Foremski's Take: The "next big thing" in tech is always a surprise; it always comes out of left field and arrives like a hurricane and always makes a big impact on society. The weather service can predict hurricanes, but we are notoriously bad at predicting the next big thing and preparing for the large impact on society it always brings.
- The computer is a famous example. IBM President Thomas Watson in 1943 predicted that there were only five customers for a mainframe computer. The microcomputer was also written off by IBM, DEC, and other computer makers as a toy -- yet it spawned a massive personal computer hardware and software industry and disrupted all the old guard.
- There used to be plenty of search engines yet no one thought this sector would disrupt huge advertising markets and the demise of newspapers.
- The same with the emergence of blogging. People were distracted by the content of blogs and what someone had eaten for lunch and completely missed that this was now a two-way web -- perfect for building social networks and social media -- affecting every aspect of society and for the first time the workings of our democracies.
The common thread of the next big thing is that it's always a surprise.
What if tech's next big thing is not a killer app or killer genre but the application of technology in everything, in every industry and commercial activity and producing massive benefits in costs cuts everywhere.
The falling costs in computing help make this possible. The IT cloud is an innovation platform in the same way that chip foundries became the innovation platform for small teams of chip designers able to access billion-dollar manufacturing plants. The same is true for small teams of programmers, who are now able to access computing infrastructure that would cost hundreds of millions of dollars. The deflation in computing costs helps drive deflation in other industries.
We can easily see how the smartphone stays about the same price but every year has increased capabilities to replace multitudes of other devices. Imagine that same scale of progress for technologies used in various industries and how powerful technology's deflationary effect becomes.
The Silent Deflation
The deflation is masked by the inflationary parts of the economy, such as housing and college education, which are artificial creations and distract attention.
The scale of technology's impact across industries and the globe has created a powerful deflationary force. Manufacturing gets cheaper and services become more effective, and AI and robots are replacing costly labor. We are using ever more technology, and if you follow the dots into the future, it is clear that we will all be living in a very high-tech society, which means the deflation will be even greater than it is now.
FIGHTING DEFLATION WITH DEBT
In the descriptions of future societies and how we will live, there is never a discussion of the economic landscape that will be needed to support advanced systems of production and healthcare. The Price of Tomorrow Why Deflation is the Key to an Abundant Future by Jeff Booth, published earlier this year, is rare in directly addressing this issue of technology-fueled deflation.
I spoke with Jeff Booth, a serial tech entrepreneur, in July.
He points out that every country's monetary policies are geared to a model where inflation is expected, and a 2% annual rate is considered an ideal amount for a healthy economy. In the US, the Federal Reserve has been issuing huge amounts of debt through quantitative easing, yet this has failed to raise inflation levels, and interest rates had even gone negative. This shows the strength of the deflationary trend.
Booth writes in his book that it has taken over $185 trillion in debt over 20 years to produce global growth of $46 trillion. Clearly, piling on more debt is unsustainable. Yet there is no recognition reflected in monetary policies about deflationary pressure from technology investments.
MISSING TECH PRODUCTIVITY
Economists still have not solved the "Technology Productivity Paradox" -- where they cannot find any evidence for productivity gains from technology investments. In fact, it can cause negative productivity according to their figures. Yet we can see with our own eyes the incredible progress and benefits from tech investments all around us.
Shockingly, economists have no measure for technology investments, which means their models are seriously flawed and therefore their monetary policies are completely wrong and heading toward disaster. Their only answer is more debt -- which isn't working to squash the deflation.
Booth points out that it will take even more debt to produce even less global growth than before. And now in the, global debt loads are skyrocketing making deflation even tougher to curtail with more debt. Our day of reckoning is much closer than when The Price of Tomorrow was published.
Why is deflation considered in such a negative light? It depends where you stand. For the consumer, it is great because money gains value and you can purchase more and better quality. Inflation steals value from people's money -- it gradually becomes worthless.
SHARE THE WEALTH
I view deflation is a wonderful way to spread the technological wealth of society. The broader the application of technologies across industries, the more deflation we will have, and also the benefits are distributed globally.
Nearly half of the world's population lives on less than $5.50 a day, according to a 2018 estimate by the World Bank. With deflation, that $5.50 now buys more food, more medicine, more of everything and distributes that value automatically to everyone.
Inflation reduces that $5.50 to $4.50 and less, essentially stealing monetary value from the poor in massive amounts -- all done without threats or hold up.
Deflation has many benefits. For example, it moderates consumerism. The longer you wait to buy something, the cheaper it will be, so there is no need to rush. And the products should be better quality and last longer because of advanced technologies in manufacturing and materials. And the beneficial effects on climate will be considerable.
We have to address this issue urgently because our monetary policies will not be able to outrun deflation with more debt. And the disastrous aspect of all this is that government economists and bankers don't see technology's next big thing. Which is precisely how the next big thing works and how it disrupts. What will happen if there's a massive wave of deflation hitting our economy and our leaders are blind to it?
DEFLATION DEBATES NEEDED
I support Jeff Booth in his efforts to bring this topic into a public forum. He says he has no interest in the money from the book -- he's already in the 1% club. He is concerned about the world his children will be living in and the preparations that need to be made to avoid painful, disruptive changes in society.
Switching to deflationary monetary policies will be one of humanity's most difficult challenges. But it will also become its greatest achievement -- it will usher in an age of wonder and self-discovery unparalleled in our history.
The consequences of failing to see tech's next big thing will painfully impact the entire world to a far larger degree than anything before because every aspect of life will be affected.
Technology-fueled deflation is real and we need to understand it as the key to an abundant and egalitarian future where we all share in its gains. Inflation will produce the opposite.