People are always fighting the last war. This is never truer than when talking about inflation.
Prices are rising. Oil producers are making a killing. Employees have their bosses over a barrel. There are supply chain disruptions.
There are also idiots responding that “inflation is theft” and demanding that the dollar be protected. This response made sense in 1979. Oil and other resources were the primary sources of wealth, and the only way to slow their takeover was to raise interest rates and cut the money supply.
This makes no sense today.
That’s because technology is much more effective than manufacturing was in fighting inflation. Just to give one example. Upstart uses artificial intelligence to decide whether someone should get a loan. Instead of just using credit scores, they use 1,000 variables that let banks more than double their lending without increasing their credit risk. The software does a better job than a loan officer. Why have loan officers?
It goes beyond fintech. Slync.io orchestrates supply chain software in the cloud, meaning all the elements of it work together. Shein uses influencers to sell new clothing, then produces it through a network of thousands of suppliers, who could be anywhere. There are 100,000 miracles like this happening in the cloud every day. At least $100 billion will be spent on new cloud capacity this year.
When you improve productivity, you cut costs. You also improve quality. Desktop Metal makes metal parts using a printing process, to tolerances that were unimaginable before. I found all the above stories in just the last week.
Some tech stocks were overvalued. It makes no sense to value even fast-growing companies at 50 times sales. But when you’re growing 50% or more a year (and that’s not unusual) you must invest ahead of that growth. If you don’t your competitor will.
Inflation is pointing toward opportunity. Here are inputs you can substitute at a profit. Here is labor you can replace with software. Here are production and sales processes that can be made more efficient.
The problem with our economy is that these gains are only being reflected in asset prices, market cap going into just a few hands. We need to recycle wealth into new investment, or it will go into asset bubbles like Bitcoin and disappear. Money is a verb. It’s what lies between exchanges of value. If billionaires won’t recycle their wealth, someone must do it for them.
But that’s a political issue. When it comes to economics, I have no problem with asset bubbles being popped when people are stupid enough to bid them above fundamental value.
Just don’t call it theft. If your money isn’t going into things that work, if it’s not creating value, it’s going to disappear.
