Is technology the reason for low inflation?

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mptfan
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Is technology the reason for low inflation?

Post by mptfan » Wed Jun 20, 2018 9:08 am

I have given a lot of thought to why we have been in a period of low inflation for some time and I came to the conclusion that it is primarily because technology has advanced so rapidly in recent years and has made some industries obsolete while greatly reducing the profits in others thereby passing significant cost savings and efficiencies to consumers. I think the net result is that consumers have seen significant costs savings because there are some goods and services that are simply no longer needed, and because technology has significantly increased price competition to a much greater degree than before. I know that technology has been advancing since man invented the wheel, but it seems to me that the pace of innovation has been increasing at a much greater rate in the last 20 years or so, and I came up with a list of examples of industries that have either been eliminated or greatly disrupted in the last 20 years. I wanted to hear from other Bogleheads as to whether you agree with my conclusion.

Acceleration of new technologies has reduced costs of goods

Do you remember when a 19 inch color CRT TV without a remote was an expensive high end product? Television sets and computers are much cheaper now than they were 20 years ago and have much better technology.

Cars are much more fuel efficient and more reliable. The cost of maintaining modern vehicles is much lower, and require less trips to the mechanic. And electric vehicles are not coming onto the market and providing an alternative to gasoline vehicles.

Airplanes are now being designed to be lighter and more fuel efficient, and technology is improving to allow the more efficient routing of commercial air traffic.

Do you remember paying $15 to $20 or more for each music CD or vinyl album? That industry has all but been eliminated, we can now listen to unlimited music from any artist for $10 a month.

Do you remember buying VHS tapes? Movies on CDs? Do you remember driving to Blockbuster to rent movies for $3-5 each? And you had to drive back to return the movie with 2-3 days or pay late fees? And what if you lost the CD or VHS tape? Netflix and Amazon Prime and other online entertainment providers have all but eliminated those industries.

Do you remember buying a watch?

Agriculture has become much more efficient and automated thereby reducing the cost of food production.

Acceleration of new technologies has increased efficiency and reduced the cost of services

Do you remember paying by the minute for long distances calls? Do you remember getting large long distance bills? We can now pay one flat rate and can call anywhere in the U.S. or Canada using traditional phone service without paying any long distance charges. Do you remember payphones?

Do you remember paying even higher per minute charges to call internationally? We now have the ability to make calls to anywhere in the world using VOIP services like Vonage or WhatsApp or Google Voice for free or almost free, that was unheard of just 10 years ago.

Do you remember when you wanted to talk to someone you had to call their house?

Do you remember paying by the minute for dial up internet access? Always on broadband internet is now standard, and wireless broadband internet is getting faster everyday.

Do you remember paying a travel agent to purchase airline tickets or make hotel arrangements? The internet has all but eliminated that industry.

Do you remember paying for a physical newspaper that you can hold in your hand and read? Do you remember paying to place classified ads in that physical newspaper? The proliferation of online news content for free or nearly free has significantly reduced the profitability of local and national newspapers, and the proliferation of online sites like Craigslist have significantly reduced the cost of classified advertising and cut into newspaper profits.

Do you remember the yellow pages? If you wanted to advertise a business or professional service, do you remember paying for yellow page advertising? That was a significant business expensive, and that industry has all but been eliminated.

Do you remember going to a library when you had to research something? Do you remember buying encyclopedias? Maps? Dictionaries?

Do you remember when there was no Bogleheads.org? The Bogleheads alone have saved many people millions of dollars.

Do you remember buying a camera? Do you remember buying film and taking pictures with film and taking the film to be developed and then going back to pick up your photos and paying for them to be developed? Does anyone do that anymore?

Do you remember when if you could not figure out how to fix something around the house, you had to call a technician? Now you will likely find a video on Youtube that shows you exactly how to fix it without paying for a technician.

Do you remember buying CDs or portable hard drives to store data? Cloud computing (e.g.Dropbox and Google Drive) has significantly increased the efficiency and reduced the cost of data storage for businesses and consumers. I don’t buy CD’s or portable hard drives anymore.

Do you remember buying stamps? Envelopes?

Do you remember when there was no email? When fax machines were cutting edge technology?

Do you remember having to pick up the phone and call a movie theater to find out movie times? Or call to order a pizza?

Technology has significantly increased efficiency and competition

Do you remember Circuit City? Toys R Us? Payless Shoes? Radio Shack? Sports Authority? The proliferation of online shopping allows easy price comparison and has dramatically increased price competition among merchants and driven down prices and has put some brick and mortar retailers out of business.

Do you remember human cashiers at retail stores? Self pay kiosks are becoming more common in retail stores and are slowly reducing the number of human checkout clerks. Some hotels now have the option of checking in via a smartphone app and skipping the front desk clerk altogether.

Transportation has become significantly more efficient

Huge container ships now carry massive amounts of containers at relatively low per unit costs. The capacity to transport containers has literally tripled in 20 years…twenty years ago, the largest container ships in the world carried about 6,000 containers, whereas the largest container ships today are 1,300 feet long and carry a massive 18,000 containers. As a result, it is much more cost effective to transport goods to the United States from other countries with lower costs of labor.

Technology created the sharing economy

Ride sharing - Uber and Lyft have decimated the taxi cab industry and saved consumers a great deal of money. As a result, the cost of a taxi medallion to operate a taxi in New York City has dropped by 90%. When was the last time you took a taxi? Not to mention driverless cars that are on the horizon.

Space sharing - AirBnB and VRBO and couch surfing has introduced significant competition in the hotel industry. Hotels are now forced to compete with the sharing economy which puts downward economic pressure on what they can charge for hotel rooms.

Technology created more efficient banking and financial services

Do you remember receiving bills in the mail and writing paper checks and paying your bills through the mail? The banking industry has become much more efficient by the use of EFT, online bill paying, debit cards, online banking, forms that are available online, electronic signatures, etc. Many people no longer do business with a brick and mortar bank. Do you remember when ATMs were a big deal and online bill paying and banking apps on your phone or tablet did not exist?

Do you remember having to call Vanguard and ask them to send you forms in the mail, and then wait for them, and then fill them out and mail them back in and then wait for a response? Technology has greatly increased the efficiency of investing and Vanguard has benefited from more efficient technologies and greater economies of scale and has continued to reduce their mutual fund expense ratios, which has had a strong competitive effect on other mutual fund providers and caused the cost of investing to come down significantly for many people. Online stock trading has also greatly reduced trading commissions.

Do you remember driving to the post office to get tax forms? The widespread availability of income tax software has reduced the cost of preparing tax returns.

Technology provides more efficient alternative energy sources

Solar energy and wind turbines and other technologies are improving and becoming more efficient and are starting to compete with traditional fossil fuel energy sources.
Last edited by mptfan on Wed Jun 20, 2018 11:34 am, edited 17 times in total.

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Pajamas
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Re: Is technology the reason for low inflation?

Post by Pajamas » Wed Jun 20, 2018 9:16 am

Monetary factors are important, too.

Here's a recent thread on the topic including discussion on a recent article on the topic:

viewtopic.php?t=251578

alex_686
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Re: Is technology the reason for low inflation?

Post by alex_686 » Wed Jun 20, 2018 9:51 am

I will point out that it is more about structure than technology, or Total Factor Productivity. If you want to increase GNP you can either throw more labor or capital inputs, or you can increase productivity. Technology allowed us to build bigger faster cars but that does not reduce inflation.

