I know it is common knowledge among economists that deflation is bad, but I have always wondered whether this is true in a system where deflation is the expected behavior.
In an economy where everyone is banking on 2% inflation (so e.g., interest rates on loans have this factored in) suddenly experiencing deflation will certainly cause economic slow down as the market adjusts to the new reality and a lot of people will get screwed.
But in a market where deflation is anticipated, it seems like the economy would have adjusted to this and keep on moving: People have money to buy things, people will forego (some) future wealth in order to meet present needs and desires. Take a real world case of inflation: Technology. Everyone knows that in 2 years $x will buy more hardware than it will today. Traditional wisdom re: deflation would dictate that everyone would then stop buying technology, and wait indefinitely to get the most for their money, thereby destroying the tech sector. But in reality, people buy a lot of technology anyway, and overall the tech sector is growing fast. This is just because people don't want to wait their whole life and go without technology, so they can buy the most amazing smartphone in the world right before they die.
Seems to me an economy with relatively stable, constant deflation could work just the same. People will still buy food, housing, and other important or necessary stuff because they need it. And they will buy luxuries because they want to have them now and use them.
The main differences would be that savers would benefit from saving, and you would have fewer bubbles caused from artificially low interest rates, and unnaturally low ROI leading to too aggressive investing (as inflation does).