The churn of creative destruction and growth is accelerating. The collapse of communism, socialism and protectionism brought many new countries, their workers and consumers into the market economy. Deregulation, privatization and consolidation spread. World-wide, cheap labor and capital are coming together, bypassing national capacity constraints. Technology and trade are mutually reinforcing.
Many analysts believe such factors reduce the inflationary impact of rapid growth.
But rapid growth itself is deflationary if it comes from the supply side. If the price level is total spending divided by output, then output growth resulting from new discoveries, inventions, innovations, deregulation, freer trade and tax cuts should be the opposite of inflationary. If I'm right about that, an unfortunate corollary is that a slowdown in growth from the supply side could worsen inflation. Many new-paradigm skeptics argue that the economy's improved performance is based on temporary factors, including a strong dollar, the Asian crisis and falling energy prices. As such factors reverse, nonbelievers predict, the new economy will morph back into the old economy.