The "Sharing Economy" does, it allows capital to be more productive. Wikipedia is another example, a free dictionary.

mptfan
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Re: Is technology the reason for low inflation?

Post by mptfan » Wed Jun 20, 2018 9:58 am

alex_686 wrote:
Wed Jun 20, 2018 9:51 am
Technology allowed us to build bigger faster cars but that does not reduce inflation.
It does if the cars require less fuel and less maintenance than the cars they replaced.

alex_686
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Re: Is technology the reason for low inflation?

Post by alex_686 » Wed Jun 20, 2018 10:08 am

mptfan wrote:
Wed Jun 20, 2018 9:58 am
alex_686 wrote:
Wed Jun 20, 2018 9:51 am
Technology allowed us to build bigger faster cars but that does not reduce inflation.
It does if the cars require less fuel and less maintenance than the cars they replaced.
Maybe. When fuel prices drop - either directly by lower prices or indirectly by better mileage, people drive more. And the cars tend to be more expensive.

However the internet does reduce miles driven. People are able to see what stores have online and thus make fewer trips.

It is a complex question.

SagaciousTraveler
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Re: Is technology the reason for low inflation?

Post by SagaciousTraveler » Wed Jun 20, 2018 10:11 am

I don't believe that true inflation is low.

While majority of 'goods' can be seen as much cheaper, which can probably attribute that to technology. 'Services' are not. That in itself deserves at study but in my eyes policy seems to be the driving factor.

Valuethinker
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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 10:20 am

SagaciousTraveler wrote:
Wed Jun 20, 2018 10:11 am
I don't believe that true inflation is low.

While majority of 'goods' can be seen as much cheaper, which can probably attribute that to technology. 'Services' are not. That in itself deserves at study but in my eyes policy seems to be the driving factor.
And you will find that the Bureau of Labor Statistics, as well as the macroeconomic profession in general, has spent a lot of time thinking and arguing about this. If you look at Robert Gordon (NW University)'s publications section of his web pages, you'll find some links to some good presentations.

From memory, CPI-U is over 50% services prices, so there is an effort to reflect this.

The problem is adjusting for quality is difficult. Is US healthcare cost inflation just inflation, or are there quality improvements as well? Looking back, many forms of Leukemia that would have killed you in 1970 now will not, if they catch it soon enough. Not even the richest man in the world could have the cancer treatment we take as normal, now, in 1970.

Owner occupied housing is also difficult. Those of us whose parents have 1970s kitchens realize how much has changed since then, even in a very mature and stable area of housing. From memory, CPI U uses a rental cost measure (thus stripping out the effects of big swings in housing prices).

Valuethinker
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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 10:27 am

alex_686 wrote:
Wed Jun 20, 2018 10:08 am
mptfan wrote:
Wed Jun 20, 2018 9:58 am
alex_686 wrote:
Wed Jun 20, 2018 9:51 am
Technology allowed us to build bigger faster cars but that does not reduce inflation.
It does if the cars require less fuel and less maintenance than the cars they replaced.
Maybe. When fuel prices drop - either directly by lower prices or indirectly by better mileage, people drive more. And the cars tend to be more expensive.
Driving more is a sign of greater real buying power. It also imposes greater congestion and pollution costs, which GDP does not measure.

There's some good studies out there re car technology trajectory. The gains in automotive technology since the 1970s have gone into greater horsepower, lighter weight & greater acceleration and max speed. They *could* have gone into better fuel economy instead.

Adjusted for quality, cars are probably not more expensive. The average car now has a level of equipment, comfort and safety that was unavailable in a luxury car even 20 years ago-- remember in the 1988 election campaign when the thought that the government would require driver airbags was an actual point of debate?
However the internet does reduce miles driven. People are able to see what stores have online and thus make fewer trips.

It is a complex question.
Vehicle Miles Travelled flattened out before the 2008 crisis (around 2006 from memory). They then fell, and seemed to stay static until about 2015-- thoughts that the US had reached "peak mileage". They have, since then, risen again-- suggesting that what was actually happening was the effect of the recession on peoples' ability to drive, rather than a genuine shift away from driving.

rgs92
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Re: Is technology the reason for low inflation?

Post by rgs92 » Wed Jun 20, 2018 10:30 am

And airline deregulation has made importing cheap labor from anywhere economical.
Inflation was also called the wage/price spiral.
Low wages = low prices = low inflation.

Thanks for the entertaining post. It was a great read. I enjoyed it. Very nostalgic.
Last edited by rgs92 on Wed Jun 20, 2018 10:33 am, edited 1 time in total.

Valuethinker
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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 10:32 am

mptfan wrote:
Wed Jun 20, 2018 9:08 am
I have given a lot of thought to why we have been in a period of low inflation for some time and I came to the conclusion that it is primarily because technology has advanced so rapidly in recent years and has made some industries obsolete while greatly reducing the profits in others thereby passing significant cost savings and efficiencies to consumers.
Things like renewable energy are too early in their cycles to have a big impact except in localized markets (the California "duck curve").

I think the key factor has been globalization. The rise of containerization has been the key factor in shifting production to low cost countries-- China in particular. It's been far easier to relocate the knowledge of production to those countries than it was historically. It took the Chinese maybe 20 years (1980 to 2000) to learn how to produce tvs, computers & phones that western consumers would buy-- probably the equivalent cycle in Japan and South Korea took 40 years (1945 to 1985?). It's feasible to assemble cars in Mexico and sell them in Canada and USA. Etc.

Technology? It's changed things, but how much (so far)? Some things - WalMart automating logistics, clearly *did* have an influence. McKinsey concluded in the 1990s that something like 40% of productivity improvements could be laid at the door of WalMart and its imitators.

Valuethinker
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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 10:35 am

rgs92 wrote:
Wed Jun 20, 2018 10:30 am
And airline deregulation has made importing cheap labor from anywhere economical.
Inflation was also called the wage/price spiral.
Low wages = low prices = low inflation.
Since relatively few people who fly are going to do work in another country for significant periods of time, I don't follow that linkage? A bunch of consultant roadwarriors with laptops might be impressive at Heathrow at 8am Monday morning, but it's not a big fraction of the European labour force? Even within the USA, workers from Mississippi don't fly to Silicon Valley every week to work, do they?

Building an R&D centre in Bangalore *does* have an impact. But it's only a tiny fraction of employees in India that work in that kind of role. The effect on US wages is likely quite small -- unless you happen to be in the category of tech worker that gets outsourced.

Healthcare is nearly 20% of the US economy and the impact of outsourcing is relatively small - medical tourism and telemedicine are not (yet) that big a factor.

If you were an immigrant, a transatlantic liner, in steerage, took you about 8 days to New York from Southampton. That hasn't changed-- flying economy is the new steerage. What has changed is that in the 19th century the new nations welcomed immigration-- Australia, Canada, USA had largely free immigration policies (it was a flood of Jews out of the old Russian Empire that led to the British Parliament passing an immigration control act in 1908; it was that flood plus post WW1 refugees and immigrants from southern Europe that led the US Congress to pass similar laws in 1921 although the US had earlier passed laws restricting East Asian immigration, I believe).

Goods are far more globally mobile. Labour is more immobile. Teleworking has yet to have a really big impact, I suspect. Robots and Artificial Intelligence might well have much bigger ones.

