 4% salary increases we've been able to attain that over the last five years. I'll be a little chunky but we had that I think what really occurs is that for us much like other service businesses. We are continually replacing Human capital was Information Technology capital. And in fact that we have less employees today than we had five years ago. But our is spending our information system spending is approximately double growth more than ever before realizing what Joseph schumpeter called creative destruction, the tumultuous process by which new technologies new markets in new organizations. Supplant the old the two most powerful forces of our age globalization and Technology are combining in ways. We can't quite yet fathom to create low prices and low unemployment. But massive layoffs in widespread job in security for workers assuming that prices don't collapse a world of low everyday prices is good. It is also very unfamiliar. It took years for Americans to adjust to inflation or deflation became the devil we knew and understood now, we may have to revamp our expectations if prices we pay for goods and services sometimes rise at a moderate pace and occasionally fall at a mild rate. We also need to recognize that the Dark Side of stable prices is not just inflation, but the risk of virulent deflation. Okay, we're here with the deflation support group. We're listening to the program with our ears and with our hearts and we are reacting. I think we can stick the first names don't you ever lie Anderson. We have Mark Ted and Saria. Maybe someone would like to respond to the program so far. Okay, that's good. Good. Excellent. Would you care to elaborate email? Well, I think that is feeling intense mind-boggling malaise. Maybe even a Jimmy Carter malaise, but this would be the same although a mirror image. I think well, it's just that I just got used to inflation. Please get you some information is the only constant change for change. That would be real change. Change from change to no change would have to change back to change if it were a true change and then where would you be parking meter? Okay, good points all around we've got some really good issues to work with as we find a way to deal with deflation. So I think we're going to have a fruitful owner. If our economy is on the verge of deflation, this won't be the first time in the past Century. The American economy is spun to a handful of mild deflationary Cycles, but more drastic episode stand out as warning beacons about what can happen when deflation worlds out of control, Minnesota Public Radio, Steven Smith looks back at two such moments in American history when you think total economic disaster you think the Great Depression The misery began in 1929 and lasted more than a decade millions of Americans lost their jobs their Farms their homes many more struggle to stay just above the daily hit with a tough. To go through things weren't very expensive, but they didn't have any money. You couldn't buy it. Anyway Laban from sunup to sundown and my husband was that day in the cornfield something. He said, we're not getting nothing for our food and I get nothing this morning very vividly. We had Christmas services early in the morning at year. And people came with her Christmas cards to exchange with one another because they didn't have the postage. The Great Depression was a worldwide economic catastrophe the product of converging economic and historical currents that swelled to flood stage in October of 1929. When wall street collapse of the stock market crash is the great initiating event. It's starts the Great Depression, Michael Bernstein is an economic historian at the University of California at San Diego. It destabilizes the financial sectors of the country leads to an array of bank failures. We're literally banks have to lock their doors because they don't have sufficient cash to meet the demands of their customers and that begins. This is sort of precipitous series of events that lead to Industries closing down widespread unemployment. And of course the great distress in the farm bill economic troubles had been building for years before the crash of 29 throughout the twenties farms and mines were chronically depressed 600 Banks collapsed each year prices plunged and most households saw a drop in Rio. Can come over the decade yet? Labor historian Peter Ratcliffe of Macalester College points out that huge sectors of the economy thundered along especially automobiles tires and electrical products. These are industries were worker's productivity was quite high but workers were not earning back a significant share of what they were producing and so workers were increasingly turning to credit as a way to acquire the consumer goods refrigerators vacuum cleaners radios and Automobiles that they were producing and the wages never caught up and then led to Goods being repossessed that weren't done being paid for that led to inventories swelling and workers being laid off for work weeks being cut and spiral downwards then from that point of 1929 to really a low point in say 1930 to 1933. What about a third of the workforce was out of work altogether? Prices tumbled buy some 30% historian Michael Bernstein says across-the-board deflation lasted almost 5 years. It's hard for us to understand living in the late 20th century through so many so many years of study inflation and what might look like a wonderful thing to our eyes namely falling prices was for many many people in the United States in 1929 a disaster when they went after a farmer is good. Maybe spend actual obligations liquidated instances of everything but the