Nothing deflates like technology.
This is true for all technology. It was true for manufacturing technology a century ago. That helped cause the Great Depression. There wasn’t enough money to absorb all the productivity, so prices fell. This made suppliers insolvent, people lost their jobs, and you had a spiral.
Thanks to Moore’s Law, change comes faster and faster, all the time. That means there’s continuing downward pressure on prices. Deflation. The only way out has been to create more money, thus more demand for what money can buy. The deflationary economy was easily able to absorb Ben Bernanke tossing money from helicopters. It was even able to absorb the Trump tax cuts, and the Biden investment boom. It can take our national debt.
In the face of inflation, fools look for money that can’t deflate. Even if it’s backed by nothing, like Bitcoin. The theory is a good one, limited supply in the face of rising demand. But once people figure out how it’s being hoarded in the hands of a few, the price can crash. Bitcoin is thus a horrible store of value.
Climate Changes the Game
But some inflation is inevitable. War creates inflation by destroying things, starting with the ammunition needed to wage war. More important, climate change is inevitably inflationary. Climate change doesn’t just hurt supply, it also destroys infrastructure protected by insurance. When insurance becomes unaffordable you can’t do business.
Technology can’t (yet) protect against a drought. It can’t protect against hurricanes. It won’t keep Miami from falling into the sea.
Climate change is doing what Bernanke, Trump and Biden could not do. It’s making things expensive. It’s causing shortages in cocoa, in beef, and in other commodities. It’s destroying homes and businesses at previously unheard of rates, and that makes things more expensive.
Aging is also inflationary. Technology won’t keep me alive past my body’s sell-by date, but it can create expensive ways of extending my life beyond that of my father, who died at 78.
The point is we may have reached the limits of the present deflationary period. It’s possible that, barring a global political change, 3% inflation is the best we can do. That is, until the latest investments in AI, in new materials, in the end of oil, and in transforming DNA take hold.
Moore’s Law means a hundred million miracles are happening every day. Moore’s Law means there’s always a thumb pressing down on costs, ever harder. But until we get our collective arms around the Climate Crisis and aging, it may be there’s only so much we can do.