Wage price spiral in the 1970s was about degree of unionization and the ability of collective bargaining to secure inflation protection for the union's members. That's all about the *change* in wages and prices, not the *level*.
Last edited by Valuethinker on Wed Jun 20, 2018 10:41 am, edited 1 time in total.

SagaciousTraveler
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Re: Is technology the reason for low inflation?

Post by SagaciousTraveler » Wed Jun 20, 2018 10:37 am

Valuethinker wrote:
Wed Jun 20, 2018 10:20 am
SagaciousTraveler wrote:
Wed Jun 20, 2018 10:11 am
I don't believe that true inflation is low.

While majority of 'goods' can be seen as much cheaper, which can probably attribute that to technology. 'Services' are not. That in itself deserves at study but in my eyes policy seems to be the driving factor.
And you will find that the Bureau of Labor Statistics, as well as the macroeconomic profession in general, has spent a lot of time thinking and arguing about this. If you look at Robert Gordon (NW University)'s publications section of his web pages, you'll find some links to some good presentations.

From memory, CPI-U is over 50% services prices, so there is an effort to reflect this.

The problem is adjusting for quality is difficult. Is US healthcare cost inflation just inflation, or are there quality improvements as well? Looking back, many forms of Leukemia that would have killed you in 1970 now will not, if they catch it soon enough. Not even the richest man in the world could have the cancer treatment we take as normal, now, in 1970.

Owner occupied housing is also difficult. Those of us whose parents have 1970s kitchens realize how much has changed since then, even in a very mature and stable area of housing. From memory, CPI U uses a rental cost measure (thus stripping out the effects of big swings in housing prices).
Thank you for this.

If quality is measured by taking Healthcare Costs divided by life expectancy, I wouldn't say its an improvement for the United States. I would imagine this topic has so many mitigating factors. Sure we have found ways to eradicate many diseases in order to live longer but we as a US society also self sabotage by diet, which perhaps wipes the former.

As for housing, I think that's where services have greatly affected us. While you stated mature and stable area of house, property taxes are still rising in large due to policy. I wonder if that affect is measured. Perhaps the government shifting away from subsidizing the state and local levels, causes inflation that isn't measured?

mptfan
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Re: Is technology the reason for low inflation?

Post by mptfan » Wed Jun 20, 2018 10:44 am

rgs92 wrote:
Wed Jun 20, 2018 10:30 am
Thanks for the entertaining post. It was a great read. I enjoyed it. Very nostalgic.
You're welcome. I brainstormed all of the ways that technology has changed my life over the last 20 years and as I was writing the list I surprised myself at how many changes there really were. It is amazing.

Church Lady
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Re: Is technology the reason for low inflation?

Post by Church Lady » Wed Jun 20, 2018 11:01 am

Offshoring has kept prices down for many years. When the second and third world export inflation, we're in trouble.

(adjusts tinfoil hat) Government has a vested interest in under reporting inflation. Otherwise, they'd pay more to fund the debt, and for SS/Medicare. Why do you think the tax code switched from CPI-U to CPI-C? They don't even pretend to include food and energy.

I wish you would tell my grocery store and farmer's market that agricultural technology is more efficient, so they can charge less than they did ten years ago.

Medical inflation. Tuition inflation. You'd think these areas would be ripe for technology driven deflation. Correct me if I'm wrong, but we haven't seen it in tuition and health insurance premiums.

Although we can in theory replace things such as the yellow pages with internet listings, the upshot for me is I have to look in 20 or more places to find a tradesman, or pay commission to Angies List, Porch.com, or Home Advisor to find someone. I find more tradesmen hanging around Lowes jotting down phone numbers on the side of trucks than I find online. :( I yearn for the yellow pages.

Ok, that was a rant. :oops: Thanks for reading!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8

mptfan
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Re: Is technology the reason for low inflation?

Post by mptfan » Wed Jun 20, 2018 11:03 am

Church Lady wrote:
Wed Jun 20, 2018 11:01 am
Medical inflation. Tuition inflation. You'd think these areas would be ripe for technology driven deflation. Correct me if I'm wrong, but we haven't seen it in tuition and health insurance premiums.
I agree, but it's coming.

Valuethinker
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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 11:07 am

SagaciousTraveler wrote:
Wed Jun 20, 2018 10:37 am
Valuethinker wrote:
Wed Jun 20, 2018 10:20 am
SagaciousTraveler wrote:
Wed Jun 20, 2018 10:11 am
I don't believe that true inflation is low.

While majority of 'goods' can be seen as much cheaper, which can probably attribute that to technology. 'Services' are not. That in itself deserves at study but in my eyes policy seems to be the driving factor.
And you will find that the Bureau of Labor Statistics, as well as the macroeconomic profession in general, has spent a lot of time thinking and arguing about this. If you look at Robert Gordon (NW University)'s publications section of his web pages, you'll find some links to some good presentations.

From memory, CPI-U is over 50% services prices, so there is an effort to reflect this.

The problem is adjusting for quality is difficult. Is US healthcare cost inflation just inflation, or are there quality improvements as well? Looking back, many forms of Leukemia that would have killed you in 1970 now will not, if they catch it soon enough. Not even the richest man in the world could have the cancer treatment we take as normal, now, in 1970.

Owner occupied housing is also difficult. Those of us whose parents have 1970s kitchens realize how much has changed since then, even in a very mature and stable area of housing. From memory, CPI U uses a rental cost measure (thus stripping out the effects of big swings in housing prices).
Thank you for this.

If quality is measured by taking Healthcare Costs divided by life expectancy, I wouldn't say its an improvement for the United States.
Think AIDS. A death sentence in the 1980s, not since then (if you live in a First World country).

Life expectancy kept rising. Then, it stopped. Thinks like mortality in childbirth have gone backwards. Morbidity is high though. And death rates due to opiate overdose has surfaced in the statistics.
I would imagine this topic has so many mitigating factors. Sure we have found ways to eradicate many diseases in order to live longer but we as a US society also self sabotage by diet, which perhaps wipes the former.
Morbidity is higher e.g. obesity. I don't think it has shown up in death rates yet.
As for housing, I think that's where services have greatly affected us. While you stated mature and stable area of house, property taxes are still rising in large due to policy. I wonder if that affect is measured. Perhaps the government shifting away from subsidizing the state and local levels, causes inflation that isn't measured?
I'd have to check-- taxes, being a transfer, are normally pass through. If you think of California (which due to high housing prices and GDP, is more than 1/10th of the total value of housing in the USA, and of GDP) property taxes have been strongly capped since Proposition 13. But it may be that total housing costs in CPI-U includes property taxes (they would factor into rents as well).

wrongfunds
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Re: Is technology the reason for low inflation?

Post by wrongfunds » Wed Jun 20, 2018 11:09 am

mptfan,

I wonder if you follow Peter Diamndis, founder of Singular University and his "abundance" philosophy. He is very interesting speaker and author. His 6-D theory speculates that technology makes previously scares things abundant and he gives lots of examples, starting with the most precious metal known to mankind (at historical times) - Aluminum!

I am currently reading his two books "Abundance" and "Bold".

It goes without saying that I agree with you and him wholeheartedly. The next 30 years are going to be one heck of technological ride and I hope I get to ride it. The exponential change is happening right in front of our eyes in almost every single field. In 1981, a phone call to my parents in from US used cost $3.50 per minute. Now on WhatsApp it is $0.00 per minute! I still have a receipt for 5 MegaByte hard drive purchased at work. The internal purchase cost was multiple thousand dollars!
Last edited by wrongfunds on Wed Jun 20, 2018 11:17 am, edited 1 time in total.