farmer's wife and kids. That was The Bitter End for a farmer is today. Remember the Great Depression, but there was another dramatic. Of deflation also worth recalling and you're right in which Americans fought in intense battle over the very value of money. At the end of the 19th century the country Lurch into a deflation Airy tailspin collapsing railroad companies help touch off the crisis in the early 1890s the resulting Depression hit hardest in farm country where commodity shipments dependent on railroads and where the bulk of America's population still lived bank failures and farm foreclosures swept the landscape in the winter of 1895 a newspaper journalist described life at a coal mining camp in Iowa 500 mine families of this locality are in the most destitute circumstances. They have little to eat in the way of wholesome food and their clothing if it can be called that is in utter tatters all have a sickly appearance a banker in Sargent Nebraska Road. It is enough to make me heartsick to look at this once prosperous country. The suffering is terrible. We have several families who for a month past. I've had nothing to eat with flour and water and are very thankful to get that. Scores of women and children stay barefoot in for want of something to cover their feet. We are compelled to put our pride aside and ask for Aid immediate aid anything to eat or wear Spark by dropping prices the depression took hold after a National Financial panic in 1893 at the time. The value of the US dollar was pegged to the nation's gold reserves farmers and small business owners clamored for relief from Washington political movement called populism swept the Midwest demanding that the dollar be based on Silver as well as gold populist said this by Metal Standard Woody's the crushing burden of debt and help raise deflated prices. The silver plan was bitterly opposed by the big Eastern corporations who had an economic stake in gold in 1896 Democratic presidential candidate William Jennings Bryan argue the populist position in his famous Cross of gold speech read here by Actor Ed Begley. Tell us that the great cities are in favor of the gold standard we reply. Burn down your CDs and Levi and your city supposed to bring up again as if by Magic destroy our farms and the grass will grow in the streets of every city in the country, but catchy line but it wasn't enough Brian lost the presidential race. It may be hard to imagine today. But a wide cross-section of America debated the details of monetary policy. That's because deflation and depression touched every American the theme was so, and one of our culture's favorite stories is shot through with allegorical references to the fight over silver and gold by former South Dakota newspaper men L frank Baum and first published in 1900. The movie came out for decades later political scientist Gretchen Ritter of the University of Texas. Does The Wizard of Oz is in LA. Circle map of monetary politics in the 1890s Dorothy represented the common person many of the other characters were also allegorical great Only Store. The Tin Man is an industrial worker who has lost his soul if you will lost his heart. Beautiful one decal. It's empty the Cowardly Lion many people taken to represent Williams Jennings Bryan. He is a politician who has a big war but has a little trouble with courage. Farrell said he is. Of course a green City there for the city of money. It is also the political center of the kingdom and as such as Washington and so the wizard rather big figure could be taken to be the president or politicians in general who have power somebody who promised is a lot and delivers little Oh my dear. I have a very good man. I'm just a very bad wizard detail changed in the movie was the color of Dorothy's slippers. MGM made them Technicolor. Ruby red, but Frank Baum's original Dorothy were silver slippers when she and her Chums Walk The Golden Road To Oz Dorothy was mixing silver and gold and Oz Oz after all is the acronym for the measure of gold and silver the ounce Ritter points out that when it comes to Solutions, the wizard is bankrupt Dorothy in the rest must rely on their own innate Powers just as 1890s Washington held no answers for those suffering from the depression. You don't need to be helped any longer. You've always had the power to go back to Kansas. Then why didn't you tell me about 1897 after five years of struggle deflation East prices in America started to rise again and the economy recovered but not historians say because of the Wizards in Washington gold was still the monetary standard among the forces that healed the economy a steady flow of immigration to the US which created a new cheaper labor force and a vast new pool of consumers. But even though the American economy right Itself by the turn of the 20th century, it was still vulnerable prices were falling again. Just seven years later. That was Stephen Smith. It is hard to imagine today. But sustained inflation was unusual until the 1960s era 1870 to 1920. The economy grew fivefold incomes nearly tripled in the US emerged as the world's leading industrial power the new technology of mass production the spread of electric power and a sharp drop in transportation cost all conspired to bring prices lower as for inflation Prices rose on average less than 1% okay, we're back with a deflation support group listening to the show now and feeling very what anyone very annoyed be damaged cuz I'll see myself as a jump but cheap jump. Go ahead mock me. I'm thinking about myself being cheap. Did anyone think Mark is being selfish for thinking about himself? Sylvia? No, I'm fine. I'll be thinking