Tech crash: The coming tsunami of technological deflation
Global economic decline on an unprecedented scale
So what is technological deflation?
Well, let’s take a look at the definition of those two words individually.
Combine the two definitions, and you have something that looks like this:
Reduction of the general level of prices in an economy as a result of technology.
That pretty much sums up technological deflation.
So let’s take a closer look at what it is about technology that causes deflation.
Exponential technology
Why is technology inherently deflationary?
Well, it’s actually not. Not in and of itself, at least.
What technology is is power. Here’s a quote from a previous article of mine:
That’s right, forget the idea that knowledge is power.
From flint knives to automated factories; from bare hands, to swords, to guns, to nukes — technology is power.
And power grows exponentially. My other article also explains this phenomenon too, so I’ll just steal another quote:
… power has a curious behavior.
Power is the “ability or capacity to do something,” which means it can — by definition — be used to create more power.
Accordingly, technologies can be used to create technologies of even more power. Just as a government might use its power to make itself more powerful, or a child granted a wish might wish for additional wishes.
Consequently, the cycle can be repeated again and again.
… power — by its very nature — grows exponentially.
Different people have had different ways of describing this trend.
I call it the democratization of power.
Ray Kurzweil calls it the Law of Accelerating Returns.
R. Buckminster Fuller calls it ‘ephemeralization’, a term he coined to describe the ability of technological advancement to do “more and more with less and less until eventually you can do everything with nothing.”
Similarly, Alvin Toffler had the following to say:
Technology feeds on itself. Technology makes more technology possible.
More broadly, this trend is also known as Moore’s law. Here are some interesting tweets that illustrate this trend:
Some other examples
Similarly, consider the history of communications technologies.
Initially, monks handwrote books. If you wanted to make a copy, it would need to be handwritten. Obviously, this was very time-consuming and costly. Eventually, the printing press came around, and suddenly ideas and knowledge could be shared with comparative ease. That being said, the printing press was still rather costly, and communications still needed to be distributed via horse and cart, and later motorized vehicles.
Technology kept on advancing, though, and today we have the internet. The internet allows anyone to instantly communicate with the entire globe at zero cost.
Here’s a graph that demonstrates the accelerating rate of advancement for communications technologies:
Obviously, one result of this has been the decline of newspapers, magazines, etc. In addition, anybody can now access a dictionary or thesaurus, or read the news, for free.
Furthermore, the coming manufacturing revolution (or what I call the democratization of tools) will further this deflationary effect.
If you think that communications (e.g. monks → internet) are the only thing that technology will make free, then you’d be wrong.
Physical products face the same fate. 3D printers, and in the more distant future, utility fogs, will make sure of that.
Consider the following, with regards to 3D printing:
Already, 3D printers have been used to ‘print’ clothes, furniture, food, guns, mobile phones, laptops, solar panels, cars, houses, apartment buildings, and many other different things. In fact, 3D printers can even replicate themselves (i.e. print other 3D printers).
Now, add to all of that the following: You can already buy a wide range of 3D printers for about the same price as a computer.
In other words, we are not far from the day where pirating the latest iPhone or Lamborghini will be just as easy as it currently is (due to democratized communications) to pirate the latest film or chart-topping single.
Well, sure, but we’ve kept up with all of this exponential technology stuff so far, right? Surely that won’t change in the future?”
Consider this quote by Ray Kurzweil (from his book The Age of Spiritual Machines) that responds to that line of thinking:
It is in the nature of exponential growth that events develop extremely slowly for extremely long periods of time, but as one glides through the knee of the curve, events erupt at an increasingly furious pace.
Or, as this wonderful post on Wait But Why put it:
In other words, technology will grow so rapidly that it will far outpace any ability or attempts to manage the resulting technological deflation.
The rate at which $1 buys more and more (i.e. deflation) is accelerating (in terms of technology), and eventually we’ll reach a point at which there won’t be much (if anything) we can do to prevent massive, dramatic deflation. Just as no amount of interest rate tinkering will take us all from Wikipedia (which is freely accessible and crowdsourced) back to encyclopedias printed out by for-profit publishers.
Increasing efficiency
Believe it or not, there is another factor that will drive technological deflation. It’s pretty much double exponential growth, where the exponential growth is itself growing exponentially.
So what is this additional factor?
Efficiency.
Advancing technologies not only themselves get you more bang for your buck (read: deflation), but they also enable increased efficiency, which acts as an additional cost cutter.
To demonstrate this, let’s take a look at an example.
In another one of my articles, I gave an example of an (imaginary) efficiency-loving neighborhood that eliminated lawnmower ownership.
Basically, this efficiency-loving neighborhood thought it was utterly ridiculous that they all owned lawnmowers. Why own lawnmowers when they only used them 0.149% of the time? When 99.961% of the time, their lawnmowers are just sitting in the garden shed?
So initially, they decided that they would all chip in 10 cent each and buy a communal lawnmower or two. That way, it would get used maybe 50% of the time. Much, much more efficient.
But, then they realized that they lived in the future. So one of them went to https://thepiratebay.se/ and pirated Apple’s latest electric self-driving iMower. (Or, if you’re morally inclined and want to give them the benefit of the doubt, let’s say they downloaded an open source design).
They then ‘printed’ it out on one of their 3D printers, and — ta da! — they had their lawnmower. Now it mows 100% of the time. Ultimate efficiency achieved. Thanks technology!
Furthermore, they all saved themselves hundreds of dollars, while getting the exact same result — neat, mowed yards.
Well, okay, you say. Sucks for lawnmower-related businesses, but that’s not gonna impact the economy at large!
Actually, it’s not just lawnmowers. The exact same thing is (and will continue) happening to everything else.
Hong Kong is using artificial intelligence to increase efficiency and save hundreds of thousands of dollars in railway maintenance costs.
Likewise, Uber wants to do to cars what that efficiency-loving neighborhood did to lawnmowers (i.e. eradicate ownership — there’s an article by Business Insider titled: “Uber CEO explains his company’s highly ambitious goal to end car ownership in the world”).
All in all
All in all, there are two forces will drive dramatic technological deflation.
- More power at less cost — e.g. monks → printing press → internet.
- Increased efficiency — e.g. thousands of mowers left unused 99.961% of the time → a single mower used 100% of the time.
Combine them, and you get a concoction twice as potent. For example, a lawnmower that isn’t just 3D printed (thus cutting out entire supply chains), but can be used 100% of the time (meaning that a neighborhood only needs ONE lawnmower, as opposed to thousands).
What once added hundreds of thousands of dollars (neighborhood spending on lawnmowers) to the economy now adds nothing. And that is just for something as minor as lawnmowers. For just one lone neighborhood.
That is a recipe for deflation on an incomprehensible scale.
