Stopping technological deflation is making the world a dangerous place
Technology is deflationary. That is not conjecture. It is the nature of technology. And because technology underpins more and more of the world around us, it means that we are entering into an age of deflation unlike any the world has ever seen. We might not like what that means, or be ready for the changes that it foretells, but it doesn’t change the facts.
Our economic systems were not built for a world driven by technology where prices keep falling. They were built for a pre-technology era when labour and capital were inextricably linked, an era that counted on growth and inflation, an era where we made money from scarcity and inefficiency. That era is over. But we keep on pretending that those economic systems still work.
We are at a critical point because many of our choices are in fact choices about economics. Most choices come down to economic realities: a trade-off between our perceived value and price. We might aspire to be more environmentally minded while choosing to drive a car that is convenient for us and a toll on the environment. We may want all of our food to be organic but be unwilling or unable to pay the extra cost for it. Businesses are no different. A business is just a collection of people making choices with the aim of growing a better business while, at the same time, in competition with other businesses trying to do the same. “Better business” often comes down to the harsh realities of economics — or the value that the business brings to its users (whether that value is perceived or real). Those economic choices to compete and win more of scarce markets lead to almost everything else. From your income and lifestyle, to your opportunities for travel and leisure, to how you care for your family, economics is fundamental to it all.
Every so often we learn something new that rewrites all of what we have come to know and trust. In those moments, our foundation of knowledge crumbles — and with it, many of the beliefs that we have built on top of it. Those transitions are hard because we do not easily let go of our beliefs.
We are at a crossroads. What worked before will not work in the future. Technology is moving too fast — and it will only move faster from here. Even if we wanted to, we can’t put the genie back into the bottle. We need to build a new framework for our local and global economies, and soon, or the same technology that has the power to bring abundance to us and our world will instead destroy it.
The only thing driving growth in the world today is easy credit, which is being created at a pace that is hard to comprehend. The rise of that credit and corresponding debt is keeping us locked into a system where we are the proverbial frogs in a pot with the heat of the water slowly rising and we do not notice. And as we try to artificially drive an economic system built for the past, we are creating more than just economic trouble. On our current path, our world will become profoundly more polarized and unsafe.
The seemingly random events of Brexit, Trump, and a rise in populism and hate in our world are not haphazard or isolated at all. They are all connected to a loss in hope for a better future for large portions of the population. Underlying this loss of hope is a new economic reality where it’s not just the poor who are missing out on economic gains. Much of the middle class is also feeling squeezed. Instead of technology allowing for a fifteen-hour workweek, as Keynes predicted when he penned his 1930s essay “Economic Possibilities for Our Grandchildren,” vast numbers of people are working longer, in jobs they rightly fear will soon be gone. Trapped — wondering how they will provide for their families and basic needs when the other shoe drops. At the same time, we are seeing a massive rise in inequality: in the United States, the top 5 percent of the population now holds more than two-thirds of the wealth, while the remaining 95 percent of the population fights for their share of the other third. Just three people — Jeff Bezos, Bill Gates, and Warren Buffett — account for more wealth than 50 percent of the population.
The concentration of wealth has not been this high since the late 1920s. The world naturally becomes more unsafe when large amounts of people with increasing anxiety about their own economic future see incredible wealth creation in the hands of very few people. That environment provides fertile ground for revolutions. The loss in faith of systems meant to be reliable predictably leads to blame and division — all of which can be opportunistically redirected to target groups such as immigrants, religious groups, political parties, other countries, and so on. In other words, populism explodes because of an unjust system. It’s hard not to look back to a similar loss of hope and rise in populism and ideologues around the world in the early 1930s, which escalated into World War II.
It is the same loss of hope that is driving elections today. Countries that once considered themselves enlightened are torn by ugly xenophobia, committed to protectionism and closing their borders. Entire populations are being swayed by politicians who incite more anger and polarization by creating “us versus them” narratives without understanding the root causes of our new reality. Many of them are using social media as a powerful weapon in their aim to consolidate power. They’re building influential communities online that fuel dissension in the streets. In Germany, the far-right populist Alternative für Deutschland (AfD) went from zero seats in the 2013 election to forming the largest opposition party in that parliament in 2019. Around the world, authoritarian regimes are flourishing. The trend of more wealth inequality, more polarization, and more discord is a major threat to our collective future. And it is all being caused by the same thing: adherence to an economic system designed for a different time. How did we end up here? And where are we going?
All of our lives, we have lived in a world where hope for a better future was a motivating force in economics — a world where growth reigns. Our parents grew up in that same world, and so did their parents. It is what we know.
But what happens when we can’t count on a system of growth and inflation anymore? What if a more powerful force renders most of our efforts to create inflation irrelevant? And what if, by desperately trying to cling to an outdated inflationary model, we drive more wealth inequality, more polarization, and more discord into our societies?
Today, we are in that scenario. The continual growth and inflation we expect — the system we’ve built our nations’ economies around — is ceasing to exist. Technology is a deflationary force so great that, in the end, nothing we do will stop it.
I dive deeper into this situation: how we got here, where we’re set to go from here, and what we can do about it in my new book entitled The Price of Tomorrow, Why Deflation is Key to an Abundant Future. Prepare to be challenged.
Available now at thepriceoftomorrow.com/amazon.