How Technological Deflation is Driving Central Banks (w/ Jeff Booth)
JEFF BOOTH: Well, we grew up, I did, too, my parents did, their parents did, their parents did, believing inflation was good. My parents bought a home for, call it, $100,000 in 1970, that home was worth $1.5 million today. They got raises through their careers, paid back the home in the future dollars that were worth less. That whole path has driven a lot of prosperity in the world, so I'm not arguing the path. What I'm arguing is today, the deflationary nature of technology is a bigger force, and nothing you're going to do to stop it. Let's just look at deflation versus inflation from that concept and say, is it good or bad? It's not good or bad, people win or people lose, where you put your money matters. In a deflationary environment, the value of your dollars goes up. I would think that that would be a good thing, because it means goods and services are getting less and we get more for less. When central banks around the world say we need to drive inflation, that comes down to we have too much debt in the world, and if you have deflation with too much debt in the world you create a negative spiral. Again, deflation or inflation isn't good or bad, it's where does your money go to drive a better outcome. If you have deflation today, technology deflation and we can go into that, that is going to accelerate and the only way to stop that acceleration of deflation is debasing currencies or spending money you don't have, then the consequence of that is asset prices rising, stock prices rising, and everybody that has assets or stocks are winners out of that. I'm a winner out of that. In fact, because of zero interest rate policy, the funds that are raising giant funds to invest in technology and take jobs faster have more capital because they're trying to-- that whole thing is driving a faster feedback cycle but it's also the divide of our societies. Because if you have assets, they're getting artificially promoted. If you don't, you can't keep up to the rate of that asset price rise. You're picking the pocket of some people and giving it to others. That's why we have massive inequality in the world that's accelerating inequality. MAX WIETHE: I think one of the things you talked about as you called it, technology deflation, not all deflation is the same. A lot of people, when they hear the word deflation, their mind immediately goes to the 1930s in the Great Depression, which I call it demand side deflation, there was people didn't have any money and so to sell goods at all, you had to lower the prices and so that deflation on its face looks bad. The deflation you're talking about is of a completely different nature. What are some of the like the most important technologies, I think people need to keep their eye on to understand the deflationary forces that are coming our way? JEFF BOOTH: I use this example in the book, but it's an important example because I've asked this question to pose 10s of thousands of times to audience all over the world. The question is, if I fold a piece of paper on itself, one times, two times, three times, a normal 8.5 by 11 piece of paper, if I could fold that paper 50 times, I can only fold it seven, but if I could fold that paper 50 times, how thick is the piece of paper? Most answers I get from all over the world are about a couple inches. I've had a couple people say to the roof, but out of 10s of thousands of people are answering, no one has ever guessed to the sun. That single piece of paper would fold to the sun, and it's an exponential pattern. Moore's law or quantum behind Moore's law, but Moore's law for now is driving, accelerating that every 18 months, we get a double of compute power. Why that matters a lot, those two analogues matter a lot, is it's the same reason we misunderstand technology in the beginning. There's a hype cycle in technology because the fold doesn't do anything. We expect something and it doesn't do anything. If you now compare those two things, we'll unfold 33 with regards to technology, so we're not in the small folds anymore, we're on the really thick folds. The big steps in technology. If you're looking back today and saying self-driving cars, all of this technology that's coming, you're looking back backwards the last 50 years, and the last 50 years in the next 18 months will double. If you can't get the answer from a piece of paper moving to the sun and nobody can get the answer from piece of paper moving the sun, unless you've heard it before, then you similarly can't get the answer for what technology means going forward. If you look at today, you talked about some of the different technologies, I would say it's a base layer of everything we do. In fact, I don't think people even realize that they're celebrating technology and creating the monopolies that we see before us today. Google, your searches are free. Then they add Maps, then they add Waze. Everything is free that you're using. Amazon, prices keep going down then they add Movies, then they add this. The technology companies today are celebrated for the same deflation that they're bringing to our lives. We're using them because of that. That is the product that we see. We have this crazy belief, crazy belief that we can get deflation in some parts of our society and inflation everywhere else and run an economic model that we used to run. Going forward if you think fold 34, fold 35, what's going to happen in that doubling rate of technology, if it took $185 trillion in the last 20 years to essentially stop deflation, $185 trillion monetary easing debt creation to get a nominal inflation rate, going forward, that number is going to explode. You have a Ponzi scheme of debt, credit creation, and at some point, it's going to break.