As we enter 2022, the distance between markets and Washington pundits has never been greater.
The markets keep rising. They point toward continued growth, with more of it concentrated in fewer corporate hands.
The pundits keep screaming about inflation stealing our savings, making everyone poor.
Both can’t be true at the same time. Blue skies don’t fall.
The pundits can scream all they want about 1929, but the situation today is different. Back then, the pundit class had a tight grip on the money supply. People thought gold was money. As manufacturing cut costs, we found ourselves in a deflationary spiral. Deflation is much, much worse than inflation. Less money coming in forces companies to cut supplies, which means fewer jobs. With fewer jobs, there is less money to buy things, meaning more deflation. Meaning fewer jobs, etc. etc. That’s what the Great Depression was all about.
Today money is super-abundant. That’s why so many pundits like cryptocurrency. The quantity of Bitcoin is fixed, at a maximum of 21 million. It holds its value. But if you tried to run an economy on Bitcoin, you’d quickly find yourself in that old deflationary spiral. Values, measured in Bitcoin, would constantly go down, meaning suppliers would have to cut costs, thus wages and employment, thus less value in Bitcoin, etc. etc.
The difference between 1929 and 2022 is the power of technology. Software can quickly cut production costs. Who needs bankers and brokers and agents when there’s fintech?
It’s not just finance. Slync.io in Dallas produces “supply chain orchestration software.” Supply chains are already automated, with programs for procurement, sales, production, and delivery. Often, the software is in the cloud. But these programs don’t always provide the same answers, they don’t easily provide input to one another, and things get snarled. The answer is “orchestration,” a layer of software that makes everything below it run more smoothly, finding, and answering the contradictions. Orchestration software is esoteric, it’s down in the weeds, but it provides value, and it can unsnarl supply chains.
Throughout today’s tech economy, there are little revolutions like this. You might say a hundred million tech miracles are happening every day. There are so many of then that tech experts worry about running out of work. That’s why they want to go from clouds to clients, replacing PCs and phones with wearable technology, replacing the interfaces of words and numbers with moving pictures. Put the directions for fixing the turbine inside the repairman’s glasses. Don’t just augment reality but impose an entirely artificial one. Put people inside the movie, as they are inside the video game.
Much of the “metaverse” is a search for new things to do. It’s a search that will lead to new devices, new applications, and new value. We know this because it has happened before, many times.
It’s like I’ve said for years now. Moore’s Law isn’t just about silicon. It’s about the power of technology expanding ever outward at an accelerating rate. Like the Big Bang. Our ability to discover things, create things, and to push out costs has never been greater. The economy’s ability to create deflation has never been greater.
This means inflation isn’t the threat it was. Inflation today is just an incentive. It’s an incentive for technology to replace labor, to replace inputs, with lower cost alternatives, and profit from it.
We’re going to see this in 2022. I’m not saying the market will keep going straight up. Markets don’t work that way. But the pundits are wrong, and the markets are right. As this fact dawns on the pundits, things are going to get interesting.
