Deflation or Revolution? (w/ Jeff Booth)
MAX WIETHE: It's not a short term, a switch to-- you acknowledge that a short term switch to solar could cause inflation in certain areas, but over the long run, these trends are inherently deflationary and that will win out over time. It's not that this is some short term thing that deflation is on the horizon. Next year, not that you couldn't see these same forces playing out, but it's not like it's going to take over tomorrow. JEFF BOOTH: I would ask you this, you would already see it. $185 trillion in the last 20 years has been created to be able to increase GDP around the world by $46 trillion per year. Just ask yourself, what would asset prices look like, what would the deflation and inflation look like without the $185 trillion? You would already see it. What my premise is, is that's going to accelerate? Today, we're stopping it. Central banks all around the world, whether it's US, whether it's Euro, whether it's China, the printing press is on trying to stop that from happening. I suspect it's going to stay on. I suspect because we can't see the different way we need to construct society that we're going to keep taking the short term juice until it breaks, but you would have already seen it without that printer. MAX WIETHE: If they're going to keep printing, what's going to break first? Is it going to be these systems that we have now at the central banks and the government's as they exist, or is deflation going to run away beforehand and these governments are going to have to figure out how to deal with it? Are we going to restructure before the deflation hits? JEFF BOOTH: I think the restructure happens in a different way. Unfortunately. I wrote the book so that we could have really critical debate around core issues rather than the secondary effect that seems to be driving the debate today. It's better to use an example here, and Blockbuster. Everybody talks about Blockbuster and they're 9000 stores and why they didn't see Netflix coming. Blockbuster, for the time that they grew their business, 9000 stores was the thing that was driving the business. At the time when they didn't buy Netflix for $50 million, download speeds, remember slow speeds, they couldn't-- Netflix wasn't delivering videos through technology, through download speeds. They were emailing videos, the business didn't make a lot of sense. Blockbuster missed the exponential trend of technology, what would happen? That made their business irrelevant overnight. By the time it was irrelevant, it didn't matter what they did. What they did is added candy aisles to the stores, and it just delayed their collapse by one year. It's easy to look at these examples in creative destruction in companies where the smartest and brightest minds can't see it. If you actually just zoom up a level, all of us have been in an inflationary environment all our lives. We can't see it because we don't question these things because they've always been true. I would say, what's happening right now is there's a structural change that's so great that's happening to society through technology that people can't see it. We stay on a path and making tweaks to an old system similar to how Blockbuster added candy aisles to their stores, thinking that that's going to solve it. Through that lens, if you see what's coming, and why you might be trapped in a bias as well, which is really easy to see how we all get trapped in those things that we don't question anymore and move to the next thing, it's just important time because we've never seen technology like this. MAX WIETHE: Well, I'm not really pushing back against that idea. I'm more trying to get your input on what is going to happen first is the printing, which is offsetting the deflation as we see now, going to become the societal issue that will cause a restructuring before we see the deflation or will the deflation be the thing which makes the debts untenable and thus, we have to start thinking about not literally restructuring the debt, but restructuring society first? JEFF BOOTH: I didn't really look-- but I will. The printing, these are probability distributions. This is I can't say, I'm not going to say this is going to happen or this is going to happen. I wrote the book to hopefully drive up debate that this doesn't happen. What do I suspect is going to happen? Printing is going to continue, but printing isn't just going to continue, it's going to accelerate to a rate that is staggering. That printing all around the world, whether it's China, Japan, everything else will rise into asset prices and everything else and further driving equality and society is going to break. When that happens, people vote for people who say it's not your fault, it's their fault. Once people believe that it's not your fault, it's their fault, it's hard to unring that bell. What ends up happening is you drive society, you break society, and that ends up in revolutions and wars. That's unfortunately what I suspect is going to happen if we keep playing the game we're playing, because the force of deflation is so great, it's like we're trying to stop gravity by flapping our arms. We're not going to stop it. Without a realization that we're not going to stop it and rebuild society in a different way to take advantage of it, society is going to break.