I can tell you as someone who is very close to how companies respond to the current economic forces that this is simply untrue.
The first part of your argument presumpposes that supply is constant and demand is decreasing. The recessions that you use to illustrate your point were demand driven recessions, but you conveniently leave out the 1970’s, which aremuch akin to what we are seeing now (incidently, in a speech in 2004, Bernanke said the 1973 recession was the most severe since the great depression). You can’t discount the commodity cost pressures that are still rippling through the system.
You are correct that it is as simple as supply and demand. I don’t disagree that demand is shifting left, but so is supply. Where I sit, the supply forces are currently stronger than the demand ones, with the net result being increasing prices, not decreasing. That’s not to say demand won’t go far enough into the tank to reverse this, but we aren’t there yet.
Your argument is highly Keynesian with a bit of monetarist flair…don’t forget the S part of the SD equation. I lean Austrian, and am moving further in that direction given what I’ve seen in the last year.