about me is what I'm thinking about and I think it would go better for me if everyone else did too. Driving force behind the economy. I am self-interest which is not the same thing as self worship worship who me relaxed and globally 10 Everything is about you Tad why this whole conversations Bobby? Isn't it? Not me. Something is inflating in here. I'll tell you that. Let's get back to the program. You're listening to the world turned upside down coming up. Next how falling prices are affecting Shoppers and workers. This is PRI Public Radio International. And this is midday coming to you on Minnesota Public Radio by the way markets have not been responding well today, but yesterday's interest rate cut the dollars running about a hundred and fifty six points lower Standard & Poor's Index off 22 the NASDAQ down 41 and 3/4 points at last report. Partly sunny to Sunny sky or cloudy skies across the area windy and cold are all across the state. Prices are holding steady or coming down that must be good. Right? Well American consumers get more for their money, but lower prices can cause jobs companies have to sell more Goods just to maintain their profits Bill Catlin has his report on who wins and who loses when prices go down. At the Best Buy store in the Twin Cities suburb of Roseville, Brian Smith is watching movie clips demonstrating the virtues of DVD digital versatile disc the latest home entertainment Gadget Smith is kicking the tires. I'm thinking about upgrading but it's current home theater system still has bragging rights. It's the whole thing with the big tower speakers in the hundred bucks subwoofer and it shakes with the living room and makes my cat jump out of his chair and stuffing. One of the clip Smith is watching shows James Bond in an airplane plunging in an uncontrolled eye the image captures the trend Smith is finding in DVD prices. He says he's surprised how quickly prices have dropped but he's not mine yet. I'm waiting for DVD to come down. Another hundred bucks. When it first came out. You couldn't touch one for under 600 now you can get them for 4 on sale and wait until they come down a little more in price lower prices are taken for granted and home electronics, but with the help of consumer Vigilantes like Smith and super stores like Best Buy the trend of spreading more and more Industries are having trouble raising prices prices have come down for home appliances small cars home mortgages and of course computers, that's great for consumers who can get more for their money and with a Tailwind a strong economy businesses may be able to cut prices and make up for it by selling more Goods, but it's an unforgiving environment for any business that makes even a minor misstep. It's not like an old line. See the John Deere tractor company of 50 years ago when the product was stable. The used was stable the changes that were made were more glacial instead of instant today. The changes are instant. You don't really have much of a chance. I don't think to make too many mistakes and stay in business for the South dakota-based mail-order computer manufacturer Gateway 2000. If there is deflation in the US economy computer makers like Gateway are at the epicenter the market research firm computer intelligence says the average price of a home PC sold in stores dropped 29% in the last year the trend appears to be accelerating government statistics indicate computer prices posted a record 1 month decline in February. The end of gateways production line is stacked with a company signature white boxes. Each one spotted to look like a Holstein cow it way. It stayed out of the booming market for Consumer machines price below $1,000 spokesman Greg Lund says even saw the companies had to make adjustments at the low end of its products that entry level price has certainly come down. It's all response to the sum $1,000 Market. Price competition last year Gateway offered a dramatic example of how unforgiving deflation can be accompanied overestimated how many computers it could sell the business has Parts at around as technology advanced and prices fell the excess parts were worth less and less to cut its losses Gateway settled for much lower profit margins to move Hardware in The Fault. The company said it would reassign or layoff after 300 workers. Third quarter profits were in the company's words marginal when combined with other unrelated cost the company reported a third-quarter lost exceeding 100 million dollars in a conditionally strong three months ending the year Gateway sales Rose enough to overcome declining prices and profits rebounded the companies cannot count on that. Earlier this year the piano and Elizabeth and George ever. It's living room became the sole Breadwinner in the household Elizabeth's teaching income brings in enough to cover most of their expenses. If they cut way back George Everette is a chemist you hold a PhD in two patents Everett began his career as a 3M researcher nearly a quarter century ago. He was one of thousands of three Emperors who went to a Mason has a collection of moderately and marginally profitable businesses 3M spun off in 1996 at the time ever gave the new company a year before the going got tough the news he feared hit last fall of papers all said animations going to lay off a thousand people. For some reason I knew I was one of them right there at the time. And Mason was selling more of its products, but the games were eating up by Falling prices and currency exchange rates to work since you feel that your job was a victim of declining prices and in the products that you were helping to make Probably 90% or more if there's