Technology keeps getting better at making things, and competition pushes prices down toward what it costs to make one more. Under a money nobody can add to, falling prices are what technology delivers. So where did the fall go? If better tools would have made your weekly basket 5% cheaper and the price stayed flat instead, someone absorbed that 5%, and it mostly wasn’t you. Why don’t economists say any of this? No conspiracy is needed. Incentives alone are enough to produce this, whatever anyone intends. Coordinated pressure does exist in parts of the system, in lobbying and in setting the rules, but the result doesn’t depend on it. There are more sets of incentives than four, and four will do to show it, the homeowner’s, the politician’s, the pension system’s, and the profession’s own. Each is sincere on its own, and sincere people add up to a blind system.
Nobody in the chain needs to lie for the truth to stay unsaid. A conspiracy needs coordination, secrecy, and a plan. This needs none of those. Each person acts sensibly on what they can see from where they stand, and the system is arranged so that the positions holding it up all give the same answer. Nobody is concealing anything. What’s missing is the instrument, because everyone is measuring with a ruler the system itself manages, and from inside those positions every measurement made in good faith comes back reassuring. Every number those four positions act on, for prices, wealth, and debt, is quoted in the unit the system manages, and the “real” versions, adjusted for inflation, divide by an index built inside the same system. The profession is also judged on a count of people in work, which is outside the unit. What none of them is judged by is a measure of what money buys that doesn’t run through the unit, in hours of work per thing bought or in plain quantities of things.
The four lock together, and then something holds them in place without anyone coordinating it. I’ll use pounds and UK scenes. Some of the figures come in dollars and I’ve left them that way rather than convert them, but the mechanism is the same everywhere.
The homeowner
A couple in Leeds bought their house for £180,000. Today it would sell for £320,000. They feel wealthier, and everything in their world confirms the feeling, from the estate agent’s letter to the neighbours to the property shows. But the house is the same house, the same bricks and the same boiler. What changed is mostly the pound it’s measured in.
Why is their wealth in a house at all? Because money that buys less year after year can’t be saved in. An ordinary family has to put its savings into some thing, and the house is the one savings vehicle they can buy with borrowed money. That leaves them holding a bet. The mortgage is fixed in pounds. The house price rises as money and credit expand. So the family gains exactly when the pound weakens, because the debt stays still while the price rises past it. They never chose to bet on the pound losing value. The system made the house the savings account that worked best, and the bet came bundled with the address.
The bet has a losing side too. A sudden broad fall in prices, deep enough to pull wages down with it, turns the mortgage payment into a bigger share of a smaller income. A fall in house prices can leave the family owing more on the mortgage than the house is worth. Either is the catastrophe for them. A fall in goods prices with jobs and payments steady is not, and the UK had one in 2015 without distress.1 Rising prices still read as safety, because the quoted price of the house rises while the amount owed stays still.
That same couple hunts for bargains all week. They love that flights got cheap and that the telly got better and cheaper every year. They demand falling prices in everything they buy, and rising prices in the one big thing they own, and they never have to hold the two thoughts together, because each choice is made on its own, and sincerely. Nobody votes as an expert on money. They vote as someone whose deposit, security, and retirement are all inside the same four walls.
The politician
A politician has two ways to fund a promise. The first is taxes, which people see itemised and fight line by line. The second is new money and credit. The government borrows, the central bank buys that debt with newly created money, the spending lands now, and the cost arrives later as prices drifting up across everyone, with no return address on the envelope.2 At ordinary rates, people see prices rise, but they don’t read the rise as a charge on them or trace it to the decision that funded the promise. When the rate jumps, many do name government and central bank policy, and they say so in surveys. The lever is quiet at 2% and loud at 10%.
The two levers aren’t the same size. In 2020 alone, America’s stock of money grew by about 3.7 trillion dollars. In 2019, taxing every single dollar of corporate profit in the country would have raised about 2.4 trillion.3 The new money of one year was about one and a half times what even that sweep could have raised in the open. No politician built that difference. They inherited it. Over decades the second lever stays in use whoever wins, because a promise of falling prices loses to a promise of more money, and government after government funds part of its promises without a visible tax. What doesn’t hold is that a bigger deficit at election time wins the election.4 In old democracies it costs votes.
The voter side seals it. Offer people a pay rise from £50,000 to £52,000 in a world where prices rise faster than their pay, or a cut to £48,000 in a world where their costs fall by more than that. The second deal makes them better off. The first wins the election, because people feel the number on the payslip and can’t see the basket they didn’t get. So the truthful platform sounds insane and loses to the comfortable one. A politician doesn’t need to understand how money works. They only need to notice what wins.
