I've been hearing on the news that deflation is a greater risk to the economy than hyperinflation.
I believe the basic idea is that people will spend less overall because everything will be cheaper in a little while. So this means less consumption overall, which leads to leads to further drops in price or drops in production. Drops in production, lead to unemployment, and further drop in demand. Essentially, the economy contracts, and keeps doing so.
This is problematic. But is it not inevitable?
Also, we see this phenomenon in electronics all the time. The computer, TV, whatever, you buy today will be either loads cheaper later than it will be today (or you'll be able to get a much better product for the same money). This phenomenon was even true during the dot-com BOOM of the 90s. Nevertheless, despite the fact that electronics prices were coming down exponentially, the industry was booming in the 90s.
How was that possible? Can we not replicate that formula for the rest of the economy?
The way I see it, semiconductors get cheaper to make at an exponential rate due to advances in manufacturing technology. So cannot suppliers of other goods, find technological tricks to make their stuff cheaper at a rapid rate?
Maybe it will be business investment and consumption that pulls us out of the deflationary risk. It would be about time they did their part, instead of consumers.