no money to do it if you have no money, you're not going to do research. I mean that's just natural. So it Mason says pricing is only one of several factors that contributed to the layoffs. Everett says he's not bitter at losing his job. It's just business and you've got to take it but he's taking it hard. The worst part is when I talk to people I know where the well And I and I just don't feel like I'm the same person anymore. If you don't have a job and you're not the same person if you don't have a job in my mind, so maybe that's overreacting, but that's the way I see it. People saw me breaking down and all that sort of things home. When you say breaking down, what do you mean by start crying real bad? And no matter what? I told him. It didn't make a difference. He still felt anxious. It just couldn't sink in any couldn't accept it that we were all right. It's been his worst nightmare that would happen to him. Cuz he thought this might happen and he talked about it for months before it did calling prices. St. Cloud Minnesota. Looks like it's had a Fresh coat of paint giving no hint of its age or history Rodger do where is huddling from the snow and rain under an awning across the street do AirHeads the union representing about 2,000 workers here. He says the plant dates back to early the century by the mid-1980s economic survival wasn't questioned get together here to make this facility go at the time and plumbing at the plant was less than half. The current level layoffs were frequent the union took a gamble it agreed to a wage freeze and other costs. So the company could invest a new more productive equipment back in his office to where it says one of the payoff showed up in the last contract negotiation. The company felt it could increase wages even as a pastor. Reduce prices would be going too far to say it's good times now for this plant for your people. Well, it's the best I've seen as far as the number people working there the business that we have the amount of hours that people can work without layoffs. And yeah, I'd say times are good and argue about that improvements help the Frigidaire plant Outlast its competitors in an ear of fierce competition in the home appliance industry competition that is driven prices down. Just ask Paul Warner. Who does the buying for Warner Stellian a Twin Cities independent Appliance dealer. He's standing next to a wall lined with refrigerators in St. Paul store where we would say that the entire industry is probably been in a deflationary I mowed for unwed say the last seven years probably the most visible would be the refrigeration category. Can you give an example? The price on this particular refrigerator which happens to be a 25 cubic foot ice and water dispenser is $900 a similarly featured box possibly even less featured box to three years ago would have sold competitively in the industry for a 1099 1199. So you're talkin anywhere from two three four hundred dollars, even in some cases differential even in the last 3-4 years, you're getting more for Less. All the consumers are getting a lot more for Less a lot more. Why is this happening over manufactured? In other words? We have more production capabilities than demand. And so it's very competitive at the manufacturing level. The only way to put a 10% or 5% growth on theirs to steal it from somebody else sounds extremely aggressive alter Appliance Center in St. Paul says the job isn't as much fun as it used to be. It's hard work. We have to shop asthma. 4 more than the Consumer because if we don't get the best possible deal whatever we buy and put on our floor isn't going to sell it for all the customers don't really recognize getting a better deal on appliances than they have in the past. It's something that for most people they do not enjoy shopping for Italy. You all do not appreciate the value that they're getting. Do people gripe about prices? I mean, you're still looking at stickers 7/8 at $900 here. Yeah. Back at Best Buy customer shopping for personal computers do seem to notice. The prices are falling especially if they already own a computer like Christina marble five years ago six years ago when we first met the first one, so it's really nice because we're looking at that what they give us the hear this one alone has all the extra extra extra stuff and we had a 486 with you didn't have a modem init and didn't have a CD-ROM and gazillion dollars for it. Now. They give you everything for a really nice price said it really is nice World War prices plunge with no end in sight. What could be better for anyone shopping for a computer? Well the secret is it quietly Brian's a lot of them nuts now we're stressed out the price of the plastic on the outside as opposed to these which will pretty much take care of my house and do the laundry in the dishes and this is now Doing so much more. I mean my computer memory is not even in megabytes. It's it's sort of like yeah, sometimes I'll remember you having more fun. Now I think about it more the problem is is you see such a good deal today, but you're worried about tomorrow that the price will drop significantly on that product. Can you could have got the Next Generation for cheaper? So he the products that are coming out or coming out so much faster to the the changes are just just hard hard for me to keep up with I think of younger person might might enjoy that more than me, but I just caught in that bus. Should I buy today hours? Will it be less expensive tomorrow call it the hesitation blues. If it's a problem, it seems pretty benign. But that mindset could become the Leading Edge of deflation Airy downward spiral consumers