I posted a few days ago revisiting the inflation versus deflation argument. I provided a very brief comment there on
Then yesterday Marc Andreessen asked on Twitter about the arguments linking computers to deflation. I am sure others have data on this but here are some of the different vectors that I see:
1. Moore’s law – this is the obvious one. We have had incredible progress in hardware that has driven down the price of computers and anything else that requires computation.
2. Automation – labor is historically an expensive input for many products. Computers have let us automate many processes and dramatically reduce the labor component thus making those products cheaper.
3. Pressure on labor – point #2 above means that the supply demand balance for labor has shifted. We now have a surplus of labor and that shows up in all the aggregate statistics, eg decline in percentage of the population that is employed, decline in real wages, decline in labor as percentage of GDP. This makes lots of products and services cheaper.
4. Sharing – we are increasing the utilization of existing assets including cars and homes which reduces the demand for new assets (and potentially also for services such as hotels) in two major parts of the economy
5. Zero price goods – many digital goods eventually clear at a zero price because of their non-rival nature - we are thus seeing more free educational resources, free entertainment, etc than ever before
6. Simulation – this may be a bit controversial but I am pretty convinced that the virtual consumption of goods is reducing the demand for real ones - if I can experience driving a crazy sports car for a few dollars at home (and in safely) why would I want to buy the real thing?
There may be more but these are the ones that come to mind right now. Taken together they provide a potent deflationary mix in the world as some of them work on increasing supply (lower cost) and others on reducing demand. I have put these factors into a little hackpad and would love for others to contribute more deflationary factors and links to statistics that support these (or go against them).
P.S. I am away this week, regular scheduled programming on Continuations will resume next week!
