[Wildbill]

Sure they could, but not as a natural extension of the economy. If you specialize only in a competing product you have to expect competition. Its fine for China to accept deflation because the growth in products sold far outpaces the losses due to competition. They are starting from so far behind the world in manufacturing that their competitiveness is devastating. Now if they saw deflation of 20% then it would be a problem, but if you are deflating 5%, but your growing 10% in volume, your economic growth is still positive 5%. Japan and Germany don't seem to accept this reality. When you are overpriced compared to the world market, you have no choice but to become a service based economy. You can only compete in products that the world truly can't compete with. People will still pay more for a Mercedes so that is fine, but Germany is a defender of one national industry after another. Farming is a really bad choice, yet all the G7 fight to defend their farmers. Remember its as simple as following your competitive advantages.

Services can and do at times go down in value, but the beauty of service work is how easy it is to change. If you build cars and in 5 years someone beats you, then you have a difficult time changing. You have millions or even billions sunk into capital and it all becomes near worthless if you give up the business. Service related stuff is much cheaper to change. You can go into another service or just exit the business and let someone else rent your space and try something different. Most services that do depreciate have done so because they have become fairly commoditized. Think of accounting, that is a terribly low margin business if it weren't for the cachet that your reputation gives you. Frankly the world doesn't care who your accountants are as long as they have the proper accredidation. In the end though an audit or an income statement are basically a similar product. Those are the types of services that do see price cuts and some deflation, but I think if you look at the things this country offers most of our service based experiences are more unique and more specialized. Obviously our biggest service industry on the world market is entertainment. Places around the world have tried to match or compete with our entertainment offerings and almost all fail. Most of the successes worldwide haven't been because of better product but because of national laws requiring domestic product.