Why is inflation so low? Moore's law?

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mickeyd
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Why is inflation so low? Moore's law?

Post by mickeyd » Mon Oct 09, 2017 12:07 pm

I was unfamiliar with Moore's law prior to reading this VG paper. It shows how technology may be a factor is keeping inflation down as all industries are benefiting from new, cheaper technology.
Coined by Intel co-founder Gordon Moore, Moore’s Law has
become shorthand for the diffusion of ever more powerful
and cheaper technologies. As technology continues to improve
(faster and more powerful computers, lighter and bigger
televisions, more productive smartphone apps, and so on), the
relative price of technology continues to plummet. We estimate
that lower prices for business and consumer tech products
have produced a moderate drag of about –18 basis points per
year in the Consumer Price Index (CPI).1
https://personal.vanguard.com/pdf/ISGMMEML.pdf
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Re: Why is inflation so low? Moore's law?

Post by mhc » Mon Oct 09, 2017 12:24 pm

I did not read the paper.

Some talk about Moore's Law being dead. If that is true, I wonder how that will impact life?

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Re: Why is inflation so low? Moore's law?

Post by mac808 » Mon Oct 09, 2017 12:27 pm

Technology seems to be broadly deflationary these days. Netflix has replaced going out to movie theaters, Uber has allowed some families on the margin to reduce the # of cars needed, etc. In the 90s there was a lot of talk about the "Walmart effect" where Walmart would open a superstore in a town with products priced significantly below the existing landscape of small businesses, most of whom were eventually put out of business. But consumers benefited from the price deflation. (IIRC there was a similar effect when Sears and the other catalog retailers came out, displacing small country dry goods stores in the early 1900s - so the trend is not totally new.) Now there's an "Amazon effect" which is essentially a similar wholesale price deflator in every city, town, and village, some of which (either because they were very rural, or very urban) hadn't benefited as much from Walmart.

There are a few significant exceptions where there has been a lot of inflation: housing, education, health care, and financial assets. If you own a house, are healthy, have no need for formal education, and are living on a COLA fixed income then I'm guessing life has never been better (or cheaper) before. If you are waiting to enter the housing market, have some health problems, and have a bunch of kids to navigate through the educational system before building up an income stream to retire on - good luck!

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Re: Why is inflation so low? Moore's law?

Post by alex_686 » Mon Oct 09, 2017 12:34 pm

Maybe. Inflation is caused when the supply of money increases faster than the demand for money.

Technology is one piece of the puzzle but it can cut both ways. Technology does make things cheaper. Increases in technology can increase productive growth, causing GNP growth to increase, which can lead to short supplies in some sectors and increases the demand for money.

History is filled with examples. I will point out to the 90s when computer technology finial clicked and productive boomed. This lead to a shortage of workers which caused salaries to rise. Wage inflation, which is one component of inflation. Not a bad problem to have but still - inflation.

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Re: Why is inflation so low? Moore's law?

Post by RadAudit » Mon Oct 09, 2017 12:57 pm

I always thought that Moore's law had to do with transistors. From the wiki -

Moore's law is the observation that the number of transistors in a dense integrated circuit doubles approximately every two years. The observation is named after Gordon Moore, the co-founder of Fairchild Semiconductor and Intel, whose 1965 paper described a doubling every year in the number of components per integrated circuit,[2]

Now, it may have implications beyond integrated circuits but I never made that existential leap. It may have some impact on inflation; but, I'm thinking a stronger influence on inflation has to be elsewhere.
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Re: Why is inflation so low? Moore's law?

Post by Ged » Mon Oct 09, 2017 12:58 pm

Moore's law is dead.

https://www.technologyreview.com/s/6014 ... -now-what/

The long term role of capital investments and advancing technologies increasing productivity is the main factor. Automation technologies are a having a big impact here. AI developments will fuel this area for some time to come.
Last edited by Ged on Mon Oct 09, 2017 1:01 pm, edited 1 time in total.

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Re: Why is inflation so low? Moore's law?

Post by aristotelian » Mon Oct 09, 2017 1:00 pm

My only thought is that the plummet in oil prices may have something to do with it.

