The Eurozone has recently moved into deflationary territory (story here). But is deflation such a bad thing? Deflation has two major consequences. First, it means that debtors have to pay back more in real terms than they borrowed (inflation, on the other hand, helps debtors by reducing the real amount they have to repay on their loan). This, as was the case in the Great Depression of the 1930s, can have detrimental consequences for financial stability. Second, nominal wage rigidity makes it very hard for employers to reduce nominal wages in line with deflation. What does the historical experience with deflation have to say? Click here to read a BIS working paper by Michael Bordo and Andrew Filardo which looks at deflation in a historical perspective. They find that some deflation experiences have been good, other have been bad, and some have even been ugly.
The Berkeley Earth Project , an independent study of global warming, has found that the earth has become a degree warmer over the past half century. However, the statistical uncertainty surrounding pre-1920 estimates makes it very hard to say much about long-term trends - click here for graph . This is one of my concerns with the global warming debate - we simply don't have trustworthy long-run data which looks at temperature changes over the last millennium (or two). My second concern with the global warming debate is that it is very hard to prove any sort of casual link between global warming and human activity. The scientists may be able to show correlation between global warming and our production of carbon dioxides etc., but correlation is not causation. My third concern with the debate is that those who are sceptical or agnostic are stereotyped as flat-earthers or intellectually-challenged crackpots. This only stifles debate and the progress of science itself.