How'd that work out for Japan in the 90s?
But small amounts of deflation (<3% per annum) ensure fiscal probity and an emphasis on production over consumption.
If GM had to lower the price of their product 2.5% each year, you think they'd be a stronger company? Would any company expand production if there was 2.5% annual deflation? How many houses would be built or bought each year if the prices dropped 2.5% every year?
>>>Yes, a slight deflation is a good thing.
>>How’d that work out for Japan in the 90s?
Not well, but only because of the nature of the deflation there. The government prevented insolvent companies from failing, and engaged in massive spending to prop up the consumer economy.
A better example is the US in the latter part of the 19th century. There was persistent deflation on the order of 2-3%, and yet there was unprecedented economic growth and opportunity.
>>If GM had to lower the price of their product 2.5% each
>>year, you think they’d be a stronger company? Would any
>>company expand production if there was 2.5% annual deflation?
Yes and Yes!!
>>How many houses would be built or bought each year if the prices dropped 2.5% every year?
Houses would be treated as a consumption good, like a car or television set. They would be bought with similar expectations, and would not be traded like Pokemon cards. The consumption emphasis of the economy would change to a production emphasis. Firms would focus on increasing production efficiency and on innovation, rather than counting on inflation to bury the mistakes and mismanagement. It would be a different social and cultural environment. The assumptions behind your questions would no longer be true.
You are forgetting the computer industry. It has become a powerhouse sector with just such practices.
Yes, because as a business owner, with deflation, I'd sure as heck want to borrow money to expand my production capacity. Lower price for my product and higher loan payoff is so enticing.