© Fernando Caracena, 2016
Bankers in the United States have been trying to inflate the currency, but instead, the dollar has been increasing in value compared to most other currencies. Monetary forces alone did not cause this deflation, and therefore the deflation of the dollar cannot be corrected by monetary policies only. The world economy is actually in a giant, deflationary, feedback loop, in which the rapid advance of technology is a large component.
A previous post, "What is Left for Humans? Part 1", asks whether the human race will be able to maintain its accelerating progress without self-destructing. Realizing that progress is accelerating toward the "Singularity" forces us to re-think how people will make a living in the future. Also, what happens when most of the rank and file members of society can no longer find reasonable work and cannot earn enough money to be able to support themselves? Perhaps these are possibilities may be avoided because of the way economics works, and instead deflation just keeps pace with falling wages. An interesting talk by Gerd Leonhard, "on digital transformation, automation, robotics" addresses some of these issues. He delivers similar ideas in another talk, "Digital transformation of business". Jeremy Rifkin also talks about the market dynamics that is part of the deflationary loop in a talk called, "The Zero Marginal Cost Society".
A time in the not too distant future, which Ray Kurtzweil calls "the Singularity", is anticipated to be a time when innovation comes at us at blinding speed. Kurtzweil discusses some of the effects of the Singulartity in a video, "The Accelerating Power of Technology".
Shrinking Doubling Time
In modern times, people that research future development have realized that there are a number of ways that the future can be modelled mathematically. A previous blog called "Modelling Technological Growth" discusses some of these models.
Human beings tend to anticipate the future if not as a constant, at least as a linear progression. But progress is really a variation on an exponential theme. A straightforward exponential curve plots as a straight line in time on semi-logarithmic coordinates; but, on a linear scale, at first, it slopes gently upward, progressively curling up at a steeper angle until it ends up rising rapidly. In addition, Ray Kurtzweil visualizes the progression of technology as a double exponential curve that is, a curve that plots on a semi-logarithmic coordinate system the way an ordinary exponential plots on a linear scale. Another way of thinking of it is in terms of doubling times.
Ordinary exponential growth doubles whatever is growing at fixed time intervals, the unit of which is called the doubling time. In double exponential growth, the doubling time itself is shrinking along an exponential curve. For a more detailed discussion of exponential curve growth and decay see the previous post, "Modelling Technological Growth" .
The Effect of the Singularity on Future Planning
In a double exponential growth curve there is at first a slow, almost imperceptible rise over a long period of time, then the curve abruptly turns up ward as if it were approaching a singularity. The rapid change in pace caused by the singularity will affect the average person's ability to make plans for the future--a severe challenge to young people, who are planning their future careers. Already problems are becoming visible under the action of twin forces: 1) The increasing cost of higher education, 2) and the collapsing job prospects for the college educated. As a result, there are too many young adults working minimum wage jobs, trying to pay off expensive student loans, acquired in hopes of gaining higher paying jobs. The failure to find such jobs, and the inability to pay off student loans, has become a nightmare for many college graduates.
The way human activities are structured, the blessings of progress can seem more like a curse, especially if progress comes too fast. The last post, "How can We Handle the Singularity?" discusses some of the problems associated with what will be a tsunami of change and information overload that is immanent.
The New Economy
Human life is a complex web of relationships and activities that is often put under stress by progress. The more rapid that progress, the greater the stress. Computers, the internet, Automation, and robotization are rapidly changing the way we live. In these areas, we are approaching the future along a double exponential curve of progress. if you cannot stand the heat, you will not have time enough to get out of the kitchen.
The stress of progress comes from the way we have evolved our interdependency in our economy. Most people depend on jobs for making a living. Modern society works as a system of interdependent economic processes that accommodate to support each other. Think about the ways that wood gets from the forest trees to you as furniture.
Many of the coupled, well oiled economic processes of the economy are upset by change. When one process becomes obsolete, the people who worked in that area are out of a job. Dislocated from their niche, they must scramble to find a new means of survival. Sometimes, a sizeable group of people can be left protesting violently in the wake of technological progress.
English textile workers around 1811 protested that their jobs had become obsolete as a result of improvements in using power and automation in textile looms (See the portion on Jacquard looms in the previous post, "A History of Digital Computers"). This group of textile workers, called Luddites, smashed the new looms and power equipment. The name Luddite has come to mean anyone who is opposed to technological change. Modern progress fills society with potential Luddites. Where will they come from? Look for the large masses of people rendered unemployed by technological progress as one source. Another source are industries themselves that may become rapidly obsolete, and which may demand government bail-outs.
Off-shoring and Automating Everything
The big question is: "If the high level jobs are off-shored and the low-level jobs replaced by machines, what are people going to do to make a living?" The standard answer given is that the various advancements in technology will create a demand for high-level, technical jobs. A good educational background is required for such work. But you have to ask yourself, how can people train for these jobs if their families are already stretched to the limit working low-level jobs just to get by? Further, the pace of technological advance is accelerating. It takes a clairvoyant, or at least a very lucky person to spend a lot of time, money and energy to train appropriately for a job that will materialize in the future. Look around, the road to technological advance is littered with technological road-kill.
How the Technological Deflationary loop Works
The advance in technology makes it possible for industry to produce more goods at a cheaper price. The drivers of the increase in productivity are automation, robotization, computers, and the Internet. All repetitive tasks of mankind can be reduced to programming and automation. The results are the wholesale of elimination of jobs, even menial ones. Increasingly, the purchasing power of the mass of humanity is decreasing. The market system makes industry dependant on demand for its product. As people have less to spend, industries can produce a lower marginal costs, which they can do, because they have invested in increased productivity. As wages shrink, so does the cost of doing business. The result is that the value of everything falls toward zero.
Rifkin sees this loop as a good thing. It frees mankind from the drudgery of the past. Living comes more effortlessly. Now humans are released to pursue higher, more spiritual goals. Unfortunately, there is no way to close the loop on the economy. Profits, marginal costs and wages, all sink together toward the ultimate limit of zero.