I began writing about the effects of deflation in 1987, when the topic seemed quite esoteric. Recently, though, it has attracted considerable interest, thanks to the near-eradication of inflation.

My main theme is that deflation isn't always a bad thing, and that it can even contribute to overall macroeconomic stability so long as the rate of deflation mirrors the rate of productivity growth. (It is also desirable for prices to rise when productivity suffers a setback, so my argument is for deflation in good times only.) Many of today's monetary theorists and central bankers reject this viewpoint, holding instead that monetary policy should aim at a more-or-less constant price level. In my opinion, arguments for a constant price level or "zero inflation" fail to come to grips with the implications of productivity changes, which thesearguments tend to ignore.

In an economy with constant productivity, a stable price level contributes to macroeconomic stability in a number of ways, e.g., by fulfilling the expectations of agents who expect zero inflation (and thereby contributing to the efficacy of fixed nominal wage and debt contracts), and by minimizing the burden of adjustment borne by the price system.

But a stable price level is far from being ideal in an economy with changing productivity: it does not minimize the burden borne by the price system, and it does not contribute to the efficient working of fixed nominal contracts. The reason, in a nutshell, is that it is the stability of nominal spending (domestic final demand), and not that of the price level per se, that is crucial to general macroeconomic stability. When productivity stays constant, zero inflation is equivalent to constant final demand, but not otherwise. Instead, stability of final demand requires that a rate of deflation equal to minus the rate of productivity growth. I call a monetary target based on this rule a "productivity norm."

I offer other, brief and incomplete arguments in favor of a productivity norm in short pieces I have written for The Wall Street Journal Europe ("On Inflation, Shoot for Less Than Zero," May 16, 1997) for National Review magazine ("The Price is Right"), and for The American Conservative ("Deflated Expectations"). Anyone interested in a fuller treatment of the subject is encouraged to read my 1997 Hobart paper, Less Than Zero: The Case for a Falling Price Level in a Growing Economy.

When I first began developing my thoughts favoring a productivity norm over zero inflation, I thought I was being quite original. Alas, many came well before me: it seems the idea was quite prominent in the years prior to the Keynesian revolution. My 1995 History of Political Economy paper, "The 'Productivity Norm' versus 'Zero Inflation' in the History of Economic Thought," reviews earlier writings on the subject. I also have a History of Political Economy article, "Hayek versus Keynes on How the Price Level Ought to Behave," 1999 . (Surprisingly, Keynes himself came very close to embracing a version of the productivity norm with his suggestion that policy should stabilize an index of money wages.)

For details concerning articles mentioned above, consult my C.V., where books and articles are listed by publication dates.