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Re: Is technology the reason for low inflation?

Post by 3CT_Paddler » Wed Jun 20, 2018 11:17 am

Combine the almost free flow of information, aka technology and pair it with huge sources of cheap international labor, and it acts as a headwind on lower skilled citizens of high wage countries like the US, which combined with technology savings acts as an inflation dampener.

I think software plays a big part in connecting us more efficiently and more cheaply. Specifically look at the role of open source software like Linux, which basically removes a huge chunk of the cost of doing business. Technology has been commoditized, which serves to open up new previously impossible avenues for connection or efficiency.

This very website is a perfect example of that technology in action. The low cost servers and free software used to run this site means that a small group of people with minimal capital can connect millions of people across the globe on how to perform DIY investing, and do it amazingly well. Think about all of the fees that would have gone to investment managers without this site. I think when you add up all of the small incremental technology advances, across industries and companies, it provides a headwind against inflation. And it's not just technology, more specifically its the giving away of technology that feeds new opportunities.

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Re: Is technology the reason for low inflation?

Post by SagaciousTraveler » Wed Jun 20, 2018 11:27 am

SagaciousTraveler wrote: Thank you for this.

If quality is measured by taking Healthcare Costs divided by life expectancy, I wouldn't say its an improvement for the United States.
Valuethinker wrote: Think AIDS. A death sentence in the 1980s, not since then (if you live in a First World country).

Life expectancy kept rising. Then, it stopped. Thinks like mortality in childbirth have gone backwards. Morbidity is high though. And death rates due to opiate overdose has surfaced in the statistics.
Understood. However I'm arguing the other side of the calculation. Perhaps we can argue that life expectancy in the US has increased by 5-10 years since the 80s. Heck lets say 15%. I wouldn't even know where to start on how much Healthcare Costs have gone up since then but I would imagine way more than that.
SagaciousTraveler wrote: I would imagine this topic has so many mitigating factors. Sure we have found ways to eradicate many diseases in order to live longer but we as a US society also self sabotage by diet, which perhaps wipes the former.
Valuethinker wrote: Morbidity is higher e.g. obesity. I don't think it has shown up in death rates yet.
It was just an example but one that was trying to say that our current life expectancy is stagnant, perhaps slightly declining compared to other first world countries. Cause? Diet, Drugs and for some the cost of preventive and life saving Health Care.

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Flymore
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Re: Is technology the reason for low inflation?

Post by Flymore » Wed Jun 20, 2018 11:43 am

There are several articles on this at Vanguard and the short answer is yes.
Vanguard economist Joe Davis published "Global macro matters Why is inflation so low? The growing deflationary effects of Moore’s Law" October 2017

"Is technology behind low inflation?" MARKETS & ECONOMY SEPTEMBER 14, 2017
https://investornews.vanguard/is-techno ... inflation/

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Re: Is technology the reason for low inflation?

Post by Dottie57 » Wed Jun 20, 2018 11:51 am

Church Lady wrote:
Wed Jun 20, 2018 11:01 am
Offshoring has kept prices down for many years. When the second and third world export inflation, we're in trouble.

(adjusts tinfoil hat) Government has a vested interest in under reporting inflation. Otherwise, they'd pay more to fund the debt, and for SS/Medicare. Why do you think the tax code switched from CPI-U to CPI-C? They don't even pretend to include food and energy.

I wish you would tell my grocery store and farmer's market that agricultural technology is more efficient, so they can charge less than they did ten years ago.

Medical inflation. Tuition inflation. You'd think these areas would be ripe for technology driven deflation. Correct me if I'm wrong, but we haven't seen it in tuition and health insurance premiums.

Although we can in theory replace things such as the yellow pages with internet listings, the upshot for me is I have to look in 20 or more places to find a tradesman, or pay commission to Angies List, Porch.com, or Home Advisor to find someone. I find more tradesmen hanging around Lowes jotting down phone numbers on the side of trucks than I find online. :( I yearn for the yellow pages.

Ok, that was a rant. :oops: Thanks for reading!
I miss yellow pages too.

wrongfunds
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Re: Is technology the reason for low inflation?

Post by wrongfunds » Wed Jun 20, 2018 11:51 am

Couple more in the list, Tony Seba and Ray Kurzweil (please check the spelling) other futurist who envision a different (and better) tomorrow than today.

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Re: Is technology the reason for low inflation?

Post by WhiteMaxima » Wed Jun 20, 2018 12:14 pm

GMO food, lower food price but tasteless.

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Re: Is technology the reason for low inflation?

Post by munemaker » Wed Jun 20, 2018 3:46 pm

mptfan wrote:
Wed Jun 20, 2018 9:58 am
alex_686 wrote:
Wed Jun 20, 2018 9:51 am
Technology allowed us to build bigger faster cars but that does not reduce inflation.
It does if the cars require less fuel and less maintenance than the cars they replaced.
Not only that, but cars last a lot longer. When I started driving, it was very unusual for a car to reach 100,000 miles. Now the better Japanese brands regularly reach 250,000 miles. I believe the overall cost of owning a car is much lower today. Almost all college students have cars now, and around here, most high school kids (in our social circle anyway...which are the ones I am aware of) who are old enough drive to school.

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munemaker
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Re: Is technology the reason for low inflation?

Post by munemaker » Wed Jun 20, 2018 3:50 pm

rgs92 wrote:
Wed Jun 20, 2018 10:30 am
And airline deregulation has made importing cheap labor from anywhere economical.
In conjunction with H1-B visas!

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Re: Is technology the reason for low inflation?

Post by likegarden » Wed Jun 20, 2018 4:48 pm

I like this low inflation very much, whatever its reason, because my company pension is not inflation adjusted as Social Security is and would otherwise lose in value.

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Re: Is technology the reason for low inflation?

Post by verbose » Wed Jun 20, 2018 5:07 pm

As I read through all the “do you remembers” I was hoping my that some would be before my time since I don’t consider myself that old. But none were. I remember all of it. My kids have no idea. Feeling old now...

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Re: Is technology the reason for low inflation?

Post by MrPotatoHead » Wed Jun 20, 2018 5:20 pm

Technology enabled the internet which enabled the off shoring of knowledge jobs leading to a greater number of jobs to suffer from wage stagnation and thus curbing wage induced inflation to a great extent.

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Re: Is technology the reason for low inflation?

Post by MrPotatoHead » Wed Jun 20, 2018 5:27 pm

mptfan wrote:
Wed Jun 20, 2018 11:03 am
Church Lady wrote:
Wed Jun 20, 2018 11:01 am
Medical inflation. Tuition inflation. You'd think these areas would be ripe for technology driven deflation. Correct me if I'm wrong, but we haven't seen it in tuition and health insurance premiums.
I agree, but it's coming.
Both have protectionist barriers to entry. I tried for year to get virtual classroom introduced in public education in my state and of course the teacher unions fought it.

It got to the point where even when you used a virtual classroom you had to have a teacher employed as a facilitator in order to keep the teacher wage gravy train afloat. The AMA acts as an analogous impediment in medical technology. Eventually though the veil should be pierced though likely outside the U.S.
Last edited by MrPotatoHead on Thu Jun 21, 2018 4:34 pm, edited 2 times in total.

