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Deflation

Submitted by MikeKeran on Mon, 09/14/2009 - 2:18pm
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While cleaning my office – a once-a-decade event – I came across a receipt from 2 Dec., 1998. It was for a 10.1 GB hard drive costing $245. Last week I bought a 1TB drive – 100 times the capacity – for just over $90. Though Moore’s law originally predicted processing power, it’s often quoted for any tech-related increases. In this case, storage per dollar increased 27,000% over roughly 11 years – it doubled every 16 months – even faster than Moore predicted!

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Macro Econ Perspective on Deflation

Submitted by Mike Keran sr. (not verified) on Wed, 12/23/2009 - 4:57pm.
Ecomonists, central bankers and policy makers have been worried a lot about deflation in recent years. If consumers expect prices to be lower next year, it is argued that they will not buy this year. That could depress consumer spending and lead to a recession or prolong an existing recession. The experience of the high tech market shows that concerns about deflation are over stated. If deflation is due to rising productivity as it is in high tech, then consumers will not stop buying now just becasue the price will be lower next year. The benefits of having the product now outweigh the cost of paying a higher cost now. How does this scale to the entire economy? Productivity in the US economy rises about 1-2% per year on average. So if the general price index does not fall more than 1-2% a year it will not discourage consumer spending and therefore not prolong a recession.

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