Making the Desert of Plenty bloom
"In my post “The desert of plenty”, I describe a world in which goods and services are so cheap to produce that less and less capital is required for investment , and so easy to produce that less and less labour is required to produce them. Prices therefore go into freefall and there is a glut of both capital and labour. This is deflation.
There are two kinds of deflation. There is the “bad” kind, where asset prices go into a tailspin and banks and businesses fail in droves, bankrupting households and governments and resulting in massive unemployment, poverty and social collapse. We have seen this in the past, in the Great Depression; we narrowly avoided it in the Great Recession; and there are currently places in Europe that are skirting dangerously around the edge of this catastrophe.
But there is also another kind. This is where falling costs and increasing efficiency of production create a glut of consumer goods and services. In other words, supply persistently exceeds demand."Read on here.