Timing does the rest. The relief is a gain, it comes now, and it’s certain. The cheque arrives, the scheme launches, the photo gets taken. The cost is a loss, it’s uncertain, and it comes later. Prices drift up, slowly, for everyone, with nothing to say which promise they paid for. Elections run on a shorter clock than consequences. And the loop feeds itself. Rents rise, so voters demand help with rent, so a programme appears, funded by the same lever, which pushes prices further. The state grows as a side effect of its own funding method, with everyone involved trying to help.
The pension system
A pension is either a promise of so many pounds a year, decades ahead, or a pot of savings with no promise attached. Either way, the money behind it is held in government bonds [loans to the government], company shares, and property.5 The pension system owns a great slice of the debt. It’s on the creditor side of the whole pyramid of debt. Alice the nurse doesn’t think of herself as a bondholder, but her retirement is a stack of paper promises whose prices depend on more money arriving.
If interest rates went to where a free market would set them, those bonds, shares, and buildings would fall hard, possibly by more than half. That isn’t the same as Alice’s pension failing. A scheme that has made her a promise doesn’t need those prices held up to stay funded. It works out what the promise is worth today using the interest rate on the government bonds it holds, so when that rate rises, the value put on the promise falls further than the value of the assets, and the scheme is better funded.6 What holds is narrower. If her pension is a pot with no promise attached, she carries the fall in asset prices directly. If it’s a promise from a scheme with a weak employer behind it and its money in shares and property, that scheme does need the values held up. And the part of her promise that’s fixed in pounds loses to rising prices.
Asset prices need the total of money and credit to keep expanding, whether from the state’s borrowing or from private lending, and they need support to arrive when a market they depend on seizes up. They don’t need the central bank itself to keep buying. The people running Alice’s pension don’t want anyone robbed. They want Alice to retire. But wherever her money is held in a pot, or in a scheme with a weak employer behind it and its money in shares and property, doing right by her is now wired to the expansion continuing, exactly like the homeowner’s safety.
When markets seize up and the central bank steps in with support, the headline says “protecting pensions”, and the headline is true. The rescue does save Alice’s pension in that moment. The cost, which is that Alice’s wages and cash savings buy less year after year, is spread thin across millions of people and never presented as the bill for the rescue. A rescue with a name and a vote needs people to argue for it. The other kind of rescue, the money created to buy government bonds, gets argued over wherever a court or a committee can summon it, as the Bank of England’s purchases were before a House of Lords committee in 2021. What it never gets is a vote on whether to do it. That holds because the gain is near and sure while the cost is far and spread thin.
The trap tightens from there. Because in most years the “safest” assets are held to pay less than prices rise, a pot that holds them buys less, year after year. So her pot has to hold riskier assets just to stop her savings shrinking. That leaves it needing the risky assets supported too. Every step Alice’s pot takes deepens its dependence on asset prices being held up.
The profession
The lazy answer says economists are stupid or bought, and I don’t believe either. Something more interesting is going on, in four layers.
Their instruments are built out of the unit being questioned, in two senses. The series that matter are quoted in the unit that policy manages, and “real” means “adjusted by an index the system itself defines”. And GDP counts what people pay for, plus a short list of unpaid things it prices by rule.7 The free goods technology keeps making are not on that list, so when technology makes something abundant and free, the value vanishes from the data.8 The camera on your phone shows up in the statistics as the collapse of the photography industry, not as the greatest abundance of photography in human history. The profession’s instruments undercount this deflation, because they record money changing hands and abundance stops money changing hands.9 Where a paid activity is replaced by a free one, the measured total moves down while what people get moves up, so the undercount reads as a fall in output.
History taught them the wrong deflation. The profession’s fear was formed in the 1930s, when prices fell while banks failed and men queued for work. But that was prices falling because loans imploded, a credit collapse. Prices falling because we got better at making things is a different event with a different cause. The modern datasets contain almost no examples of that second fall across a whole economy, because the system rarely lets the experiment run. So “deflation” calls up breadlines, and the fear is sincere. Even the words we have help the fear along. We have everyday words for prices rising and no comfortable word for the good kind of falling.
The measurement became the goal. The 2% inflation target is a number somebody chose, and nothing in nature suggested it.10 Central banks publish why they aim there.11 They want room to cut interest rates in a downturn, they know wages resist falling, and they say the official measure of prices overstates the rise.12 Those are the reasons they give, and the debts aren’t among them. The debts show up in the rescues, not in the everyday 2%. Those debts are fixed in pounds, and what they can’t take is a sudden fall in the prices credit pushed up, houses first. So every time a sudden fall in the prices credit pushed up threatens, the system is rescued with new money, and the rescues keep getting bigger.
