Sorry Janet: Technology Is Deflationary

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Technology, like Nature itself, has no emotional stake in what is creatively destroyed.

We all know the Federal Reserve is terrified of deflation, because they keep telling us that deflation is the equivalent of death and inflation is the equivalent of oxygen. What they fail to mention is that inflation is only oxygen for debtors barely able to service their debt and those who profits from debt, i.e. bankers and financiers.

For everyone earning a wage or salary, inflation is the equivalent of death by a thousand cuts and deflation is the elixir of life. When prices decline, our money goes further, i.e. our purchasing power increases.

Only bankers, governments and other parasites that live off the carrion of debt fear deflation and try to destroy the purchasing power of wages with everything in their power. The irony of all the parasites pushing inflation as the cure-all is the only real cure-all to our present stagnation and decline is the complete renunciation/write-off of unpayable debts, a systemic bankruptcy that rights the ship of state and the economy by writing off bad debt and blowing off phantom collateral, i.e. assets that are supporting debt whose valuations have been pushed to the moon by easy-money and low interest rates.

Let's start our discussion of technology and deflation by asking one question: has there ever been a central authority that tried to stop the spread of technology and won?Not to my knowledge; new technologies that offer enormous benefits (think affordable eyeglasses) and astounding reductions in cost spread like wildfire, even when central banks and states are dead-set on suppressing their creative destruction of Status Quo vested interests.

Sorry to bring the bad news, Fed inflationistas, but technology is irrevocably deflationary. The exceptions are: regulations that require additional technology to benefit life safety, and entrenched interests that erect barriers to competition and new technology, for example, Big Pharma and the sickcare industry.

When state-protected cartels rule the roost, costs go up no matter how much new technology is introduced. State-protected monopolies (sickcare, higher education, etc.) can suppress disruptive technologies, at least for a while, until their bloated, high-cost, diminishing-return structure collapses under its own weight.

Obamacare is a Catastrophe That Cannot Be Fixed (December 6, 2013)
The real unsubsidized cost of Obamacare for two healthy adults ($23,244 annually) exceeds the cost of rent or a mortgage for the vast majority of Americans. Please ponder this for a moment: buying healthcare insurance under Obamacare costs as much or more as buying a house.

The Orwellian Affordable Care Act will not last, because it is intrinsically unaffordable, wasteful and inefficient. Only those whose care is paid by others via subsidies think it affordable; on a systemic level, it is doomed to implode, and the sooner the better in terms of enabling technology to creatively destroy vested interests.

Technology is enormously deflationary on a number of fronts.
1. Perhaps most importantly, technology eliminates costly human labor. In the late 19th century, roughly 50% of the labor force worked on farms. Today, the number is 2% of the workforce.

At the turn of the 19th century, the largest category of employment was domestic help. The rise of electrical appliances and machines of convenience eliminated much of the need for domestic labor.

The next sector to undergo large-scale destruction of jobs was manufacturing. The process of replacing human labor with robots and software automation in factories is still underway.

Advances in software are now eliminating white-collar office jobs and retail employment. People like me (self-employed information workers) can now produce output and manage services that required three to five people a mere 25 years ago.

Although many believe new technologies create more jobs than they eliminate, there is precious little evidence of that today. Anyone who thinks biotech is going to create millions of new jobs needs to survey the job market for PhDs and those with Masters degrees in biotech fields--biochemistry, etc. The job market is tight, not expansive; these high-tech sectors can only absorb so many graduates, regardless of their level of training.

Just issuing diplomas does not create jobs for graduates.

As technology eliminates millions of jobs by replacing human labor, wages decline and the percentage of national income that goes to labor also declines. This means there is less money for consumption, pressuring prices of consumer goods. This is broadly deflationary.

Here is labor's share of income:

The bedrock of employment, small business, has cratered:

The wholesale elimination of white-collar labor has barely started.

2. Technology consolidates rentier services via convergence. A few years ago everyone needed a landline telephone, a separate phone line for a modem, a television, a DVD player, a mobile phone, a stereo system and a laptop computer. Now all anyone under the age of 30 needs is a smart-phone and perhaps a cheap laptop or tablet.