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Re: Why is inflation so low? Moore's law?

Post by avalpert » Mon Oct 09, 2017 1:03 pm

RadAudit wrote:
Mon Oct 09, 2017 12:57 pm
I always thought that Moore's law had to do with transistors. From the wiki -

Moore's law is the observation that the number of transistors in a dense integrated circuit doubles approximately every two years. The observation is named after Gordon Moore, the co-founder of Fairchild Semiconductor and Intel, whose 1965 paper described a doubling every year in the number of components per integrated circuit,[2]

Now, it may have implications beyond integrated circuits but I never made that existential leap. It may have some impact on inflation; but, I'm thinking a stronger influence on inflation has to be elsewhere.
Yes, I was just about to say this is a novel framing of Moore's law - and that is being quite generous.

Technology certainly has helped keep price inflation down for some goods (like televisions for example) - of course I don't know anyone studying current inflation trends who has overlooked that.

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Re: Why is inflation so low? Moore's law?

Post by corwin » Mon Oct 09, 2017 1:28 pm

It is common for journalists to generalize Moore's law to mean the impact of technology on productivity. Even using that definition I don't know how you isolate electronic technology from other productivity gains.

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Re: Why is inflation so low? Moore's law?

Post by nisiprius » Mon Oct 09, 2017 1:30 pm

avalpert wrote:
Mon Oct 09, 2017 1:03 pm
...Technology certainly has helped keep price inflation down for some goods (like televisions for example) - of course I don't know anyone studying current inflation trends who has overlooked that...
It's even taken into account in hedonic quality adjustment in the calculation of the CPI.
https://www.bls.gov/cpi/quality-adjustm ... nswers.htm
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Re: Why is inflation so low? Moore's law?

Post by GerryL » Mon Oct 09, 2017 2:11 pm

RadAudit wrote:
Mon Oct 09, 2017 12:57 pm
I always thought that Moore's law had to do with transistors. From the wiki -

Moore's law is the observation that the number of transistors in a dense integrated circuit doubles approximately every two years. The observation is named after Gordon Moore, the co-founder of Fairchild Semiconductor and Intel, whose 1965 paper described a doubling every year in the number of components per integrated circuit,[2]

Now, it may have implications beyond integrated circuits but I never made that existential leap. It may have some impact on inflation; but, I'm thinking a stronger influence on inflation has to be elsewhere.
Gordon Moore never intended his "law" to be pertinent to anything beyond understanding the pace of advancement in the manufacture of integrated circuits. Others have adapted it to situations way beyond computer chips. Moore may be memorialized in this law much like Italian economist Vilfredo Pareto is for the pareto (80/20) principle.

Coincidentally, the recent death of former Intel CEO Paul Otellini at age 66 had me thinking just this morning about Gordon Moore and wondering how he is doing.

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Re: Why is inflation so low? Moore's law?

Post by adamthesmythe » Mon Oct 09, 2017 3:58 pm

> Technology seems to be broadly deflationary these days.

Dunno about that. It seems like there are bottomless pits that need to be filled with computers, cell phones, TVs, etc. etc. Each one may seem cheaper but we keep buying more.

I think inflation is low because...we had a big recession, verging on the onset of a depression.

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Re: Why is inflation so low? Moore's law?

Post by Rob5TCP » Mon Oct 09, 2017 4:39 pm

Moore's law may or may not be dead; when the advent of quantum computing arrives all bets are off.
Google claims their Quantum computer will be up to 100,000,000 times faster than your current laptop.

https://www.sciencealert.com/google-s-q ... our-laptop

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Re: Why is inflation so low? Moore's law?

Post by Valuethinker » Mon Oct 09, 2017 5:57 pm

aristotelian wrote:
Mon Oct 09, 2017 1:00 pm
My only thought is that the plummet in oil prices may have something to do with it.
Yes in that fracking is another one of a series of revolutionary changes taking place. In economic terms supply curve moved out to the right meaning for the same level of demand lower prices.

No in that inflation has been falling since 1981 and fairly steadily since 1990. Across the world.c despite the impact of Chinese demand on commodities.