Once that 2% target exists, hitting the target is what “success” means, and research, forecasting, and careers organise around it. A young economist’s path runs through central banks, treasuries, and departments that take the target as their starting point. You don’t need censorship for that to shape belief. All it takes is the ordinary human need to belong to the group that trained you, and selection does the rest. The person who would raise rates hard enough to clear the bad debt doesn’t keep the seat, because that choice now means mass unemployment, and the job would go to someone who wouldn’t. Nobody instructs anyone. The chair itself selects.
The last layer is taught in the open, split across two courses. Microeconomics teaches that competition pushes prices down toward the cost of making one more unit. Every economics degree teaches it, and it describes a falling-price world. Policy aims at prices rising about 2% a year.13 Both can be true at once, because one is about one thing’s price against another’s and the other is about the unit they’re quoted in. What joins them is a step. If the cost of making things keeps falling across the board, the general level of prices keeps rising only because the stock of money and credit has grown. A cut in supply can lift the level for a time without that, but it can’t hold the level up, because with the stock fixed a rise in one price forces falls elsewhere. That step is the part that goes unexamined. Most people who learn both are never shown it, though I have no count of how often it is shown. Ask “why do we need inflation?” like a child, and the published answers come first, the ones central banks give for the 2% aim. Ask a few more times and you reach the debt, which can’t take a sudden fall in the prices credit pushed up and is rescued every time one threatens. That’s a description of the debt, not a law of nature.
In fairness to economists, the profession has already discovered every piece of this, and named each one. The Cantillon effect [the people nearest new money benefit first, before prices adjust for everyone else]. Moral hazard. Sticky wages. Regulatory capture. Goodhart’s law, that a measure gamed to hit a target stops describing reality. Every part is published and respectable on its own. The mechanisms that join money to prices are published too, how bank lending moves spending and prices, how falling prices make debts heavier, and how a government’s borrowing and spending move the price level, in the leading journals before 2003 and in the handbooks the profession trains on.14 What’s missing is the assembly, in the framework the profession works with day to day. The models it trains on take the unit as given, and no central bank’s published strategy treats the unit as the common cause of what the four positions above read off it, or sets its target against what technology would have done to prices. The figures the profession works from for prices, wealth, and debt are measured in the managed unit, and much of its career path runs through the institutions that manage it.
How sincere people add up to a blind system
Money is the ruler everyone plans with. Bend the unit, and you don’t have to convince anyone of anything, because everyone reads the bent ruler and responds correctly from where they stand. The homeowner’s house “went up”. The politician’s programme “was affordable”. The pension system’s assets “performed”. The profession’s model “fit the data”. Every one of those statements is true, measured in the unit the system manages. Stacked, they leave nobody in those four positions able to see what prices would have been without the expansion of money and credit.
And the four are held in place without anyone coordinating it. Wherever there’s a seat, selection does the holding. The action that counts is forcing a broad fall in the prices that credit pushed up, and the banker who would do it doesn’t keep the seat. Raising rates to pull back a burst of inflation isn’t that action, and the people who did it lately kept their seats. A rise in rates the system can’t bear gets reversed or watered down instead. The politician who promises falling prices loses. The banker who purges bad debt is sacked. The fund that refuses risk falls behind the fund that doesn’t. The economist who rejects the framework doesn’t get the seat. The homeowner needs no selecting, because the bet came with the house. Nobody sends a memo and nobody calls a meeting. Which is exactly why it looks like a conspiracy from the outside and feels like common sense from the inside. It’s also why no leak can kill it. A conspiracy dies when someone talks. Here there’s nothing to leak. Everyone already knows their own piece, and every piece is defensible on its own terms.
Three answers I owe
“Economists worry about inflation constantly.” That’s true. But the terms of the debate are 2% versus 4%, above target versus below.15 Measured against what technology is doing to the cost of making things, even “stable prices” hides a transfer, because if better tools would have made the basket 5% cheaper and prices stayed flat, someone absorbed that 5% fall. No statistic records that fall, because it never happened. The profession argues about the size of the gap between prices and zero. It almost never argues about the gap between prices and where technology would have put them. The fight is over the size of the skim, hardly ever its existence.