wait for prices to drop further corporate profits shrink layoffs rise consumers hold off buying even more and so on. That was Bill Catlin the deflation every scenario sounds far-fetched right now. The US economy is booming jobs are plentiful and most businesses are complaining bitterly about a dearth of workers. Chemist George Everett recently found a temporary job. That doesn't pay as much as his previous work The Haunting question. Is this the business cycle hasn't been outlawed if business has trouble raising prices in Good Times what happens when the economy weekends? We're back with the deflation support group listening to today's program digesting considering feeling reacting. There's certainly a lot to think about who run nerves were exposed that I'm convinced. I'm not going to buy things anymore just too risky deflation is the end of spending to yourself in that spending that's important or having if I stop buying will I even exist? Wow. Wow, I can start it. We have to do our job sniffling bunch of cowards have stabilized sure summer declining. Yes profit margins are shrinking. Of course, they'll be layoffs. That's life. We can't hide from that stuff be forgotten. Consumers American consumers. I was getting a little frightened. I want you to know we are dealing with some pretty heady stuff and it's okay to feel overwhelmed by the overwhelmed at all comfortable. I'll take a deep breath inflation deflation. To be your excuse from breathing and back to the program interest rates are down sharply. The stock market is off from its July Peak and appears increasingly vulnerable to slower economic growth what the investment implications of price deflation for the millions of workers setting aside money in a retirement savings plan. I talk with someone Sun Chief Economist at Norwest bank and Jane Wyatt pain specialist at North Shore advisors. I started out by asking if we were crazy to be thinking about deflation. I don't think we're crazy to be talking about it. Although I I certainly believe it's nothing that we wish for. I think you can ignore the the risk are the implications of what's going on in Asia. And when you have the kind of currency devaluations that we've seen over over and some of those countries and the implications of what that means for our producers here in terms of losing complete pricing power in certain product. I don't think it's at all foolish to talk about it. But that's not the same thing as saying that I necessarily expected for the u.s. Deflation is a reality in some segments of economy for instance price of metals like copper has fallen dramatically and commodity prices in general have declined that significantly Consumer Price. Index is basically going nowhere near zero considering the fact that this is a very mature stage of an economically ordinarily that we should be seeing acceleration in inflation, but we are seeing this alteration disinfection at this stage Asia. That's another area. They basically have a depression you go to Korea Thailand Indonesia, even in Japan economic conditions at very depressed prices of almost everything other than Imports. They're falling real estate cars bicycles. Anything manufactured locally. Their prices are falling in US dollar terms that is deflation. So I think it is a very realistic assessment of the current situation. Convince me at least have to think about deflation is it time to put my money in a mattress? What do you do as an investor if there's is Prospect of deflation? I think it depends if you expect the 1930's style deflation for the price is actually declined significantly on a continuing basis while putting money in the mattress might be an option but that is not what we expecting. If you for instance expect prices to fly to declining to a minor degree that actually is very good for are the stocks and bonds certainly interest rates interest rates will be declining and that is good for bonds. And when we have small deflation that has been very good for other stock markets Jim. Is this an environment that is great for the bond market. I agree that I think modest de inflation armadas disinflation either side of the equation is usually pretty good for a bonds and stocks and I think yes, we're in a very favorable environment for the bond market. I'm not quite as Convinced that this type of environment is going to persist. But again, I keep my eye on what's going on overseas as being a major determinant as to whether we will continue to see the favorable price environment that that we have experienced. We're really for the past two years. But yes, it's a very very good environment for buying investors inflation or deflation probably very little inflation and by that, I mean, I have four children. I mean if you look at your simplistic things like cost of clothing, I mean, it's a low prices have gone up at the discounting is is this the way you never have to pay full price for anything. In addition to management of Demand by monetary authorities and technology that we've talked about our attitude. I think that's changed as well today. You know, I also consumer Heideman premium service premium products at lower prices if businesses are not offering that I'm going someplace else and I've got the whole lot of opportunities to do that. And that's one of the reasons why I simply prices cannot go up and that tends to squeeze margins saying that means a businesses have to rely more on productivity and they got a lot of in Saanich to rely more on productivity trying to maintain or increase margins and this is very good for consumers and this kind of attitude is not going to change anytime soon. I'm not