Doc's Daily Commentary
Mind Of Mav
Why Deflation Is The Way To A Brighter Future
Inflation is a policy choice. Deflation may be the key to a better world for all.
If you were to fold a piece of paper in half 50 times, how tall do you think it would be?
Take a moment and actually try to guess.
Maybe to the ceiling?
In reality it’s only possible about 7 times, but if you could fold a piece of paper 50 times it would be more than 100,000,000 km tall (62 million miles). On the 51st fold, the paper would reach the sun.
That is the power of exponential growth. This leads us to an idea that is radical today, but will be commonplace tomorrow:
Technology is exponential.
While humans are often limited to linear thinking, the power of technology grows exponentially. The most widely cited example of this is Moore’s Law. Named after Gordon Moore (the co-founder of Intel), Moore’s Law describes the fact that computing power effectively doubles every 2 years.
A 2014 iPhone could perform instructions 120,000,000 times faster than the computer aboard the Apollo 11 mission to the moon.
That is the power of exponential growth.
My favorite example is solar panels:
In just 40 years, the cost of solar energy has decreased more than 100x. This means that for the first time ever, renewable energy is becoming cheaper than options like coal and gas – leading to more global adoption.
In fact, global adoption of solar energy is more than 10x what it was in 2015. By 2021, there were over 700,000 megawatts of installed solar capacity. The relatively small nation of Japan has more solar capacity than the entire world had just 6 years ago.
Decreasing price and increasing adoption creates a feedback loop – as technology becomes cheaper, more people adopt it, advancing the technology, making it even cheaper … and so on.
Now, that’s cool and all – but so what?
Because solar panels and computer chips have become exponentially more efficient, the cost has decreased exponentially. This is true of all technology in every industry. Televisions have become ~6.4% cheaper EVERY year since 1950. Not only are they cheaper, the quality of televisions has increased. Over time, TVs have gotten bigger, faster, and lighter. And on top of that, modern TVs have features that one could only dream of 50 years ago.
We should see this type of technological deflation everywhere. While most innovation thus far has been focused on computing, technological innovation is in every industry.
This includes housing, food, education, and medical care – things that have historically gotten more expensive.
Everybody knows house prices go up over time – but does that actually make sense?
If the quality of the neighborhood a home is in increases, it makes sense that the demand and price would follow. But technological advancements in construction should make houses cheaper over time. There are many examples of this innovation just starting to develop:
Incredible innovation in efficiency is taking place in China where construction has been a huge focus of the government. There are countless examples:
* a 57 story skyscraper in 19 days
* a hospital in 5 days
* an entire railway station in just 9 hours
While the demand for food has never been higher, producing food has never been cheaper.
Because productivity has increased and the cost of inputs has stayed constant, food should be 3 times cheaper than in 1948.
In reality, food has gotten ~12 times more expensive in the same time period.
With companies like Terramera, Square Roots, and Cubic Farms creating incredible innovation in agriculture, the cost of producing food will continue to decline dramatically moving into the future. This decrease can be passed on to the consumer to make food more accessible for all.
The United States’ healthcare system is the most expensive in the world. Rather than negotiating costs down, the US government creates monopolies through patents and high regulatory costs. One FDA policy known as ‘drug exclusivity protection’ gives corporations a monopoly for up to 7 years, meaning they can charge any price for a life saving medication. In addition, lack of transparent payment processes from insurance and government healthcare means there’s no incentive to lower prices. Guaranteed demand allows for over pricing. Lack of proper health education and demographic shifts have also put more pressure on the healthcare system.
A combination of free market competition and proper government oversight would allow for cheaper and more efficient healthcare over time.
Take for example genome sequencing:
Technological innovation has decreased the cost of sequencing a human genome even faster than Moore’s Law decreased computing costs.
Imagine if this happened to every medical technology and product.
The cost of college tuition has increased faster than almost anything else, likely because of 2 things:
Increased access to loans
But innovation is also taking place in education. Accelerated by Covid, many universities now offer degree programs entirely online. There are also many companies providing great education programs online – Coursera, Brilliant, MasterClass, Duolingo, Codecademy just to name a few.
Online education should increase access and decrease costs moving into the future.
Everything should be getting cheaper over time.
Consumers want to buy a good product for the cheapest price possible. The reason why companies like Amazon or Tesla are so successful is because they use innovation to create better and cheaper products to beat out the competition.
This trend should be seen in every industry.
If competition and innovation drive down costs, why is everything getting more expensive?
The main reason for this is the massive sums of money that have been injected into the economy over time. If more dollars are purchasing the same amount of goods, the producers can and will charge more for said goods.
This also means that the costs of production like raw materials and labor increase over time. If the price of metal increases, the price of a car must increase as well.
Because technology is exponentially deflationary, the creation of money must be increasing exponentially in order to create the inflation we see. And this is EXACTLY what has happened:
As you can see, the amount of money created has been exponentially increasing since forever. The Federal Reserve has an unreasonable fear of deflation ever since the Great Depression but they seem to miss a very important factor:
There are two types of deflation:
1. Monetary deflation
This deflation is bad. This occurs when people stop spending money because they’re uncertain about the future. This is what happened during the Great Depression and is one of the motivations behind the massive money creation by the Federal Reserve.
2. Technological deflation
This deflation is good. Technological deflation is what has happened to solar panels, computers, and televisions. If our money supply wasn’t manipulated and companies could compete and innovate to drive down costs, EVERYTHING would be getting cheaper over time.
Think about this in the extreme. If everything became cheaper and more abundant over time, how much better would the world be? In a world where technological deflation reigns, everything becomes cheaper and more abundant over time.
Healthy food becomes cheaper and more abundant, medical care becomes better and more accessible, a minimum wage worker could afford to buy a home.
1 in 3 people on Earth don’t have access to toilets.
~9 million people die of hunger every year.
More than 150 million people worldwide are homeless.
These are preventable problems.
Really makes you think, WTF are we doing here?
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