“Their fear of deflation is legitimate.” It is. In a system this loaded with debt, a sudden broad fall really would be a disaster. The debts are fixed in pounds and don’t shrink when prices do. The economists are right about the system they’re inside. The blindness is one level up. It treats the danger as a property of falling prices, when it’s a property of the debt design. Cheap goods don’t hurt anyone. Debt built on the promise that the prices credit pushed up never fall is what hurts, and it hurts the moment they fall all at once.
“This argument can’t lose. Any economist who disagrees gets called captured.” That’s fair. The claim isn’t that disagreement proves capture. The claim is checkable. Change the instrument and see whether the picture changes. A house that went from 1.4 million dollars to 2.1 million over a few years fell from roughly 300 bitcoin to roughly 40 over the same stretch. The whole of that fall is bitcoin strengthening as more people move their stored work into it. Measured the other way, the same house gained 700,000 dollars while nothing about it changed. Same house, same world, two rulers telling opposite stories, and one is managed by the institution whose success is defined by what that ruler shows.
The test is one anyone can repeat. Price the same basket of goods in the managed unit and in a unit nobody can expand, and read the direction across whole cycles rather than between two dates. If a basket of staples costs more bitcoin at the next halving [the scheduled cut in new coins] than it did at the 2024 one, or fewer pounds over the same stretch, the claim fails.16 The price record has to be read beside the record of how many people have taken the unit up, because price alone can’t separate the pound weakening from the outside unit rising for other reasons. The thesis has one hinge that can fail, and only one, whether Bitcoin stays decentralised and secure. Its swings, which have years left to run, are the reason you read it across cycles.
The limit on my side is that a whole economy run for decades on money nobody can expand barely exists in the historical record, so the strong claim rests partly on mechanism rather than on a clean natural experiment. I hold the strong claim with some humility. The weak claim I hold without much doubt at all. Every incentive above is real, they all point the same way, and not one of them requires a villain.
The fix is an instrument, not an argument. You can’t argue a blind system into seeing, because everyone inside it is already reasoning correctly from what their ruler shows. The official measure of prices can tell you roughly how much the pound stretched against the goods it prices. What it can’t show you is how far those goods would have fallen under a unit nobody can expand, because it does all its sums in the same stretched pound. So you give people a ruler that can’t be stretched and let them measure for themselves. That’s what a fixed money is for. Everything else follows from whether anyone can bend it.
Sources 16
What this essay rests on, as checked on 16 October 2026.
- 1 Office for National Statistics, Consumer price inflation, UK: April 2015, released 19 May 2015: "The Consumer Prices Index (CPI) fell by 0.1% in the year to April 2015, compared to no change (0.0%) in the year to March 2015"; "the first time the CPI has fallen over the year since official records began in 1996".
- 2 Bank of England, Asset Purchase Facility Quarterly Report, 2021 Q1: "The MPC also voted to continue with the Bank of England's existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the total stock of these government bond purchases at £875 billion".
- 3 United States Bureau of Economic Analysis, National income and product accounts series A053RC1A027NBEA, "Corporate profits: Profits before taxes, NIPAs", annual figure for 2019: "Corporate profits: Profits before taxes, NIPAs", 2019: 2,375.483 billions of dollars, not seasonally adjusted. The printed figure is about 2.38 trillion dollars, a little below the 2.4 trillion stated.
- 4 Brender and Drazen, "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross-Section of Countries", NBER Working Paper No. 11862: "We find no evidence that deficits help reelection in any group of countries -- developed and less developed, new and old democracies, countries with different government or electoral systems"; sample of "74 countries over the period 1960-2003".
- 5 Pension Protection Fund, Purple Book 2024: "Schemes continued to invest a large proportion (70 per cent) of their assets in bonds"; equities 15.5 per cent of scheme assets in March 2024, down from 18.8 per cent in March 2023. The source gives no separate figure for government bonds within the 70 per cent.
- 6 The Pensions Regulator, Annual funding statement analysis 2026: "Liability values are adjusted for movements in both conventional and index-linked gilt markets to take account of market changes when deriving discount rates."
- 7 Office for National Statistics, United Kingdom National Accounts, The Blue Book: 2024, "An introduction to the UK national accounts": "In practice, a 'production boundary' is defined, inside which are all the economic activities taken to contribute to economic performance", with unpaid household services such as "cleaning, the preparation of meals" outside it.
- 8 Brynjolfsson, Collis and Eggers, "Using massive online choice experiments to measure changes in well-being", Proceedings of the National Academy of Sciences, 2019: "Our overall analyses reveal that digital goods have created large gains in well-being that are not reflected in conventional measures of GDP and productivity."