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Re: Is technology the reason for low inflation?

Post by selters » Wed Jun 20, 2018 5:28 pm

I listened to an interview recently where the interviewee, I think it was Ed Yardeni, criticized the way the hedonic adjustment in the CPI was calculated. For example since the 15 inch $2000 laptop of today has four times as much RAM, four times the processing power and four times the number of pixels as the 15 inch $2000 laptop of ten years ago, you should count that technological progress as 75% deflation. The numbers are not exact, but the principle remains. The same way of calculating inflation results in TVs having gotten 99% cheaper compared with 30 or 40 years ago. I think that is a very arbitrary way of counting inflation that does not reflect reality.

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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 5:46 pm

munemaker wrote:
Wed Jun 20, 2018 3:46 pm
mptfan wrote:
Wed Jun 20, 2018 9:58 am
alex_686 wrote:
Wed Jun 20, 2018 9:51 am
Technology allowed us to build bigger faster cars but that does not reduce inflation.
It does if the cars require less fuel and less maintenance than the cars they replaced.
Not only that, but cars last a lot longer. When I started driving, it was very unusual for a car to reach 100,000 miles. Now the better Japanese brands regularly reach 250,000 miles. I believe the overall cost of owning a car is much lower today. Almost all college students have cars now, and around here, most high school kids (in our social circle anyway...which are the ones I am aware of) who are old enough drive to school.
interestingly the data was showing that American teenagers were learning to drive later. Millennials seemed later to buy cars, but that seems largely to be a function of a lack of income/ high debts at the start of post college life, rather than a real shift in preferences.

The data seems to show that the real cost of driving has fallen in most countries.

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Re: Is technology the reason for low inflation?

Post by Valuethinker » Wed Jun 20, 2018 5:54 pm

Church Lady wrote:
Wed Jun 20, 2018 11:01 am
Offshoring has kept prices down for many years. When the second and third world export inflation, we're in trouble.

(adjusts tinfoil hat) Government has a vested interest in under reporting inflation. Otherwise, they'd pay more to fund the debt, and for SS/Medicare. Why do you think the tax code switched from CPI-U to CPI-C? They don't even pretend to include food and energy.
You will be interested to know that Barry Boskin was a conservative economist. It was at the instigation of conservative politicians that the Boskin Commission, the leading investigation into inflation rates in the 1990s and still the gold standard of such, was instituted because the concern was that the CPI overstated inflation.

Thus hedonic adjustments (adjustments to quality) were introduced. Most economists agreed that these had not been properly measured.

On food and energy these prices are so volatile that they distort the numbers. Remember when oil fell to below $50/bl in 2014? Or when it was $150/ bl in the summer of 2008?
I wish you would tell my grocery store and farmer's market that agricultural technology is more efficient, so they can charge less than they did ten years ago.
Not sure about last 10 years, but food prices are way down from where they were 40 years ago-- the cost of food is a much smaller proportion of family income than it was in the 1970s, say (but we eat out a lot more). Farmer's markets? You'd have to be joking to think that ordinary families could go to farmer's markets in the 1970s -- I'd never heard of such a thing until the 1990s.

Remember when canned coffee from Maxwell House was the only coffee you could buy at a supermarket?
Medical inflation. Tuition inflation. You'd think these areas would be ripe for technology driven deflation. Correct me if I'm wrong, but we haven't seen it in tuition and health insurance premiums.
The US has some unique pathologies in these areas -- these costs have risen but less quickly in other countries. However "Baumol's Cost Disease" is well known. Had he not died, he probably would have received the Nobel Prize in economics.

https://en.wikipedia.org/wiki/Baumol%27s_cost_disease

The problem is that, so far, we haven't figured out ways to teach more kids per teacher-- other than raising class size. Nor have we figured out ways to make an orchestra be more productive-- it has a certain number of musicians, and they can perform a certain number of performances.

Generally prices of goods have fallen, and prices of services have risen.

But you wouldn't want to have cancer treatment c. 1970 if you could have it now. Nor be in a car crash in a 1970 car, rather than a 2018 one.
Although we can in theory replace things such as the yellow pages with internet listings, the upshot for me is I have to look in 20 or more places to find a tradesman, or pay commission to Angies List, Porch.com, or Home Advisor to find someone. I find more tradesmen hanging around Lowes jotting down phone numbers on the side of trucks than I find online. :( I yearn for the yellow pages.

Ok, that was a rant. :oops: Thanks for reading!
Technology does not always make everything better. The Internal Combustion Engine car has made many great, positive, changes in American life. It has also driven kids off the street, caused massive air pollution problems. Killed and maimed more people than all of America's wars put together.

And steam powered cars (seriously) had a lot of advantages. But that was not the technology that won, for a host of reasons. Like the standard (Remington) typewriter keyboard keys arrangement that we all use, one technology got an early lead, and that squeezed out all the others.

I never found the Yellow Pages to be that useful, in truth.

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Re: Is technology the reason for low inflation?

Post by golfCaddy » Wed Jun 20, 2018 6:44 pm

Inflation is always and everywhere a monetary phenomenon might be a better explanation. Real labor productivity gains have been on the order of 1.1% since the Great Recession. Oil prices have always been incredibly volatile.

https://www.bls.gov/opub/ted/2017/labor ... ession.htm

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Re: Is technology the reason for low inflation?

Post by TravelforFun » Wed Jun 20, 2018 6:49 pm

Has anyone mentioned college cost? Technology sure hasn't helped it.

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Re: Is technology the reason for low inflation?

Post by teen persuasion » Wed Jun 20, 2018 9:18 pm

Weird, everything around me lately looks like inflation is going up.

About a month ago, prices in Aldi jumped significantly. Items that were regularly $.99 suddenly were $1.29, $1.59, $1.79.

Gas is going up, which means oil is more expensive, which means heating my house will cost more this winter.

The state finally adjusted its "official inflation rate" above 2%, which means the tax cap is no longer .75%, it is 2%. So yippee, my employer got a $2k increase in our budget passed.

Hardcover book prices are converging on $30. I catalog every item at work, so I notice the price creep. That $2k increase won't go far, especially when it's intended for wages (forced up by rising state minimum wage).


Regarding technology - new technologies also create new classes of items to spend on, increasing costs. My employer still buys books, but now also has to pay subscriptions for electronic collections such as e-books, audio books, e-magazines, music, Ancestry database access. We have to purchase equipment and services for patron access to the internet: computers, printers, software, WiFi modems, etc. My time is increasingly involved in technology handling and teaching/training: social media, website maintenance, patron assistance/education on the multiple e-platform apps, public computer hygiene. The more my role expands due to technology, the more is spent in wages (or cut from elsewhere) as I'm hourly.

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Re: Is technology the reason for low inflation?

Post by Portfolio7 » Wed Jun 20, 2018 11:27 pm

I don't see how the answer can be anything but a resounding yes. All the fiber-optic cable laid down in the late 1990's that enabled the worldwide scope of the internet also allowed a lot of work to move overseas, with instantaneous communication. Technology also means that companies now require far fewer jobs to perform similar tasks. Both of these impacts have reduced company costs extensively (and freed up labor to take on other roles.) There is some question about the quality of the newer US jobs compared to the old, and I think that question isn't fully answered yet. Simple answers rarely exist for complex questions, but I really do think this is one of those cases where a simple answer is largely correct.