The rentier skims being eliminated by convergence are significant. Now people can get rid of cable or satellite and watch most programming via the web.

3. Technology gets cheaper. The first sequencing of the human genome cost hundreds of millions of dollars. Now it's down to a few hundred dollars per sequencing. An Android tablet with full functionality can be had for $40 wholesale in China.

As competition drives prices down, profits erode. This is why the ideal set-up for profits has always been monopoly. But technology has a way of disrupting monopolies.

4. Technology enables transparency and thus lower prices. Transparency is anathema to cartels, which is why the actual cost of healthcare is obscured by providers desperate to avoid competition. But the web is introducing transparency and that alone is disrupting and creatively destroying profits based on information asymmetry.

5. Technology improves efficiency and reduces consumption. Volkswagen's 283-mile-per-gallon car is currently very costly, but how long will it take for those technologies to spread to the mainstream. How much less fuel will a 140-mile-per-gallon vehicle burn than a current generation car?

Reduced consumption means reduced sales and profits.

6. Profits go down as creative destruction takes down profitable rentier skims, cartels and bloated, inefficient industries. And what happens when profits decline for systemic reasons? Stock market valuations based on absurdly optimistic expectations of future profits implode along with profits.

And when the stock market finally reflects declining sales and profits, even the Fed won't be able to prop it up.

Technology, like Nature itself, has no emotional stake in what is creatively destroyed. Technology had no attachment to lamplighters or buggy-whip manufacturers, and it has no attachment to the Fed, sickcare, higher education, manufacturing or the state itself, all of which are being remorselessly disrupted.

As Bob Dylan put it, he not busy being born is busy dying. That is equally true for enterprises, industries and institutions.

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pods's picture

Makes me want to work that much harder for the bankers' benefit.


LawsofPhysics's picture

Indeed.  they also seem to forget that developing technology requires a tremendous amount of capital and resources.  Despite this, bankers seem to only support capital and resource mis-allocation and mal-investment.

I just don't get it.  It's like they want to be executed.

Headbanger's picture

The oligarchs will be so lucky if deflation becomes their biggest problem.

Because it's going to be more like a complete rebellion soon that will obliterate them!

Why do you think they've been pushing gun control so much?

And this is why they're scared shitless by the Bundy Ranch Rebellion because those were not some crackpots like Waco was but ordinary working Americans who've had enough of the shit.

Then there's the shoe throwing at Hitlery.

This is only the beginning of a total rebellion


Oscar Mayer's picture

A ragtag grouping of idealists does not a rebellion make.  If the Nevada state authorities had stepped in to put a stop to the BLM and arrested them for trespass, thievery and assault, now that would've been the makings for a proper rebellion....

LawsofPhysics's picture

...yes, and probably the most likely reason why they didn't step in.  People forget that at the end of the day all economies are local.  The local state authorities will be neighbors, friends and relatives of many of those arrested.  There would be retribution.  harry reid would be wise not to piss on his contituents again.

Oscar Mayer's picture

What makes you believe the BLM agents were local and why can't the state arrest law breakers, which the BLM agents clearly were?

Anusocracy's picture

The government confiscates 6+ trillion dollars a year and uses it expand its control at the expense of investment in the private sector.

Government has always been anti-freedom, anti-progress, anti-civilization - basically anti-anything that benefits those not associated with it.

It is a parasite and can be nothing else.

LawsofPhysics's picture

Please, it has been a "debt is money" system for a long time, the bankers print (and charge the taxpayer interest) and buy real assets for doing no real work at all. The bankers also buy the politicians who change the laws so that they can keep the con going.


It is no surprise the real productive people and corporations are not investing in this scam.  ALL productive people/corporations are tired of the bullshit.

Full faith and credit bitchez, as in no more faith means no more credit...