- 9 Nordhaus, "Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not", 1996: "traditional price indexes overstate price growth, and therefore understate output growth, by a factor between 900 and 1,600 since the beginning of the nineteenth century". Aghion, Bergeaud, Boppart, Klenow and Li, "Missing Growth from Creative Destruction", American Economic Review, August 2019: "For exiting products, statistical agencies often impute inflation from surviving products. This understates growth if creatively-destroyed products improve more than surviving ones." Missing growth "equaled about one-half a percentage point per year", 1983 to 2013.
- 10 Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy, 25 January 2012: "The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate." European Central Bank, Press release, "ECB's Governing Council approves its new monetary policy strategy", 8 July 2021: "The Governing Council considers that price stability is best maintained by aiming for a 2% inflation target over the medium term. This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable." HM Treasury, Remit for the Monetary Policy Committee and the new inflation target, 10 December 2003: "the Bank of England's inflation target was redefined from 2.5 percent measured by RPIX inflation to 2 percent measured by annual CPI inflation", announced June 2003 and implemented on 10th December 2003.
- 11 Federal Reserve Board, FAQ, "Why does the Federal Reserve aim for inflation of 2 percent over the longer run?", updated 22 August 2025: "inflation of 2 percent over the longer run ... is most consistent with the Federal Reserve's mandate for maximum employment and price stability." As updated 22 August 2025 the page's reason is that low, stable inflation aids saving, borrowing and investment decisions; it mentions neither deflation nor debt.
- 12 European Central Bank, Strategy review, "An overview of the ECB's monetary policy strategy", 2021: "Three additional factors ... call for a sufficient inflation buffer", given as "interest rate cuts", "measurement bias" and "downward nominal wage rigidities", with the target providing "an adequate safety margin to guard against the risk of deflation". Bank of Canada, "Renewal of the Inflation-Control Target: Background Information", November 2011: "measurement bias in the CPI and downward nominal wage rigidities", alongside "the risks associated with the ZLB", are named as costs of "an inflation target lower than 2 per cent". The Bank views neither of the two as a significant impediment to a lower target.
- 13 Federal Reserve, Statement on Longer-Run Goals and Monetary Policy Strategy, adopted effective January 24, 2012; as amended effective August 22, 2025: "inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures". This is one central bank's goal, which the Committee calls most consistent over the longer run with its mandate. European Central Bank, Press release, "ECB's Governing Council approves its new monetary policy strategy", 8 July 2021: "The Governing Council considers that price stability is best maintained by aiming for a 2% inflation target over the medium term. This target is symmetric"; dated 8 July 2021. Schmitt-Grohé and Uribe, "The Optimal Rate of Inflation", chapter in the Handbook of Monetary Economics, 2010: "Observed inflation targets around the industrial world are concentrated at two percent per year." The page is the working-paper version of the Handbook chapter.
- 14 Nobuhiro Kiyotaki and John Moore, "Credit Cycles", Journal of Political Economy, April 1997: Page titled "Credit Cycles", with the citation "Journal of Political Economy', vol.105(2), April 1997, pp.211-248." Eric Leeper, "Equilibria under 'Active' and 'Passive' Monetary and Fiscal Policies", Journal of Monetary Economics, 1991: "Leeper E. Equilibria Under "Active" and "Passive" Monetary and Fiscal Policies. Journal of monetary Economics. 1991;27(1):129–147." Christopher Sims, "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy", Economic Theory, 1994: "a monetary policy that fixes the money stock may...be consistent with indeterminacy of the price level"; Economic Theory, Volume 4, Issue 3, Pages 381-399, 1994.
- 15 Federal Reserve, 2025 Statement on Longer-Run Goals and Monetary Policy Strategy, as amended effective 22 August 2025: "inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory maximum employment and price stability mandates" European Central Bank, An overview of the ECB's monetary policy strategy, 2021 strategy review: "at this juncture the Governing Council considers that price stability is best maintained by aiming for a two per cent inflation target over the medium term." Bank of England, Inflation and the 2% target: "The Government sets us a 2% inflation target"; "If we miss the inflation target by more than 1 percentage point either side of the target, we must tell the Government why."
- 16 Blockchain.com block explorer, Bitcoin Block 840,000, mined 20 April 2024: "This block marks the 4th bitcoin halving where the mining reward dropped from 6.25 to 3.125 bitcoin per block." "Mining Reward: 3.125 BTC", block height 840,000, timestamp 4/20/2024 as printed on the page.