Today is the calm before an economic storm.
The Federal Reserve is hiking interest rates to slow inflation. Many commodity prices are already coming down. But if it hikes too fast, economic activity will slow and that will be a recession.
To Nouriel Roubini (right), the economist known as “Dr. Doom,” a recession at this time could quickly become a depression, because public debt remains at historically high levels. If you owe $43 trillion at 1%, it costs $430 billion to carry it for a year. At 3%, it’s $1.3 trillion. Your budget just got broken. That’s his reasoning.
But debt owed to yourself isn’t real. We can print that $1.3 trillion. The risk then is that the dollar falls off a cliff. That’s not happening. If anything, the dollar is too strong. We’re importing deflation. Every western nation, and China, has massive debts.
It’s why the doomsayers were wrong in 2009, and again in 2020. It’s why we couldn’t fight the Trump tax cuts. They didn’t create inflation. They didn’t sink the dollar.
What Roubini is missing is the deflation caused by technology. It doesn’t just cut employment. It replaces expensive inputs with cheaper ones. It accelerates discovery. And the value of this does nothing but grow.
Clouds and devices are faster now than in 2019. Gigabit speeds on local networks are no longer unusual. The premium for creators, in science, in engineering, in content, keeps rising. Human creativity is not only the gating factor to growth, but its importance is increasing, in direct proportion to new technology adoption.
What’s really happening is that Moore’s Law is crushing all of America’s economic competitors, because this is where the technology is most prevalent. Most of the value is going to American companies, not European companies, not Japanese or Korean companies, because it’s in software and everything software does. As the value of trained, empowered, willing minds increases, the cost of imprisoning them in China keeps rising. Russia is being buried for the same reason the Soviet Union was – change is accelerating.
The problem is where all this extra value is going. It’s still mostly going into a very few hands. Money remains closed source. It’s not producing enough trained, empowered, free minds as a result. It’s not making people comfortable enough to do their best work. It’s just going into power, into toys, and into scams like crypto.
With enough trained, empowered, comfortable minds, working at peak efficiency, technology and liberty offer the chance to transform the world.
Or we can lose this one.
