>Why would they get a pay cut?
Because the alternative is being out of work completely.
>This never happened historically.
On the contrary, it was common during economic downturns. And even when wages were "by and large stable", some people had to settle for less.
And note that I said "If everyone could KEEP WORKING during the deflation and not get a pay cut". You've focussed on the bit about not getting a pay cut, while ignoring the more significant part.
>There's still going to be people being employed.
Because there's still going to be money being spent. But with less money spent, fewer people are employed unless the ones who are employed are paid less.
>The savings people save will over time, be used for larger projects which will employ even more people.
Maybe, maybe not. It's completely moot because spending on large projects does not depend on past savings.
>I'm not assuming that, it's mostly true.
Even if it's mostly true, your assuming it.
But in reality it is mostly false.
>Wages either stay the same or go up historically.
Prices either stay the same or go up historically!
>Literally decades of american and german history prove this wrong.
Even in your cherry picked counterexamples, which involve rapid technological progress and workers having very little bargaining power, the increase in their prosperity occurred despite, not because of, the deflation.
>Yes, currencies deflate naturally over time as economic production increases.
Psychological factors result in countries growing much faster if there's some inflation.
>Someone who would live in a deflationary economy working at taco bell would make the same amount as an airplane engineer in an inflationary economy.
Now you're just being ridiculous. Aerospace engineers do a much higher value job than Taco Bell workers, regardless of what the economy is doing. But during deflationary conditions, there's less demand for workers so they'd be paid less.