[nowey]

>When everyone expects prices to fall, everyone becomes less willing to spend

I find that contradictory. If something becomes cheaper, I will be more likely to buy it. It's the entire reason to have discounts and sales.

Slippery slope fallacy?

[howlin]

Sure it's cheaper, but if you wait another month it will be even more cheap. The longer you can hold of spending, the more you get for your money. Contrast that to a sale. During the sale, things are cheap now with the expectation they'll be more expensive later. Holding on to your money is now costing you buying power.

[brc]

It is a fallacy because most consumption can only be postponed for an indefinite amount of time. If I need a fridge because my old one is broken or I just moved house, then I need a fridge. I'm not going to go without for 6 months because I think fridges will be cheaper then. We all purchase phones, computers, cars and sofas knowing that, in x months time, it's likely that the same item will be cheaper or same price but with more features.

It is true that major investments like new factories might conceivably become cheaper but this also ignores opportunity cost - in the same way, with inflation, new factories are more likely to become more expensive, so it's logical to think that in inflationary times, the countryside will be dotted with idle factories built as a hedge. This doesn't happen because of a variety of factors, not the least of which is that people make investments because they expect to see a big margin difference between keeping the cash and having that investment make cash for them. You don't built a new factory because you think you'll make 3% more than bank interest, you do it because you think you'll make 20-50% return on the cash.

The deflationary spiral postponed purchases explanation is a bit like the efficient market hypotheses - plausible sounding but ultimately and empirically not true in practice.

[gitah]

By that logic why do people buy iPhones? They can wait another year and get the same model cheaper or get a much better one for the same price.

The iPhone 6 just had record sales so empirically there are other factors for consumer purchases that are stronger than the "waiting for items to be cheaper" factor.