Other relevant factors may include globalization of manufacturing, aging global demographics, declining power of trade unions and rising power of corporations. Also abandonment of Keynesian full employment policies by western governments, a significant factor in inflation in 60s and 70s.

Central Banks have a lot of inflation credibility now so there is no expectation they will fall "behind the curve" and let inflation get out of control. Underlying inflation has consistently been below target since 2000 at least.

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Re: Why is inflation so low? Moore's law?

Post by chuckb84 » Mon Oct 09, 2017 6:00 pm

Rob5TCP wrote:
Mon Oct 09, 2017 4:39 pm
Moore's law may or may not be dead; when the advent of quantum computing arrives all bets are off.
Google claims their Quantum computer will be up to 100,000,000 times faster than your current laptop.

https://www.sciencealert.com/google-s-q ... our-laptop
I don't see how this thread is actionable, although it is interesting. The trouble with Quantum computing is that it only works for a very few special problems. Alan Turing defined how to compute (within some very broad limits) ANYTHING using Turing Machines, which we are all using to type these comments. I am not aware of any similar theorem for Quantum computers, and in my limited (very limited!) understanding of Quantum computers, I don't even see how there could be such a general theorem for Quantum computers.

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Re: Why is inflation so low? Moore's law?

Post by MathWizard » Tue Oct 10, 2017 1:58 pm

Moore's law has to do with printed circuits of semiconductors where transistors can be made smaller by
using smaller wavelength photolithography.

This is a very unique manufacturing technique, and does not apply to other areas.

The only effect of Moore's law would be indirect, with cheaper computing allowing a decrease in
the price of a service which depends heavily on computing.

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Re: Why is inflation so low? Moore's law?

Post by jalbert » Tue Oct 10, 2017 2:30 pm

Alan Turing defined how to compute (within some very broad limits) ANYTHING using Turing Machines, which we are all using to type these comments. I am not aware of any similar theorem for Quantum computers, and in my limited (very limited!) understanding of Quantum computers, I don't even see how there could be such a general theorem for Quantum computers.
P. Benioff, “Quantum mechanical Hamiltonian models of Turing machines”, Journal of Statistical Physics 29, 515 (1982)
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Re: Why is inflation so low? Moore's law?

Post by JBTX » Tue Oct 10, 2017 10:10 pm

alex_686 wrote:
Mon Oct 09, 2017 12:34 pm
Maybe. Inflation is caused when the supply of money increases faster than the demand for money.

Technology is one piece of the puzzle but it can cut both ways. Technology does make things cheaper. Increases in technology can increase productive growth, causing GNP growth to increase, which can lead to short supplies in some sectors and increases the demand for money.

History is filled with examples. I
will point out to the 90s when computer technology finial clicked and productive boomed. This lead to a shortage of workers which caused salaries to rise. Wage inflation, which is one component of inflation
. Not a bad problem to have but still - inflation.
That doesn't really make sense. Increased productivity should cause a decreased demand for labor, not the opposite. My recollection was in the 90's you really didn't see the productivity boom but post 2000 you started to for a number of years. Anecdotally, I always figured the late 90's were about company growth, so in spite of all the technology investing, all companies wanted to grow, so they hired employees, and were more concerned about top line revenue growth and less about earnings - including to the point of profit numbers becoming less reliable Enron style. After the 2000 market crash, and ensuing recession, plus all that investment in IT, including much to address year 2000 bug, all of a sudden companies started utilizing those productivity tools and focusing on profit vs revenue growth.

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Re: Why is inflation so low? Moore's law?

Post by jalbert » Tue Oct 10, 2017 10:34 pm

After the 2000 market crash, and ensuing recession, plus all that investment in IT, including much to address year 2000 bug
Y2K spending was a greatly under-appreciated driver of the late 90’s tech bubble, and of the timing of the unwinding that started in March 2000.
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Re: Why is inflation so low? Moore's law?

