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I’ve started seeing headlines like “U.S. deflation fears surface”, and reading about the possibility of deflation elsewhere, and I’ve got to admit that I have no idea what that is. Or, why or whether I “should” be afraid of it. (It seems like we’ve got enough to be afraid of already — I don’t want another thing!)

Since I was constantly confronted with “go look it up!” when I wondered what something meant as a child, I hit up the trusty dictionary first. The definition that applied there said, “a fall in the general price level or a contraction of credit and available money”.

Well, ok. According to that definition, we’re already IN deflation since there has been a contraction of credit and available money. (I don’t just mean that it’s harder for a person to get credit, I mean it’s harder for BANKS to borrow money overnight, and therefore for businesses to expand or to stay in business using their typical methods of operating.)

But what about the fall in the general price level portion? What would that mean to me? On the surface it seems like it might be a good thing. (Great! I can spend less money to buy the stuff I need!) But when you dig deeper, there are other effects.

Housing prices drop, and people can’t move without taking a loss. (Which is fine if you don’t need to move, but not so fine if you do.) Businesses get less for their products and services, which means they are less profitable, which means they start laying people off. People who do remain employed might not get raises or might take pay cuts, which is unpleasant. People who are in debt struggle even more to stay afloat.

In general, people spend less, which creates a vicious cycle.

I hate to be an advocate for wanton spending; I don’t think that’s good either by any means, but it would be nice if we (and the economy) could find some middle ground where things are satisfactory and reasonable.

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