Stuck on Zero's picture

Yep.  Technology is wonderful.  Instead of monthly Playboy magazines we now have 24 hours of 29 million different porn sites.  Instead of three channels of schlock on TV we now have 2500 channels of schlock on TV.  Instead of simple faucets that lasted 50 years we have multi-way microprocessor controlled faucets that last two years and corrode through to flood the building.  Technology has enabled our employers to export our jobs to Bangladesh and our military to kill indiscriminately 12,000 kms away.  Inappropriate technology is not deflationary.  It comes with massive inflationary costs.  We are filling our landfills with technology, poisoning our environment with nuclear and chemical wastes, and causing mammoth social problems.  If you take a systems perspective technology is not a panacea nor is it deflationary.


JuliaS's picture

It's much easier to steal beneath the shadow of growing productivity. If you were making $10 an hour and suddenly got $5, you'd get curious quickly as to what was going on. If, on the other hand, you got a $10 raise, but the guy delivering it poicketed $9 and told you you got $1 raise instead, you'd be celebrating regardless.

Electrical companies do that, jacking up rates whenever net power saving technologies or standards come around. Banks do that also.

The greatest technological improvement that helped enrich the bankers tremendously was the discovery of oil, that roughly coincided with the departure from the gold standard and establishment of the Federal Reserve in the US.

All of the sudden, money and credit got linked to productivity and increased economic activity, instead of causing deflation in prices, demanded matching dilution of the monetary supply under the mandate of "price stability".

The idiocy of farmers burning crops and pouring out milk during the starvation of the Great Depression comes to mind which illustrates reluctance to understand deflationary pressures and emphasis on the amount of fiat instead of its purchasing power.

I often say that in the 100 years since the discovery of oil, the bankers have us working as hard as if we were still riding horses and plowing fields by hand. They've stolen all of the benefits of the industrial revolution by hiding in the shadow of growing productivity.

The bankers understand deflation all too well. They love it. What they hate is when it reaches you - the producer and when you are able to benefit directly from it, leaving the middle man out.

daveO's picture

Hooray! Someone else who sees that Inflation=Theft of Productivity.

LawsofPhysics's picture

Deflation?  LOL!


Name one society/currency that has collapsed/died because their purchasing power was too strong.

In terms of your quality of life and it's cost, "deflation" is in the same category as unicorns.

Vampyroteuthis infernalis's picture

New technologies bring about new capabilities that the older version did not possess. It is kind of hard to say it is deflationary. Technology does not follow the same laws as currencies. The best way to describe the effect would be disruptive or obsoletism.

LawsofPhysics's picture

So, in other words, same as it ever was - (as in your species evolves or dies)

FreeNewEnergy's picture

Thanks, CHS, spot on. But, why are my eggs, meat and vegetables more expensive? Is agriculture the last frontier of the oligarchs? Do they need to starve 4 billion people in order to prosper?

The Georgia Guidestones beckon.

LawsofPhysics's picture

"Do they need to starve 4 billion people in order to prosper?" - a rhetorical question no doubt.

that which cannot be sustained, won't be, period.

ArkansasAngie's picture

I'm a hoping and a praying.

The longer this crap continues the worse it will be.

I still believe voting is the preferred method of throwing the bums out.

Raging Debate's picture

FreeNewEnergy - Here is why the cost of necessary commodities like food and energy exploded higher. Money printing yes creating inflation but where did the money go? I'll explain:

1) The private bank of banks, the Federal Reserve a PRIVATE corporation that helps Washington lie to the people for them gave huge loans to megacorps at what is called the Discount Window. That was lent at near zero interest rates. This really starting heating up in the 1st quarter of 2008

2) Large investment banks that lined up at the Discount Window followed by older, shrewder investors knew what domestic investment there was would go into food, energy and cable. Got to eat and drive to work right? No more going out so the assumption was you would stay in. I bet you did unless you got government favor which is now starting to be cut.

So they borrowed the money for almost nothing and poured it into basic commodities causing a moonshot in oil which raises the prices of everything else. Meanwhile, consumption of oil was dropping. Goldman Sachs had oil tankers off the coast creating artificial scarcity.

Printing of money beyond this mechanism dilluted the currency in general also causing prices to rise. It took roughly 30% more dollars to buy the same goods. Hence, why food and energy costs 50% more than 2008. These are rough figures, I am sure someone can put up a chart or two for specifics.

