Yes human nature will turn off some/all capacity if they are not getting any coin. And by that happening the algorithm will increase coin issuance as the space reduces beyond a certain point. Human nature should then see the space stop reducing and increase more slowly.
This is a really good point. Makes me think about content and usage, as well. Safecoin farming will largely track with the amount of people using the network–putting and getting data. Because it costs safecoin to PUT data, and only worthwhile data should have GETs, then large super-expansion of resources will always be unprofitable. But the home user, small farmer will continue to to use the network and farm, because they’ll be using it anyway.
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Safecoin is an interesting idea, a much more refined incentive than the “static” PoW algorithm.
It looks like a function that connects the puts and the gets with the storage space available on the network. Would be awesome if some mathematical equations are on a paper somewhere, it would be an interesting read for sure.
I have never given it enough thought but I am really interested to see how the fine-tuned version will look like 
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That’s a phenomenon called hunting, or maybe hysteresis.
Pretty soon, sophisticated speculators would anticipate such drops just before they occur, and short the Safecoin market, thereby evening out the oscillations.
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