Tech Could Drive a Deflationary Cycle

This column was originally published on RealMoney on Oct. 27 at 1:05 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

So what of this whole deflation possibility?

The biggest potential cause of a major deflationary cycle in this economy is the very thing that has driven the virtuous cycle of economic and productivity growth during the last couple of decades: the communications and technological revolution.

Earlier this week, I highlighted some of the many ways the revolution has helped companies and individuals become ever more efficient and productive in a number of everyday tasks. The flow of information and capital has become so quick and easy, and distribution and logistics management has become so inexpensive and cost-effective that playing field after playing field is being leveled. But some of the very same technological advancements that have thus far benefited those who have leveraged them have the potential to reverse into negatives.

In fact, Internet access itself, the great field-leveler, is among the services being commoditized and feeling the deflationary pinch in the communications revolution. As the proliferation of new modes of accessing the Internet continues, these networks will be differentiated only by speed. That commoditization leads to price collapse, and that's already happening in voice-transmission and Internet-access costs. These price drops will only continue.

The sector where this dynamic is most clear is in media content ownership, and within that sector, music has so far been the industry most impacted. I noted in Monday's column that this year, I have spent 100 times more on music than I did in 2002, simply because the shopping process today is so much simpler than it ever has been.