A post of mine arguing that deflation can be a good thing when it reflects a positive supply shock drew this response:

I don’t think you’re right to make a distinction between deflations based on their causes. Whatever the cause of deflation, it has to make debt burdens worse and it has to encourage cash hoarding over investment. This is just basic economics.

The real value of a debt does indeed increase when the price level falls. But in the case of a benign, productivity-driven deflation, the real value of the debtors’ income rises, too. And since in this case costs are declining, profit margins go up, which ought to spur more investment and a rise in asset prices. A deflation driven by an increased demand for holding money balances or reduced money supply would not have these effects, which is why the cause of the deflation matters. For more on this, see my sometime collaborator David Beckworth’s essay on benign deflation.