Post by alex_686 » Tue Oct 10, 2017 10:44 pm

JBTX wrote:
Tue Oct 10, 2017 10:10 pm
That doesn't really make sense. Increased productivity should cause a decreased demand for labor, not the opposite. My recollection was in the 90's you really didn't see the productivity boom but post 2000 you started to for a number of years.
Increased productive can cut both ways. You may be thinking of the lump of labor fallacy. With increased productive projects that were not viable are now viable. Take a look at unemployment, workforce participation, and income growth during the 90s. The numbers grow very nicely. Then zoom in on the high school education subsection and the numbers are even nicer. Anecdotally, I remember fast food joints offering double the minimum wage and having to close down over lunch hour because of labor shortage issues. Sure it was bubbly at the end but the 90s had a long stretch of increased productivity.

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Re: Why is inflation so low? Moore's law?

Post by JBTX » Tue Oct 10, 2017 10:52 pm

alex_686 wrote:
Tue Oct 10, 2017 10:44 pm
JBTX wrote:
Tue Oct 10, 2017 10:10 pm
That doesn't really make sense. Increased productivity should cause a decreased demand for labor, not the opposite. My recollection was in the 90's you really didn't see the productivity boom but post 2000 you started to for a number of years.
Increased productive can cut both ways. You may be thinking of the lump of labor fallacy. With increased productive projects that were not viable are now viable. Take a look at unemployment, workforce participation, and income growth during the 90s. The numbers grow very nicely. Then zoom in on the high school education subsection and the numbers are even nicer. Anecdotally, I remember fast food joints offering double the minimum wage and having to close down over lunch hour because of labor shortage issues. Sure it was bubbly at the end but the 90s had a long stretch of increased productivity.
I guess we are both kind of right, looking at this chart

http://www.ipwatchdog.com/wp-content/up ... 9/ns-3.jpg

Productivity did take a jump post 2000, but that bump only last a few years. Productivity wasn't above average really until the late 90's.

My recollection of the 90's, and again, this is anecdotal, is that companies were very much into top line GROWTH. Everybody wanted to compete with tech. That lead to a lot of unusual behaviors. Hire more, and just throw expenses on the balance sheet. There was a lot of IT investment going on, but much of it was motivated by the 2000 scare.

Then comes 2000, and a then bunch of financial reform / regulations, and auditors getting thrown under the bus, and all of a sudden there was a focus on the bottom line.

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Re: Why is inflation so low? Moore's law?

Post by OnTrack » Tue Oct 10, 2017 11:40 pm

A more general law is Wright's Law which was originally applied to airplanes in 1936: "cost was proportional to the inverse of the number of planes manufactured raised to some power." The article indicates that Moore's Law and Wright's Law are equivalent "if production of an item grows at an exponential rate."
https://www.scientificamerican.com/arti ... ansistors/

There also a corollary, Gilder's Law that states: "that "bandwidth grows at least three times faster than computer power." This means that if computer power doubles every eighteen months (per Moore's Law), then communications power doubles every six months."
http://www.netlingo.com/word/gilders-law.php

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Re: Why is inflation so low? Moore's law?

Post by just frank » Wed Oct 11, 2017 3:36 am

There is the concept of 'disinflation', that each sector of the economy has a different rate of inflation, depending on its usage of improving technology. And the overall 'inflation rate' is GDP-weighted average of these different numbers.

The ruthless math result is that any sector that relies on skilled human labor, such as education or health care will necessarily have a higher inflation rate than the average. Not due to profiteering by those involved...teacher and doctors...but tech driven price reductions in other sectors pulling down the overall rate below the market determined rate for professional human attention.

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Re: Why is inflation so low? Moore's law?

Post by KSActuary » Thu Oct 12, 2017 2:41 pm

Low inflation is necessary to accommodate the decline in real wages occurring in the US and developed economies. Demographics don't help either as diverting productivity into less efficient parts of the economy (health care/Medicare) provides less real GDP.

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Re: Why is inflation so low? Moore's law?

Post by OnTrack » Thu Oct 19, 2017 8:56 pm

KSActuary wrote:
Thu Oct 12, 2017 2:41 pm
Low inflation is necessary to accommodate the decline in real wages occurring in the US and developed economies. Demographics don't help either as diverting productivity into less efficient parts of the economy (health care/Medicare) provides less real GDP.
Hmm. Isn't healthcare part of real GDP?

