How an Economy Grows and Why It Crashes

TAKEAWAY
TAKEAWAY

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enough), stay fl at, or fall less than they would have with no 
infl ation. 
But during a recession prices need to fall in order to 
rebalance the economy. Recessions should be defl ationary. 
Falling prices will cushion the blow of low employment. 
Somehow, modern economists see falling prices as a never-
ending abyss toward demand destruction. They forget that 
when prices fall far enough, people start spending again. The 
process allows unneeded inventories to be worked off, and 
for prices to fall to a level justifi ed by underlying supply and 
demand.
By keeping prices artifi cially high, infl ation prevents this from 
happening.

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