CHS did a great job explaining how deflation happens. Perhaps this commentary fills in why the things we dont need are declining rapidly in price while the things we do need are skyrocketing. Healthcare does have
a denographic imbalance (Boomers) which is also creating additional demand than other cycles. But the middle men and lobbyists that bribed the government for the windfall adds a lot of wasteful administrative costs - great profits for those monopolies, crushing costs for you.

One is better off getting in shape and taking care of oneself, spending $7k per year for example out of pocket (doctors now give preferrential treatment to cash patients). Then taking the other $15k and buying gold or real estate such as for rental income. I would say at other times the money would be good in savings accounts but currently they aren't paying interest that makes that worthwhile.

Ignatius's picture

Same old shit known since antiquity:  the debts grow faster than the economy.

Cancel the debts, but the oligarchs who hold the debts demand to be paid.

Hundred Dollar Bonus's picture

only systems that have been "stimulated" to become "too big to deflate" have deflation as a danger.

Bindar Dundat's picture

If we can't tie our dollar to gold , why can't we tie it to a non inflationary technology like bitcoin?

Bluebear's picture

Not oxygen, its helium...

brown_hornet's picture

I like to think of things in terms of standard of living increase (or decrease). Is it really better to be watching the game on your 4" screen while walking in front of a train or to be sitting in your living room. I like to talk to the checkout girl and not have to fight to find the proper category for my dinner rolls on the automated checkout. But I know I'm an old fart and preferences are changing.

Carl Popper's picture

Productivity increases are deflationary.


Neither Luddites nor Mr. Yellen can stop productivity gains, not for long.

pods's picture

Oh they don't want to stop them, they merely want to skim them for themselves and their banker buddies.


daveO's picture

They can(are) thru capital destruction. Back to the farm slaves!

kchrisc's picture

I am updating my guillotine with the latest technology. I should be able to get one more bankster, pol or crat an hour through it.


headhunt's picture

This is a case where you could improve productivity by going low tech.

If you distributed many broad-head axes across the country, the process could be expedited without the need to transport the beheadies to the guillotine and would employ a much larger base of executioners. 

oddjob's picture

A world in which deflation rules, the well being of word merchants would be in for some serious hurt. careful what you wish for.

Caviar Emptor's picture

Yes: technology replaces brain workers and some brawn workers, job outsourcing to third world countries takes care of the rest of te non-redundant economy. Could bean counting and trading be done by computers? U bet. But that would mean losing out on big paydays and big binge nights out with hookers and blow.

So on the one hand you can see the full frontal deflationary forces at work I this economy (and there are plenty more). On the other hand, all necessary inputs like food and energy keep rising.

Go Janet Go!

insanelysane's picture

Bean counting can never be replaced by machine.  Companies still need days to close the books each period even though all of the revenue and expense data are on systems that are real time.  I would think you could close the books at 00:01:00???

csmith's picture

Technology, like Nature itself, has no emotional stake in what is creatively destroyed.


Substitute "political" for emotional and it becomes a statement of simple reality. Banks and government are blocking the way to real change because that change would be too painful for these institutions, despite the benefits to the common person.

Raging Debate's picture

CSmith - Exactly. The result is stagnation for the population, a form of accelerated entrophy and a form of death as we are all programmed to grow. This is why current leadership will be pushed put eventually in one way, shape or form. Attempting to stop evolution is like pissing in the wind.

NoIdea's picture

"Only those whose care is paid by others via subsidies think it affordable"


This is how all health insurance works. You pay your premiums and if you become sick the vastly inflated cost of the US healthcare system is paid for by other people's premiums, not just your own.

daveO's picture

No one, in their right mind, pays full retail. You can bargain for 75% discounts.

slightlyskeptical's picture

Technology and productivity gains are a vicous circle. The more gains we make the less people that work, ultimately lowering demand for production. 

LawsofPhysics's picture

Just because people aren't working, doesn't mean the demand for real products has gone away.

Only if those people die would the demand for housing, food, and energy go away.

please, think a bit more critically.

slightlyskeptical's picture

You are confusing WANTS for DEMAND. Without the ability to pay for such WANTS there is no DEMAND for them.