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Re: Why is inflation so low? Moore's law?

Post by avalpert » Thu Oct 19, 2017 9:40 pm

KSActuary wrote:
Thu Oct 12, 2017 2:41 pm
Low inflation is necessary to accommodate the decline in real wages occurring in the US and developed economies.
That doesn't make much sense - real wages are already adjusted for inflation so why would it matter if a 2% decline in real wages was adjust for 4% inflation or 6% inflation?

You also might have cause and effect backward (though there are of course considerable feedback loops throughout this system) - typically in periods of low inflation we expect it to lead to low wage growth (I haven't looked at the data since the summer but wages had actually been growing at a rate faster than would be expected given inflation and productivity growth over the last few years)

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Re: Why is inflation so low? Moore's law?

Post by protagonist » Thu Oct 19, 2017 9:52 pm

Complex phenomena can rarely be attributed to a simple explanation. Correlations are ubiquitous and easy to find with a retrospectoscope.

Which is great for those whose livelihood depends on publishing.

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Re: Why is inflation so low? Moore's law?

Post by garlandwhizzer » Fri Oct 20, 2017 1:19 pm

Technology advance has suppressed inflation pressure, no doubt. The other major factor is globalization which allows production capital to flow to cheaper labor markets and lower the cost of production. Current tariff structures then allow less expensive goods produced in EM to flow back into DM without undue cost increases for consumers. It's basically a 2 pronged attack on inflation, tech and globalization. This situation is great for US consumers (all of us) and for those who work in booming high paying tech jobs. Not so great for blue collars who work in disappearing manufacturing jobs. Inequality of income and wealth is exacerbated in this scenario. Oddly, in some ways it's like a slow return to plantation-type economies, except tech rather than agriculture is what's produced but the benefits flow largely one way, to the top. Capitalism is an economic engine that maximizes total economic growth with an ever changing dynamic process that creates wealth in some areas and simultaneously destroys wealth in others. It has always been a two edged sword but never in history IMO has the pace of this dynamic change been so rapid, too fast for many to adjust to.

Moore's Law is just a facet of the big inflation picture, far from the whole story.

Garland Whizzer

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Re: Why is inflation so low? Moore's law?

Post by Valuethinker » Sat Oct 21, 2017 6:38 am

just frank wrote:
Wed Oct 11, 2017 3:36 am
There is the concept of 'disinflation', that each sector of the economy has a different rate of inflation, depending on its usage of improving technology. And the overall 'inflation rate' is GDP-weighted average of these different numbers.

The ruthless math result is that any sector that relies on skilled human labor, such as education or health care will necessarily have a higher inflation rate than the average. Not due to profiteering by those involved...teacher and doctors...but tech driven price reductions in other sectors pulling down the overall rate below the market determined rate for professional human attention.
https://en.wikipedia.org/wiki/Baumol%27s_cost_disease

Baumol has died and so never received his (deserved) Nobel Prize in Economics.

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Re: Why is inflation so low? Moore's law?

Post by Valuethinker » Sat Oct 21, 2017 6:41 am

OnTrack wrote:
Thu Oct 19, 2017 8:56 pm
KSActuary wrote:
Thu Oct 12, 2017 2:41 pm
Low inflation is necessary to accommodate the decline in real wages occurring in the US and developed economies. Demographics don't help either as diverting productivity into less efficient parts of the economy (health care/Medicare) provides less real GDP.
Hmm. Isn't healthcare part of real GDP?
It is. There's quite a lot of evidence suggesting it is understated though.

It falls under the "hedonic adjustments" debate. The reality is that you have a much better chance of surviving some forms of Leukemia now than in 1970. One of the reasons in some cases our results look *worse* is more people are surviving other things, and so living to die of cancer etc.

Once you would have died on the battlefield. Now you may well survive but with amputations, brain damage from IED shocks etc. Thus you move from one set of statistics to another.

Spending on healthcare has risen, but we may be undermeasuring the degree to which the quality has risen.

