Inflation in “deflation”
Tuesday, December 31st, 2002
Paul Krugman notes: “In the first 30 days of December 2000, according to Nexis, only six articles in major news sources contained both the word ‘deflation’ and the phrase ‘United States’; none of those articles suggested that deflation in this country was a real possibility. In the same period last year there were 292 hits; this past month there were 566.”
The pricing quicksand is watered in part by Moore’s law that computing prices fall by 99% every ten years. Dell handheld computers that now cost $299 outstrip the laptop I bought in 1999 for $2700. My phone bill has dropped from $300 to $100 a month thanks to Vonage.
The baby bust also contributes to deflation, as baby boomer couples realize they’ve bought every toy their 3.7 person household can use. Car prices have been flat for 2 years. Golf club memberships go begging.
And finally, the Internet, the great aggregator of supply, demand, coupons and automation, gives another downward kick to prices. Great CRM now costs $50 a month rather than $500. Medical insight is free and instantly available rather than $75 and an hour in the waiting room. Advertisers can enthrall opinion makers for $30 rather than $3000.
Pop historians usually start a new decade a few years after the calendar. If The Sixties started in 1963 with the Beatles and the Pill, will the 00s open in 2003 with closed wallets and free 64 MB memory cards? If the nineties roared like the twenties, will the 00s now sink, tumble, flounder, flush and drizzle like the thirties?
If so, nothing but cash will be worth more tomorrow.