Whip Deflation Now

While most people my age remain scarred by the inflation of the 1970s, I’ve long known something they didn’t.

Deflation is the problem.

Technology is naturally deflationary. Moore’s Law, the idea that chips could get better and better faster and faster, also means more output of everything, for less money.

We’ve seen this with every recession of my career. In the 1980s, computing cut warehouse space and distribution jobs. After the dot-bomb of 2000, it came for middle management. After the Great Recession cab drivers, hoteliers and retailers were thrown on the fire.

The pandemic has squeezed 10 years of technology change into one, as business has been forced to adapt. A lot of these changes are permanent because they cut costs.

Most knowledge workers will never return to their offices. Schools and colleges are being forced to use online resources to increase efficiency. Malls may never re-open, replaced by online shops. Ghost kitchens cut the size of restaurants. Fintech is replacing banks and brokers with apps. Semi-autonomous cars don’t need drivers. Electric cars don’t need oil.

Efficiency piles on efficiency. Even credit card processing carries technology debt. Bank and brokerage settlements can be replaced by apps, value replaced by digital stablecoins, everything can be done on the cloud.

Economic policy isn’t set up to handle deflation. Throwing money at bankers only increases asset prices. What’s needed is demand, which comes from the bottom up.  The American Rescue Act will create demand. A Build Back Better plan will create more.

Inflation will rise in 2021, but it will be a short-term thing, because technology will quickly create workarounds. OPEC knows its days are numbered. Whenever oil prices rise it creates opportunities for renewables. Once an engine is harvesting power from the Sun, the wind, or Earth’s fire, that demand never returns. Technology can find substitutes for lithium and rare earths. Even the cost of discovery itself keeps going down, thanks to mRNA, CRISPR, and clouds that support the work of scientists and engineers.

Deflation is the cost of Moore’s Law. The struggle to create new demand, and direct resources toward filling that demand, can save this planet if it’s done properly. The political turn of the last year won’t bring raging inflation, and that will accelerate the turn.

The only real source of inflation during the coming decade will be in brains. Human talent now is the gating factor to economic growth.

If you want to prosper, train your mind.