For years I've been puzzled about the role of digital technology in society. If this technology is as powerful and as revolutionary, as it certainly appears to be, why aren't we seeing the evidence?
After several decades of investments, we should be seeing a large deflationary effect on our economy.
The evidence is there, but it's masked and hardly noticed, and economists seem blind to what is essentially an unstoppable force deep within our economy.
Economists are easily distracted by other matters such as the trillions of dollars in quantitative easing and the best way to raise inflation to around 2% -- considered the ideal pace for a healthy US economy.
SEE: Tech Budgets 2021: A CXO's Guide (ZDNet/TechRepublic special feature) | Download the free PDF version (TechRepublic)
Shockingly, economists have no metric to study the effects of technology on the economy. They cannot find any evidence -- in their oceans of economic data -- that increases in technology investments increase productivity.
They call it the technology productivity paradox. The real paradox is why economists still have no way to analyze tech investments, and they don't seem to be troubled by this fact.
Cosmologists don't know what dark matter is but they see its effect on spinning galaxies. Economists see large capital investments in technology yet can't see its effect. Their technology productivity paradox states that:
"... as more investment is made in information technology, worker productivity may go down instead of up."
So, why do businesses spend so much on technology? In Information Technology markets Gartner predicted $3.9 trillion would be spent globally (pre-COVID-19), and more than $4 trillion in the following year.
Basic principles in operating a business state that capital investments are made to improve profitability by cutting costs or expanding into new markets.
No one invests in technology so that their labor costs will increase, profit margins shrink, and prices on current goods or services rise.
A lower cost of business means a balance between higher profit margins and lower prices. Competition encourages lower prices -- a deflationary trend seen in many product categories and one that is clearly fueled by tech.
In my humble opinion, deflation via technology isn't noticed because we are distracted by headlines on topics such as college and healthcare costs going through the roof, our need for larger retirement funds, and the always-declining fortunes of the middle class, etc.
Our salaries are not going up, yet costs of housing, education, healthcare, elder care, and more, are increasing without end. The news stories focus on how people deal with these inflationary issues, but these are artificial scarcities driving up costs.
Such stories make it appear that nothing has changed. Such stories ignore the massive technology-powered deflationary trend that cannot be stopped and will have a shocking impact on everyone.
We need to prepare for what's coming. We need a new lexicon around how we understand what's happening and how we communicate the way to move forward.
What if our economy is closer to tipping over into a deflationary structure than we realize? We already see negative interest rates. Our central banks have no experience in managing a deflationary economy, and our CFO's have zero, too.
The tipping point could be very close, indeed. The COVID-19 crisis has accelerated future trends. We could tip over very soon -- the clock is ticking. We need a plan.
What would a deflationary economy mean? I see it as a good thing and here are some reasons:
I've long regarded this topic of technology-driven deflation as dangerously overlooked, so I was very happy when I heard that Canadian technology entrepreneur, Jeff Booth, recently published a book on this very subject, The Price of Tomorrow - Why Deflation Is the Key to an Abundant Future.
I recently spoke with Jeff Booth -- it was fascinating. It will be posted later this week.