DEFLATION means prices of goods and services are going down. In my lifetime that's never happened before, but it's happening now. Dealing with it is crucial for Hawaii's economy. Falling prices
signal dangerIncreased competition in general and revolutions in retailing and communications in particular have cut the cost of living here about 1 percent since last year. Overall, despite what we pay for gasoline, a dollar spent in 1998 will buy more than last year, but less than next.
This begs the sensible question: Why not wait until 1999 to spend it? The old motivation -- beat the price increase -- is history. So are other inflationary joys, such as big inventories that gained value just sitting on the shelf.
Delayed purchasing forces prices lower as sellers try to stimulate sales. This convinces buyers to wait for even better deals, which forces prices even lower, etc. It's called a deflationary spiral. Unless businesses defeat it by offering compellingly irresistible new products, deflation can lead to a depression.
Computer shoppers know deflation. For more than a decade they've been able to afford more power and speed by simply waiting six months for new and improved machines. Meanwhile, computer sellers have become more and more efficient. Now they build snazzy new machines to each customer's order from parts scheduled to arrive just in time.
Can Hawaii's tourism industry come up with similarly irresistible new products?
John Flanagan is editor and publisher of the Star-Bulletin.
To reach him call 525-8612, fax to 523-8509, send
e-mail to publisher@starbulletin.com or write to
P.O. Box 3080, Honolulu, Hawaii 96802.