At the same time, labor is still quite expensive, and tends to be a core cost of services we need... so as Todd Harrison of Minyanville used to say, we have deflation in things we want, and inflation in things we need.

That said, there does appear to have been a round of price increases by restaurants and movie theatres lately. Grocery store prices seem to rise via many small 'stealth' price increases (sometimes by reducing the size of the container, so you're buying 11.5 oz for the same price as you used to buy 12 oz). Gas seems like a roller coaster to me, but the range hasn't shifted much for a decade or more if my memory serves (or maybe I'm forgetting.)

College costs seem to grow over 5% per year, but they spend more on buildings and admin stuff than they used to, ostensibly to attract students, who continue to borrow to attend. Per one study I read, proportionately, admin used to be half of teaching expense - now admin has doubled, such that it is roughly the same as teaching costs... i.e. that's a 1/3 increase in spending on amenities.

Healthcare includes a lot of insurance companies making a pretty good buck off the delivery of services, but we also do a lot of cutting edger treatment in the US, treatment which sometimes is, but sometimes isn't the best option. Lastly, I've read that the many different insurance providers extant mean that doctor's offices generally need more staff to keep up with all the different billing requirements. All of these seem to be drivers of cost.

Net, I think it's hard to say 'one thing' is a cause of inflation, but technology has to be a huge component of that. Also, the legal and financial structure of our industries, & the capitalist system we employ, have generally contributed to deflationary pressures. On the other hand, that structure has protected jobs and wages in some specific industries moreso than others, and that's where we often seem to to see the greatest inflation. My 2 cents, fwiw.
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Re: Is technology the reason for low inflation?

Post by Valuethinker » Thu Jun 21, 2018 2:59 am

Portfolio7 wrote:
Wed Jun 20, 2018 11:27 pm
I don't see how the answer can be anything but a resounding yes. All the fiber-optic cable laid down in the late 1990's that enabled the worldwide scope of the internet also allowed a lot of work to move overseas, with instantaneous communication. Technology also means that companies now require far fewer jobs to perform similar tasks. Both of these impacts have reduced company costs extensively (and freed up labor to take on other roles.) There is some question about the quality of the newer US jobs compared to the old, and I think that question isn't fully answered yet. Simple answers rarely exist for complex questions, but I really do think this is one of those cases where a simple answer is largely correct.


At the same time, labor is still quite expensive, and tends to be a core cost of services we need... so as Todd Harrison of Minyanville used to say, we have deflation in things we want, and inflation in things we need.
Increased productivity of labour is the way out of that box. Something like your fibre optic cable *should* produce greater productivity for labour. That was true in the late 1990s, but has not been true since the Financial Crisis.

That said, there does appear to have been a round of price increases by restaurants and movie theatres lately. Grocery store prices seem to rise via many small 'stealth' price increases (sometimes by reducing the size of the container, so you're buying 11.5 oz for the same price as you used to buy 12 oz). Gas seems like a roller coaster to me, but the range hasn't shifted much for a decade or more if my memory serves (or maybe I'm forgetting.)
https://www.eia.gov/dnav/pet/hist/LeafH ... US_DPG&f=A

Gives you gasoline prices. They are well down from 10 years ago, when there was the 2008 spike and oil briefly went to $150/bl v. $80/bl now. Much higher than they were in the late 1990s (when, not coincidentally, the SUV boom really kicked off).
College costs seem to grow over 5% per year, but they spend more on buildings and admin stuff than they used to, ostensibly to attract students, who continue to borrow to attend. Per one study I read, proportionately, admin used to be half of teaching expense - now admin has doubled, such that it is roughly the same as teaching costs... i.e. that's a 1/3 increase in spending on amenities.
That seems to what has happened.
Healthcare includes a lot of insurance companies making a pretty good buck off the delivery of services, but we also do a lot of cutting edger treatment in the US, treatment which sometimes is, but sometimes isn't the best option. Lastly, I've read that the many different insurance providers extant mean that doctor's offices generally need more staff to keep up with all the different billing requirements. All of these seem to be drivers of cost.
I think insurance costs around 1% of GDP for health (that number I have not sourced) in the USA. However I believe the nature of the US system, with fragmentation between buyers (different pools of insured), healthcare providers & insurers and complex payment arrangements increases the friction of the system and thus the cost. The fact that it is possible to be uninsured raises long run system costs as well - a neglect of preventative medicine in preference for acute treatment.
Net, I think it's hard to say 'one thing' is a cause of inflation, but technology has to be a huge component of that. Also, the legal and financial structure of our industries, & the capitalist system we employ, have generally contributed to deflationary pressures. On the other hand, that structure has protected jobs and wages in some specific industries moreso than others, and that's where we often seem to to see the greatest inflation. My 2 cents, fwiw.
I think that's fair. DIfferent groups have different power to extract value from the system. Look at the profit per employee of Apple.
Last edited by Valuethinker on Thu Jun 21, 2018 8:18 am, edited 1 time in total.

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Re: Is technology the reason for low inflation?

Post by Valuethinker » Thu Jun 21, 2018 3:07 am

golfCaddy wrote:
Wed Jun 20, 2018 6:44 pm
Inflation is always and everywhere a monetary phenomenon might be a better explanation. Real labor productivity gains have been on the order of 1.1% since the Great Recession. Oil prices have always been incredibly volatile.

https://www.bls.gov/opub/ted/2017/labor ... ession.htm
Except of course it is not "everywhere and always a monetary phenomenon", or it's not a helpful formulation in terms of policy. Money supply growth is far too volatile for that.

Milton Friedman suggested a mechanical targetting of money supply growth as Central Bank policy. When that was tried, it turned out monetary aggregates are far too volatile (up and down) and when you try to control a monetary aggregate, the financial system innovates and creates a type of money that is not controlled.

It was M1. Then it was M1A. Then M1B. Then M2, M3. Then M4. What, in the modern financial system, is money? And how do you control not only its quantity, but its velocity?

If you look at Money Supply post the Crash, it's been huge-- but it hasn't been seen in measured inflation. Predictions in 2010 that the US and other countries were headed for hyperinflation turned out to be wrong -- and major hedge funds like Paulson Partners and Odey lost billions for their clients. The issue is that velocity x quantity = money GDP, and you can't control the quantity, and you can't control the velocity. The world was stuck in an equilibrium of excess savings and insufficient demand for capital (hence the ultra low interest rates we have experienced) and output remained stubbornly below the economy's theoretical capacity. That situation may finally have reached its end - hence the rises in interest rates (but in some currencies, by no means in all - see the Eurozone or Japan).

The UK experimented with radical monetarism to a far greater extent than the USA in the early 1980s. I suspect the Fed never really believed it, it just provided top cover for raising interest rates to drive the economy into recession and reduce inflationary pressures-- a mechanism Keynes would have approved of. Margaret Thatcher and her advisors (Sir Alan Walters) genuinely believed in it. The UK experiment (along with the Chilean one) found the limits of the policy.
Last edited by Valuethinker on Thu Jun 21, 2018 8:19 am, edited 2 times in total.

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Re: Is technology the reason for low inflation?

Post by AtlasShrugged? » Thu Jun 21, 2018 5:25 am

mptfan....You ask an interesting question. The answer, in part, depends on your personal rate of inflation, IMO.

If you sent a child to college in the last decade (I sent two), you have not seen low inflation.
If you have a chronic health condition, you have not seen low inflation.
If you are trying to rent a 2-BDRM+ apartment, you have not seen low inflation.
If you use professional consultancies, or use higher-end IT staff for development, you have certainly not seen low inflation.