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Re: Why is inflation so low? Moore's law?

Post by TheHouse7 » Sat Oct 21, 2017 7:00 am

protagonist wrote:
Thu Oct 19, 2017 9:52 pm
Complex phenomena can rarely be attributed to a simple explanation. Correlations are ubiquitous and easy to find with a retrospectoscope.

Which is great for those whose livelihood depends on publishing.
+1 Thank God I don't have to understand half of this conversation to invest effectively.
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Re: Why is inflation so low? Moore's law?

Post by Leesbro63 » Sat Oct 21, 2017 8:53 am

Valuethinker wrote:
Mon Oct 09, 2017 5:57 pm
aristotelian wrote:
Mon Oct 09, 2017 1:00 pm
My only thought is that the plummet in oil prices may have something to do with it.
Yes in that fracking is another one of a series of revolutionary changes taking place. In economic terms supply curve moved out to the right meaning for the same level of demand lower prices.

No in that inflation has been falling since 1981 and fairly steadily since 1990. Across the world.c despite the impact of Chinese demand on commodities.

Other relevant factors may include globalization of manufacturing, aging global demographics, declining power of trade unions and rising power of corporations. Also abandonment of Keynesian full employment policies by western governments, a significant factor in inflation in 60s and 70s.

Central Banks have a lot of inflation credibility now so there is no expectation they will fall "behind the curve" and let inflation get out of control. Underlying inflation has consistently been below target since 2000 at least.
OK, but how much of solving the oil problem was due to technology? I'd argue all of it. On the production side, tech enabled fracking and whatever they call drilling sideways underground. As well as better ways to discover oil and to refine previously unusable oil (tar sands). On the demand side tech has enabled alternatives...solar and stuff that only uses a fraction of energy previously required. So in a way, whatever effect lower oil costs have reduced inflation can maybe be directly related to Moore's Law.

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Re: Why is inflation so low? Moore's law?

Post by Top99% » Sun Oct 22, 2017 8:51 am

garlandwhizzer wrote:
Fri Oct 20, 2017 1:19 pm
Technology advance has suppressed inflation pressure, no doubt. The other major factor is globalization which allows production capital to flow to cheaper labor markets and lower the cost of production. Current tariff structures then allow less expensive goods produced in EM to flow back into DM without undue cost increases for consumers. It's basically a 2 pronged attack on inflation, tech and globalization. This situation is great for US consumers (all of us) and for those who work in booming high paying tech jobs. Not so great for blue collars who work in disappearing manufacturing jobs. Inequality of income and wealth is exacerbated in this scenario. Oddly, in some ways it's like a slow return to plantation-type economies, except tech rather than agriculture is what's produced but the benefits flow largely one way, to the top. Capitalism is an economic engine that maximizes total economic growth with an ever changing dynamic process that creates wealth in some areas and simultaneously destroys wealth in others. It has always been a two edged sword but never in history IMO has the pace of this dynamic change been so rapid, too fast for many to adjust to.

Moore's Law is just a facet of the big inflation picture, far from the whole story.

Garland Whizzer
I agree and I think tech has introduced a 3rd prong: Fracking and cheaper renewable energy are a disinflationary influence on energy prices which in turn influences costs of a vast array of products and services. Burn Out: The Endgame for Fossil Fuels by Dieter Helm is a great read on this topic and the impact of energy costs on 1970s inflation in the US.
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Re: Why is inflation so low? Moore's law?

Post by Index Fan » Sun Oct 22, 2017 9:19 am

mac808 wrote:
Mon Oct 09, 2017 12:27 pm
Technology seems to be broadly deflationary these days.

Correct. I'm reminded of the last half of the 1800's in America when the railroads and telegraph- 19th century high tech- had a deflationary effect that was good for consumers but not necessarily good for employment then.

mac808 wrote:
Mon Oct 09, 2017 12:27 pm
There are a few significant exceptions where there has been a lot of inflation: housing, education, health care, and financial assets.

There's a common denominator involved in those exceptions, but that gets into politics (hint: a big market-distorting factor).
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