My Two Cents:
Inflation Is A Liberal Thing, deflation is conservative

There are developments that seem contradictory and, on the surface, make little sense. These are analogous to what the economist Paul Krugman calls "the paradox of deflation."

Television program sales are experiencing deflation at worldwide levels, while the entertainment industry is facing inflation, or increased costs. Now, I agree that deflation is "a general decline in prices," but I disagree with the explanation of the cause, given as "a consequence of collapse of demand (producers must cut prices in order to find buyers)."

All reports indicate that, despite repurposing, split sales and increased local production, international program sales have steadily gained in quantity and volume.

According to The Economist, deflation, not inflation is the greatest concern of the world economy, and I tend to be in agreement with that assessment. Various financial publications are good at explaining the various aspects of deflation and inflation, but they tend to be politically biased. This because a "deflationary recession" is something favored by the conservatives, while an "inflationary recession" is more attuned with the Keynesians and, therefore, the liberals. Both camps, however, in the view of someone who doesn't know how to balance a checkbook, miss the boat: this deflation in revenue and inflation in costs is the consequence of vertical integration run amok.

The practice of selling something to oneself, one of the purposes of vertically integrated companies, goes against all economic common sense accrued since the time Italian mathematician Giovanni Ceva began studying monetary systems, and deflation in particular, for the city of Mantua in the early 1700s.

But let's analyze what we know. Vertical and horizontal integrations are speculative tools used to face both inflation and deflation. Inflation offers companies the excuse to merge in order to reduce the number of employees and, thus, cut costs. At the same time, companies can tangibly benefit from repaying loans with discounted money and increase the value of their assets.

These integrated companies also confront deflation by cutting excess production and reducing wages, even though these tend to fall more slowly than prices.

But, by cutting production and their labor force, companies put themselves in a position of not being able to compensate lost revenue with more volume, therefore profitability becomes poor and deflationary pressure intensifies. If, to this, an expectation of further price decline is added, investment spending, such as marketing and advertising, is postponed: as prices go down, money becomes more valuable, creating disincentives to spend money. This vicious cycle causes further cuts across the board and reduces companies' revenue and profitability.

In addition, the only advantage of integrated companies is that they can save money on supplies, but they lose the opportunity of getting better prices outside the group. Plus, if internal revenues are too high they run the risk of having the whole house of cards collapse, especially in cases of low profitability.

In summary, consolidation, particularly vertical integration, has caused inflation (for the reasons mentioned above and because excessive money from company sales fed into the economy fosters inflation) and deflation, which explains the Krugman paradox.

Dom Serafini