LawsofPhysics's picture

Again, completely ass backwards.  just because someone can't pay they will still demand to be fed.  So much so, that they will do whatever it takes to obtain food.  Some people say, but if they steal food, they go to jail.  Sure, only if there is a functioning police force etc.

This is the fundamental reason why you will see no real changes in societie's behavior until the supply lines break in earnest.

"Moral hazard" and "accountability" are more than quiant terms friend.

hedge accordingly.

daveO's picture

Fewer workers=fewer debt slaves. They might need feeding, but they won't be buying that BMW this year.

HardlyZero's picture

LOP...Demand is just a shrill "demand" when there is no capital to pay for it (demands are empty with no way to pay).  The freebee's and fiat loans have been supporting Demand for the last 60 years.  When the freebee and finance economy collapses then true Demand curve will adjust.   Demand requires capital or loans or freebee to carry through the demand.

RaceToTheBottom's picture

Interesting that technology benefits are taken into account in the CPI by manipulating the CPI to indicate that we are getting so much more for our dollar.

But where is the modification of the CPI for the continual rapes we are "processed through" by the Financial industry?


Some say that Financial Industry is so much more efficient than before?  Cost per bank loan (when you can get one) is still high, even refis.  Fractional Bankstering (a productivity improvement?), Repothication, Manipulation and changing of the Bankruptsy laws to benefit Banks have only benefited the Banks?

Even the Home Ownership "movement" has only been exposed as a way to setup more poor people for failure and debt confiscation.

Where is the value?

andrewp111's picture

This is not really true:

Although many believe new technologies create more jobs than they eliminate, there is precious little evidence of that today. Anyone who thinks biotech is going to create millions of new jobs needs to survey the job market for PhDs and those with Masters degrees in biotech fields--biochemistry, etc. The job market is tight, not expansive; these high-tech sectors can only absorb so many graduates, regardless of their level of training.
Technology has created lots of jobs. However, most of those jobs are outside of the US, and have foreign wage scales. To evaluate things properly, you have to view the world as a whole, not take a national economy in isolation.
Dr. Bonzo's picture

Well, speaking of oxygen, this post was a breath of fresh air. Thanks Charles.

novictim's picture

"...inflation is only oxygen for debtors..."

That is this article's shtick in a nutshell.  You buy that statement?

And then, because having that slice of cake and still having that slice of cake is what this author is all about, the author says Banks and Financiers benefit from inflation and want inflation...Derp.


Truly, this is the all time high in stupidity.  Buy buy buy!

Please recall who is setting the low inflation policy...that we see on the this country and how that institution ignores the unemployed. And please distinguish asset bubble (a cousin to inflation) and who benefits from this.

khaproperty's picture

Electric cars are prinzcipally some plastic with tires (not necessarily 4) and some copper for the "engine".

There ist nearly nothing to earn on - when to buy it in India, Malaysia or Bangala Desh.

Therefore nearly no motorcompany will build it.

HardlyZero's picture

Electric vehicles much more expensive vs. gasoline or petrol or diesel.

Since there are not enough Millionaires, so Electric vehicles (like in Edison's day) won't be economically viable, not enough markup and really a hobby industry.


1. e-Vehicles are more expensive due to lack of mass production and are 'heavy' compared to standard Vehicles.  SOLUTION: many years away.

2. Overall cost of fuel is much more expensive for e-Vehicles...SOLUTION: cheap fuel or cheap electric or nuclear or solar or wind ?  Many years away.

3. e-Vehicles are not as durable so require higher maintenance cost.  SOLUTION: many years away.

4. few dealers and few garages maintain the vehicles.   SOLUTION: many years away.

5. Battery technology (really design and maintenance issue)...expensive to support and replace.  SOLUTION: many years away.


Expensive energy will always make electric more expensive, including overall efficiency differences between electric and fuels engines.  So electric vehicles will always be more expensive.

perelmanfan's picture

Nothing so persuades me that Orwell was right than the government's endless repetition of "Inflation is good, deflation is a disaster." It is an excrable lie, and every person who repeats it knows it.