One thing people overlook is the impact of technology on society. Sure, people notice how things are changing yet it is something that few truly take the time to think about, especially from an economic perspective.
Technology, by default, is a deflationary force. This means that, over time, it gets cheaper. It is something that can happen in a number of ways. Of course, when people looking at the pricing equation they rarely take into account the "hidden savings" that technology offers.
To illustrate the point, let us use the cost of a postage stamp in the United States.
Here is a chart of what that looks like:
That looks brutal. Since 1990, the cost of a postage stamp has about a 3x. This is what people often associate with when talking about inflation. Of course, it is in the CPI numbers.
What is overlooked is that most people do not use stamps anymore. Gone are the days when you would write a letter to grandma, stick it in an envelop, and put a stamp on it. By the same token, we do not have to pay our bills by writing out checks, mailing them requiring the same expense.
Here is where technology has replace that expense. While a postage stamp has risen in price, people now text, email, instant message, or use online chat to communicate. In other words, technology removed that expense from most people.
Of course, there is another angle here. This same technology also removed the long distance bill. Gone are the days where the phone bills comes in and there are long distance charges from AT&T or Sprint. Now, you can call grandma in a variety of ways at no charge. Heck, you can even do it in video if she wants.
Technology = Deflation
Here is the reality of what is taking place.
We are in an exponential age. That means, we are going to see exponential deflation. It is something we witnessed in the digital world over the last 40 years. The reason why a low end smart phone cost $30-$50 yet has more processing power than the Apollo project for NASA is because of this concept.
It is no secret what happened with semiconductors. They kept getting more powerful while the costs declines. This is what made cloud such a profitable business for companies such as Google and Amazon. Each year, the need for more is required yet the costs will decline.
There are a host of areas this is going, even outside computing.
Let us look at the cost of solar. This is something that is dropping like a rock.
This is one of the reasons why many feel that solar is going to be one of the renewable solutions for the next couple decades. As prices continue to decline, we will see less expense related to energy production.
Another factor happen at the same time is battery costs. This not only applies to gadgets such as phones but also energy.
Consider all the items that use lithium in their batterys, including electric vehicles. This means that, if the trend contiues, we will see the price of these products coming down.
Of course, this doesn't factor in replacements. For example, while the price of Lithium batteries could continue to fall, this go exponential if another material is used. This is often how we see massive jumps.
Artificial Intelligence
AI is the elephant in the room right now. What is going to happen as software advances? This is something that people are only now starting to take notice.
It is impossible to construct the impact this will have. Simply put, we are not wired for exponential thinking and the way things evolve. That means, no matter what we do, we will still be caught off guard.
Nevertheless, there are signs of how this is going to change things. One example is the company DoNotPay which has overturned 200K parking tickets. It is an AI service that handles something that people are not going to fight for $50. Who is going to spend time making phone calls or pay an attorney hundreds of dollars to save that sum? But, with an AI, this can be achieved for a few dollars.
Of course, this is expanding and starting to hinder attorneys who charge a couple hundred dollars for basically copying/pasting a document and filing it with the court. We can see how the cost of legal services could come down.
There are many fields where this is the case. Are you presently paying comission on stock trades? Not likely. Technology did away with that. The same is true for the cost of doing a low end, simple tax return. Software now can handle this.
As this spread throughout the economy, in an even more powerful way, it will impact things on a scale most are not aware of. Naturally, people will still miss it and complain about how much things cost.
Now it is time for me to head out and pick up my photoes from the film development store. Oh wait, those no longer exist.
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