Bryan Cutsinger on the What the History of Growth Driven Deflation Can Teach us about a Potential AI Boom - Macro Musings with David Beckworth Recap

Podcast: Macro Musings with David Beckworth

Published: 2025-11-03

Duration: 56 min

Guests: Bryan Cutsinger

Summary

Bryan Cutsinger discusses the historical context of growth-driven deflation in the late 19th century and its implications for modern economic policy amidst potential AI-driven productivity booms. The conversation explores how supply-driven deflation can occur without negative economic consequences, challenging the conventional wisdom that deflation is inherently harmful.

What Happened

Bryan Cutsinger, a monetary historian and economist from Florida Atlantic University, joins David Beckworth to explore the concept of growth-driven deflation and its relevance today. The episode begins with a discussion of the late 19th century, a period characterized by rapid economic growth and mild deflation, often overlooked in modern economic narratives.

Cutsinger explains how he and his co-author analyzed 12 countries under the gold standard to differentiate between supply-driven and demand-driven deflation. Their research found that supply-driven deflation, contrary to popular belief, did not lead to negative economic outcomes like falling nominal interest rates or reduced financial intermediation.

The conversation delves into the implications of these findings for current economic policy, particularly in light of potential AI-driven productivity gains. Cutsinger argues that central banks should reconsider their aversion to deflation, especially if it results from positive supply shocks, and should focus on maintaining stable nominal income.

Beckworth and Cutsinger discuss the potential for AI to drive similar economic trends as seen in the past, emphasizing the importance of distinguishing between different types of deflation and their causes. They highlight that a rigid focus on inflation targeting could hinder the economy's ability to adapt to technological advancements.

The episode also touches on the limitations of traditional economic indicators and the need for policies that support structural economic shifts without unnecessary intervention. Cutsinger suggests that policies facilitating labor mobility and reducing regulatory burdens could help economies better adapt to technological changes.

Finally, the discussion explores the potential benefits of a nominal income targeting framework, which could better accommodate supply-driven deflation and ensure broader distribution of economic gains. The episode concludes with a call for policymakers to consider historical lessons when crafting future economic strategies.

Key Insights

• Research on 12 countries under the gold standard shows that supply-driven deflation did not lead to negative economic outcomes, challenging the traditional view that deflation is inherently harmful.
• Central banks are advised to focus on maintaining stable nominal income rather than strictly targeting inflation, especially in the context of positive supply shocks like those potentially driven by AI.
• Policies that facilitate labor mobility and reduce regulatory burdens are recommended to help economies adapt to technological advancements, supporting structural economic shifts without unnecessary intervention.
• A nominal income targeting framework could better accommodate supply-driven deflation, ensuring a broader distribution of economic gains and allowing for more effective adaptation to technological changes.