Deflation’s Consequences: Winners, Losers, and a Brief New Normalcy

The immediate effect of deflation in the US has been variously described as a brief depression or severe recession. The gross domestic product (GDP) per capita in constant (1996) dollars shrank slightly from $5556 in 1919 to $5401 in 1920 and more markedly to $5168 in 1921. During 1922, however, it recovered to $5401 again and then rose sharply to $6016 in 1923. The pain was distributed unevenly, as farm commodity prices plunged and estimated unemployment among the civilian labor force soared from 5.2 percent in 1920 to 11.3 percent in 1921. It shrank modestly to 8.6 percent in 1922 and stabilized around 4.3 percent in 1923.