I work P/T in the evenings for MegaCorp (in retail). One of my responsibilities is to change the price tags weekly, put out sales tags. I see products routinely from all over the world: China, Brazil, Egypt, Malaysia, Indonesia, etc. - a global supply chain. I find this P/T employment helpful on a number of levels: funds my Roth, helps me see and experience what people in lower socioeconomic strata see and experience, helps me keep a pulse on business, etc. What I would tell you is that inflation 'feels' like it is rising, and has been for some time. For example, a 12-pack of paper, wide-ruled was 7.99 for the longest time (2+ years). Last weekend, it popped to 9.99 and there it will stay. One subject notebooks started on promotion at $2, typically; it is now starting at $3. Computer printer ink and toner are going up. That $108 toner for your office printer is now $129. Laptop prices that were $199 are now $249. Organic milk is up - a lot. That 4.99 gallon is 6.29 in a local supermarket.

The larger point I am making. The use of one number to state what inflation is just doesn't make a lot of sense. Mostly because that one number is not an accurate reflection of our individual reality. I don't think there is some kind of 'vast conspiracy' to misrepresent inflation. I don't see how that could really happen, given the tremendous free flow of available information.
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: Is technology the reason for low inflation?

Post by JeffAL » Thu Jun 21, 2018 6:11 am

Inflation is low because wage growth is low:
http://www.pewresearch.org/fact-tank/20 ... r-decades/

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Re: Is technology the reason for low inflation?

Post by carolinaman » Thu Jun 21, 2018 7:18 am

Technology or more importantly, the applied use of technology is a key factor in lower inflation. Globalization is also a major factor in lower inflation as global competition lowers prices.

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Re: Is technology the reason for low inflation?

Post by Valuethinker » Thu Jun 21, 2018 8:25 am

teen persuasion wrote:
Wed Jun 20, 2018 9:18 pm

Gas is going up, which means oil is more expensive, which means heating my house will cost more this winter.
But it went down, a lot, before it went up. $150 in summer 2008. Then $40/bl in March 2009. Rose to over $100/ bl and that became "the new normal". Then it went back down to $40 ish again (2014?). Now it's back over $80/ bl.

If you heat with heating oil you have a direct window into crude oil prices, because the two track pretty well (as does propane, it appears). American natural gas is on a totally different pricing cycle-- the spread of fracking for tight oil virtually guarantees a natural gas surplus. However if you live in New England, natural gas is also expensive (and thus electricity as well) due to pipeline constraints.

The state finally adjusted its "official inflation rate" above 2%, which means the tax cap is no longer .75%, it is 2%. So yippee, my employer got a $2k increase in our budget passed.

Hardcover book prices are converging on $30. I catalog every item at work, so I notice the price creep. That $2k increase won't go far, especially when it's intended for wages (forced up by rising state minimum wage).
University textbooks and scholarly books have risen at least as fast as college tuition. Maybe faster. So much faster than inflation.

Books, generally, I think the Amazon effect is palpable-- books are just a lot cheaper than they were 25 years ago.
Regarding technology - new technologies also create new classes of items to spend on, increasing costs. My employer still buys books, but now also has to pay subscriptions for electronic collections such as e-books, audio books, e-magazines, music, Ancestry database access. We have to purchase equipment and services for patron access to the internet: computers, printers, software, WiFi modems, etc. My time is increasingly involved in technology handling and teaching/training: social media, website maintenance, patron assistance/education on the multiple e-platform apps, public computer hygiene. The more my role expands due to technology, the more is spent in wages (or cut from elsewhere) as I'm hourly.
Technology certainly creates new demands, and new employment opportunities.

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Re: Is technology the reason for low inflation?

Post by Valuethinker » Thu Jun 21, 2018 9:02 am

carolinaman wrote:
Thu Jun 21, 2018 7:18 am
Technology or more importantly, the applied use of technology is a key factor in lower inflation. Globalization is also a major factor in lower inflation as global competition lowers prices.
To the extent that technology increases total factor productivity - producing more output for the same inputs of capital and labour. For a long time, that wasn't visible in the statistics - it then was in the late 1990s.

(McKinsey did a famous bit of research that suggested that the productivity growth of the USA in the 1990s was a function of a small group of companies and factors:
- transformation of logistics (WalMart) - 40% of all the productivity growth, from memory
- computer manufacture - basically Dell and its imitators adopting Toyota and Lean Manufacturing
- automation of the securities business - Schwab)

Since 2008 it has not been. Productivity growth has returned to a level which is consistent w historical averages, but well below what was achieved say 1946-1972 in the American economy, and below that achieved 1972- 1990s (have to check that latter).

Globalization yes to the extent goods are traded. Containerization made possible the great movement of world manufacturing to China. It's an open question how much further that can go. China might be done - although inland China is now a low cost manufacturing centre (as coastal China is not). And there is Vietnam. Places like India, Pakistan and Bangladesh, let alone NIgeria, just do not have the infrastructure. Philippines, Malaysia, Indonesia are not low wage countries any more (compared to China).

Service industries its trickier. I have not seen a quantification of the effects of outsourcing to India. It seems to me that has been the one big movement of production in the services sector which was enabled by technology. There might however be others (cheque processing in Jamaica?) or the Indian one might have been so large that its effect on the US (and other developed economies) is palpable.

For all the talk about it, outsourcing in India is not a huge employer. I am guessing 1 million people - a drop in their bucket. And say each outsourced job saves the employer $30k, then that's only $30bn pa - double numbers and double savings to $60k and that's only $120 billion.

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Re: Is technology the reason for low inflation?

Post by MrPotatoHead » Thu Jun 21, 2018 4:49 pm

Valuethinker wrote:
Thu Jun 21, 2018 9:02 am

For all the talk about it, outsourcing in India is not a huge employer. I am guessing 1 million people - a drop in their bucket. And say each outsourced job saves the employer $30k, then that's only $30bn pa - double numbers and double savings to $60k and that's only $120 billion.
It is just starting. Take Lowes for example they have moved the vast majority of their IT to India over the past 3 years and now are moving creative positions there. Why: they can get U.S. trained MBAs over there for $12 a hour (that is the actual price per hour) in order to do marketing functions, project management, etc. They just expanded again (the are right across the street from IBM). Many companies are watching Lowes carefully to see how the off shoring of business knowledge jobs goes.

All of this acts as a brake on high end domestic wages.

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Re: Is technology the reason for low inflation?

Post by golfCaddy » Thu Jun 21, 2018 5:16 pm

Valuethinker wrote:
Thu Jun 21, 2018 3:07 am
golfCaddy wrote:
Wed Jun 20, 2018 6:44 pm
Inflation is always and everywhere a monetary phenomenon might be a better explanation. Real labor productivity gains have been on the order of 1.1% since the Great Recession. Oil prices have always been incredibly volatile.

https://www.bls.gov/opub/ted/2017/labor ... ession.htm
Except of course it is not "everywhere and always a monetary phenomenon", or it's not a helpful formulation in terms of policy. Money supply growth is far too volatile for that.

Milton Friedman suggested a mechanical targetting of money supply growth as Central Bank policy. When that was tried, it turned out monetary aggregates are far too volatile (up and down) and when you try to control a monetary aggregate, the financial system innovates and creates a type of money that is not controlled.