going to change the attitude and vision is will respond to Consumers demand. So again, and that's one of the reasons why I'm reasonably optimistic about inflation in the long run. Someone's son and Northwest and Jane Wyatt of North Shore advisors coming up one last visit with the deflation support group in a Closing thought you're listening to the world turned upside down a special report from American radio works on PRI Public Radio International. And you're listening to midday coming to you on Minnesota Public Radio will get back to that last segment of the world turned upside down with Chris Farrell and just a moment a reminder tomorrow over the noon hour a chance to hear from all three of the major candidates for Governor meeting face-to-face first time during the campaign. Norm Coleman skip Humphrey. Jesse Ventura will be getting together in Brainerd tomorrow. And for a League of Women Voters debate to hear live coverage over the noon hour tomorrow disguise forecast for Minnesota the rest of this afternoon windy and cold air with eyes for he's in the North mid-sixties in the southeast of frost advisory has been posted for Western Minnesota this evening Twin City windy and cold are partly cloudy with a high near 16. deflation support group any final thoughts The frightening thing for all of us lived in a time of constant inflation to get to deflation. We we have to go through stability which is close to Perfection around there's no Perfection. Maybe we're afraid of that moment of perfection that balance that stability. I'm trying to take ownership of deflation. Oh, yes, but don't take responsibility for it. This is this is all about that inflation and deflation are words for what we do. I am going to take charge. I am going to be the economy and yeah, let's get together. between now and next time you know what to do and be deflation is gathering momentum as the world economy threatens to fall into recession. Actually a pretty scary moment price competition is ever more fears measured inflation is running close to zero in the US the ability to raise prices at will is Frozen in most Industries, but the forces behind zero inflation or even deflation in the US go far beyond the Asian contagion inflation won't come back. Once the global crisis is over not for any sustained. Of time at least over the last two decades the Federal Reserve learned what it takes to run a sensible monetary policy, but it's not just the monetary backdrop that's keeping inflation at Bay. The technological Revolution is transforming the way we live and work. The opening of international markets is vastly increasing the supply of Commodities in good the US economy is more productive than ever. This is a new world America's 40-year Cold War against inflation is over we won. the next potential Battleground deflation the world turned upside down is a production of American radio works but documentary unit at Minnesota Public Radio. The producers are Karen Taki and Steven Smith with help from Stephanie Curtis and Gary Covino. Thanks Adele Connolly for creating the deflation support group the executive producers build using Berg to find out more visit our website at mpr.org. This is Chris Farrell. PRI Public Radio International reminder that major funding for Minnesota public radio's documentary fund is provided by Phyllis Taylor in memory of Walter stremmel. Well, that doesn't for our mid-day program today interesting economic note that just crossed our wires mutual fund the industry trade group reports today that for the first time in almost 8 years US Stock funds actually suffered a net withdrawal of money during the month of August 1st set show the first time that's happened in nearly eight years with the investors responding to declining stock prices and increased Market volatility stock mutual funds reported a net outflow of 11 billion dollars in August in the flow and other words money going in is about 19 and 1/2 billion in July. So quota quite a shift. This is the first net outflow. money from stock funds since September of 1990 9:00 tonight. We're going to be re broadcasting R11 our case you missed it. We talked to today with Minneapolis Police Chief Robert Olson about crime and crime prevention in the City of Minneapolis City officials are reported last week that crime was down about 14% serious crime down 14% so far this year, but there are a lot of people arguing that the situation is not as rosy as it might appear and a you'll hear from the chief at 9 this evening tomorrow over the noon hour. Hope you can tune in because we're going to have what I think is the first face-to-face debate among the three major party candidates for Governor. They're getting together for a League of Women Voters debate Norm Coleman. Skip Humphrey Jesse Ventura, they'll be in Brainerd tomorrow for a League of Women Voters debate and we'll have live coverage here over the noon hour on our midday program a great chance for you. To meet the candidates as they meet face-to-face that's coming up tomorrow over the noon hour here on midday Gary I can thanks for tuning in today. Members of the Minnesota public radio programming staff want to hear from you come to our public comment meeting Thursday, October 8th at 7 at the Nokomis Community Center 24th and East Minnehaha Parkway in South Minneapolis. Will see you there. Listen to Minnesota Public Radio. We have a cloudy sky 56° at Kennedy FM 91.1 Minneapolis. And st. Paul partly cloudy windy and cold all afternoon with a high only getting up to about 60 degrees clearing Skies tonight with a low in the mid-30s signing a cool tomorrow with a high in the upper 50s, which one