Some say there is a real possibility that double-digit or even hyper-deflation could lie ahead – so let’s consider it. Is it likely and if so, how could it affect us?
The consensus among those ‘in the know’ is that robotics will significantly reduce production costs – as humanoid and other robots will replace a large share of factory and warehouse labour, will significantly increase production capacity and will reduce errors and waste. AI is also expected to cause a big reduction in the number of office employees. The result across most industries will be significantly lower production costs, which will lead to significantly lower prices for consumers. History shows how dramatic these drops can be. During the Industrial Revolution, the price of cotton fell by about 98 % in a few years. While AI and robotics may not produce a 98 % decline, a material reduction in prices is entirely reasonable to expect.
Moving on to how this could affect us: The first-order effects are very good – Consumers will get significantly more value for their money. The same forces driving lower prices could create severe problems for businesses, workers, and government finances. The second-order effects could therefore be catastrophic for some, and the third-order effects could be catastrophic for all of us.
The second-order effects are likely to be significant increases in company insolvencies and large-scale job losses among both factory/warehouse workers and office employees. Some experts already speak of “factories without people.”
Many established companies that bought equipment and borrowed money at today’s higher prices would suddenly face competitors producing the same goods far more cheaply. Companies with large human workforces would also be at a major cost disadvantage compared with new AI- and robotics-driven rivals. Those needing to lay off staff would face heavy redundancy payments that newer entrants avoid. Many will not survive; many others will carry severe financial wounds. It is inevitable that companies will lay-off significant numbers of both factory /warehouse workers and office employees as they endeavour to transition to the Ai and robotic dependent world that is dawning.
Many of these displaced workers will lack the skills to move into the limited new roles that AI and robotics create. While I accept that AI and robotics will create new opportunities, it is difficult to be optimistic that they will replace the jobs lost.
Producing goods will require far fewer people, so many more businesses, products, and types of consumption would need to emerge to absorb the displaced workforce. Unlike the Industrial Revolution, where demand for cotton exploded, comparable new demand drivers are not yet obvious. There is also the question of where the new jobs and businesses will arise. I’m not optimistic that Australia will be a favoured location. We have already lost most of our manufacturing capability, and high land, building, energy, and tax costs plus distance from major markets in the US, China, and Europe makes us less competitive. Both entrepreneurs and large corporations will likely choose more attractive locations.
This gives rise to the third-order consequences, which are a surge in welfare spending combined with a sharp fall in tax revenue, which together would widen fiscal deficits. Since welfare benefits are politically difficult to cut, the fiscal deficits are likely to grow over time, which government will inevitably fund by digitally creating more money, which will debase (reduce) the buying power of our money. This cycle of monetary debasement has, throughout history, led to economic collapse.
This is not a prediction, but a plausible scenario that deserves serious attention. Yet it is barely discussed in public debate, and no major political party appears to have policies to manage the transition.
It would be reckless of us, as a nation, to ignore this risk. We need to face it, plan for it and ensure that we can implement those plans efficiently and effectively. The challenge is enormous. To weather it, Australia needs policies that strengthen economic growth, cut wasteful government expenditure, and deliver consistent fiscal surpluses. Among current options, only Classic Liberals Australia offers a coherent set of policies to achieve this outcome.
The future of our economy, and the prospects for our children and grandchildren, depend on facing this issue squarely and choosing the right policy response. So, support Classic Liberals Australia any way you can, together we can ensure our prosperity as a nation.
Written by Mark M.J. Morris (July 2026)