The great durable-goods deflation is what I’ll focus on today. It does not appear to be driven by central banks and their ability to create and destroy money. “Inflation is always and everywhere a monetary phenomenon,” Milton Friedman wrote, and that presumably means that deflation is always and everywhere a monetary phenomenon, too. But monetary forces sweeping across the whole economy don’t explain why durable-goods prices would follow such a different trajectory than other prices. So what does explain it?

One explanation is that goods (both durable and nondurable) are tradeable while services generally are not. That is, unlike most services, goods are bought and sold across national borders. So the rise of China as a giant new low-cost producer of manufactured goods in the 1990s and 2000s put lots of downward pressure on durable-goods prices, but not so much on nondurable goods (the three main categories of nondurables are food, energy and clothing, and China is a big exporter of only the third) and none at all on services.

The other explanation is that manufacturers of durable goods keep getting better at making them.