It was M1. Then it was M1A. Then M1B. Then M2, M3. Then M4. What, in the modern financial system, is money? And how do you control not only its quantity, but its velocity?

If you look at Money Supply post the Crash, it's been huge-- but it hasn't been seen in measured inflation.
M2 growth has been faster than inflation over the past 10 years, but huge seems like an over-statement. Then, as you say, there's the question of whether M2 is a broad enough measure of money.

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Re: Is technology the reason for low inflation?

Post by cj2018 » Thu Jun 21, 2018 5:17 pm

I didn't go through all the replies in details but technology really has no inherent relationship with inflation. However, it does help lower inflation.

First of all, you need to understand what inflation really is. I presume most people would explain inflation as "rising in price". However, that's not exactly accurate since "rising in price" is actually the symptom, not the cause of inflation. Again, try to differentiate symptom from cause.

In short, the cause of inflation is an increase in fiat currency supply in our economy, and THAT causes price to go up.

Now, technology helps greatly in achieving productivity gain and therefore mitigate the symptom of inflation (or supply in currency) since there's more people trading and exchanging money.

Another reason for the lower inflation for the past few years since the Fed administrated 3 rounds of QE, is that our banking system didn't unleash all the newly created currency into the main stream economy, therefore causing prices to rise - it simply stays on banks' book and they don't lend it out. However, some of the currency went to RE and stock market which kinda explain the boom over the past few years.

Again, i would try to understand what really causes inflation in the first place. :sharebeer :sharebeer

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Re: Is technology the reason for low inflation?

Post by cj2018 » Thu Jun 21, 2018 5:23 pm

golfCaddy wrote:
Thu Jun 21, 2018 5:16 pm
Valuethinker wrote:
Thu Jun 21, 2018 3:07 am
golfCaddy wrote:
Wed Jun 20, 2018 6:44 pm
Inflation is always and everywhere a monetary phenomenon might be a better explanation. Real labor productivity gains have been on the order of 1.1% since the Great Recession. Oil prices have always been incredibly volatile.

https://www.bls.gov/opub/ted/2017/labor ... ession.htm
Except of course it is not "everywhere and always a monetary phenomenon", or it's not a helpful formulation in terms of policy. Money supply growth is far too volatile for that.

Milton Friedman suggested a mechanical targetting of money supply growth as Central Bank policy. When that was tried, it turned out monetary aggregates are far too volatile (up and down) and when you try to control a monetary aggregate, the financial system innovates and creates a type of money that is not controlled.

It was M1. Then it was M1A. Then M1B. Then M2, M3. Then M4. What, in the modern financial system, is money? And how do you control not only its quantity, but its velocity?

If you look at Money Supply post the Crash, it's been huge-- but it hasn't been seen in measured inflation.
M2 growth has been faster than inflation over the past 10 years, but huge seems like an over-statement. Then, as you say, there's the question of whether M2 is a broad enough measure of money.
Wow, glad you guys brought up monetary policy/currency!

M2 is not a broad enough measure of money because our economy is debt-based and money is also created when credit/lending takes place.

Again, Money Supply has been huge post the Crash (due to QEs), and i believe the reason why it hasn't manifested inself in measured inflation is because the banking system didn't unleash the currency into the main stream economy. Instead, they keep the currency on the book as reserves in the fed, and get paid risk-free interests by the fed, so really no incentive to lend that out, therefore increasing money supply and driving inflation up

Church Lady
Posts: 456
Joined: Sat Jun 28, 2014 7:49 pm

Re: Is technology the reason for low inflation?

Post by Church Lady » Thu Jun 21, 2018 6:34 pm

Farmer's markets? You'd have to be joking to think that ordinary families could go to farmer's markets in the 1970s -- I'd never heard of such a thing until the 1990s.
We had them in the 70s, but you had to drive out of the city to get to them. And they were called 'roadside stands'. :D
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8

longinvest
Posts: 2907
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Re: Is technology the reason for low inflation?

Post by longinvest » Thu Jun 21, 2018 7:02 pm

I don't think that technology anything to do with inflation.

Monetary policy, on the other hand, has a significant impact.

For instance, Canada’s monetary policy framework consists of two key components that work together:
  • an inflation-control target which is 2%, the midpoint of a 1 to 3 per cent target range, and
  • a flexible exchange rate, or floating Canadian dollar, which permits Canada to pursue an independent monetary policy that is best suited to Canada’s economic circumstances and is focused on achieving the 2% inflation target. Movements in the exchange rate also provide a “buffer,” helping Canada's economy to absorb and adjust to external and internal shocks.
This policy was first adopted in 1991. As a result, the inflation rate, in Canada, has stayed near its 2% target since then.

Here's a recent (February 2018) document which discusses Canada's experience with inflation targeting:

Anchoring Expectations: Canada’s Approach to Price Stability - Bank of Canada (February 15, 2018)
Canada’s experience with inflation targeting has been much more successful than originally expected. In hindsight, we underestimated how powerful anchored inflation expectations would be in helping to keep inflation close to target.

Our policy framework continues to work, and work well—inflation and inflationary expectations remain firmly anchored. The framework’s strengths are the following:
  • It features a clear, simple and well-understood target—a focal point.
  • The agreement with the government underpins its credibility.
  • And, finally, it is continually improved through the renewal process to ensure that we are able to meet future challenges.
A strong framework enhances the resilience of the economy, making it better able to weather adverse shocks. An important recent example of such a shock was the sizable oil and commodity price declines in 2014 and 2015. The policy rate reductions we made in 2015 in response to this shock were effective in facilitating the economy’s adjustment and returning inflation to target.
...
We continue to believe that the best contribution the Bank can make to improving the performance of the Canadian economy is to ensure that inflation remains low, stable and predictable.
Last edited by longinvest on Fri Jun 22, 2018 7:24 am, edited 3 times in total.
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Valuethinker
Posts: 35647
Joined: Fri May 11, 2007 11:07 am

Re: Is technology the reason for low inflation?

Post by Valuethinker » Fri Jun 22, 2018 7:15 am

cj2018 wrote:
Thu Jun 21, 2018 5:17 pm
I didn't go through all the replies in details but technology really has no inherent relationship with inflation. However, it does help lower inflation.

First of all, you need to understand what inflation really is. I presume most people would explain inflation as "rising in price". However, that's not exactly accurate since "rising in price" is actually the symptom, not the cause of inflation. Again, try to differentiate symptom from cause.

In short, the cause of inflation is an increase in fiat currency supply in our economy, and THAT causes price to go up.
And that's not remotely helpful or useful, because you also have a velocity of money. And that, you cannot control. Also there's no one, useful, definition of money.
Now, technology helps greatly in achieving productivity gain and therefore mitigate the symptom of inflation (or supply in currency) since there's more people trading and exchanging money.

Another reason for the lower inflation for the past few years since the Fed administrated 3 rounds of QE, is that our banking system didn't unleash all the newly created currency into the main stream economy, therefore causing prices to rise - it simply stays on banks' book and they don't lend it out. However, some of the currency went to RE and stock market which kinda explain the boom over the past few years.

Again, i would try to understand what really causes inflation in the first place. :sharebeer :sharebeer
You basically admit my point. Since we cannot control money supply, and we can't measure money supply, and we can't control the velocity, saying that inflation is monetary isn't very helpful.

The monetarist explanation of inflation is simply unhelpful.

If it was monetary Japan would have raging inflation by now.

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