In the last article, Why Things Do Not Crash: Gross Domestic Product, we discussed how GDP is an outdated metric because it vastly underestimates the amount of economic activity.
I gave a number of examples of areas we see this.
With this article, we are going to discuss the major component often overlooked by the masses. It is not surprising since they call inflation a "silent tax". The meaning here is that most people do not usually see it.
The same could be said in the reverse.
Technological Deflation Is Why Things Do Not Crash As Many Proclaim
If things are so bad, how come the standards of living keep rising?
Did you ever think about that? We hear a lot about how awful things are yet it is usually from people posting on the Internet. Do these people realize how much money it would have taken in 1985 to reach thousands of people, let alone millions?
The answer is pretty clear considering how people approach the subject.
I have written about how we are in the information economy. This is the basis for tens of trillions in global GDP (in spite of it being underestimated). Do you know how easy it is to access that today compared to decades ago?
The problem, much like inflation, this is silent. Few people realize they no longer has a long distance phone bill. They also discount the fact that they do not have to buy gaming cassette tapes and that most online games, at least in the basic form, are free to play.
Even the concept of an energy efficient air conditioner or appliance is overlooked. Home can now be cooled with smaller units as compared to the ones decades ago, due to advancements in technology. We see an assortment of products that have more power output with less energy input (cars for example).
All of this feeds into the standard of living.
While it might have been silent, that is not likely to be the case over the next decade. The pace of technology is such that even most anyone is going to see it.
Massive Deflation
To illustrate what is happening, let us take a look at the writing of articles.
This is something that, historically, was paid for by different media outlets. Whether it was newspapers or magazines (even online), people were compensated to write stories. There was a cost to the outlet, or website, for each article.
For the sake of discussion, let us use $50 as an example.
How does this compare to what a chatbot produces in terms of cost? We all know that the technology is such as a chatbot can produce a quality article in a few seconds with the proper prompts. While it might not rival the human written one, something that is likely temporary, the economics are overwhelming.
We basically saw the cost of something go from $50 to a few cents.
If we consider how many articles are generated each day around the world by professional writers, that is a fair bit of GDP. Yet, with a chatbot, it is essentially free.
This is just one example of what is going to take place.
The point being that society still have the benefit of all the articles written and the sharing of information. In fact, there is far more being created than ever before.
Yet, over time, the contribution to GDP is going to be almost zero.
Free does not fit into these models very well.
Massive Computation
There is no doubt, the most recent "revolution" was based upon the transformation to digital. This altered every facet of society. Even the developing world is involved.
Consider what someone can do with a $20 smartphone. This is a computer that is more powerful than anything that existed in the 1980s. Heck, it probably tops most of what was used in the 1990s.
These devices are all over developing nations. In these areas, the laptop/PC era was skipped. They also didn't deal with wired Internet. Some are going to end up using satellite as their first connection.
It is a long way from dial-up.
Then we have automobiles. This is another area where we see massive technological progress yet doesn't get much attention.
What happens when a car goes twice as far as once from 40 years ago. Many who are old enough will remember the days when you had to unload a car at roughly 50K miles because it would depreciate quickly after that. Many were dead by 100K-125K.
Today, even a low end Kia will go 200K without breathing hard.
Certainly, we do not have to go through all the features that are includes that weren't even part of science fiction half a century ago.
Do you remember the Jetsons? What did George's flying space craft have in it? Nothing compared to what is in a basic automobile today.
Computation is most evident in the smartphone. Look at just a sampling of what this technology replaced:
Of course, this doesn't even include all those industries that were affected by what the smartphone can access.
Bigger Homes
One final piece if the size of the average home in the United States.
| Year | Average |
|---|---|
| 1980 | 1,595 |
| 1990 | 1,773 |
| 2000 | 2,100 |
| 2010 | 2,477 |
| 2018 | 2,386 |
Since 1990, that is a 35% jump. Ironic since families are having less children.
While the prices have gone up, due to population growth and urbanization mostly, we see that size is also a factor. Of course, this is not often discussed.
One thing to keep in mind, construction is one area where, for the most part, technology has not greatly affected. We can expect changes from robotics and, perhaps, 3-D printing to really alter this.
The bottom line is we keep getting more at a pace greater than we see GDP rising. This is something that is only going to accelerate.
Just think about the fact that, using most any chatbot, we can access any knowledge from the world's database. In a matter of seconds, we can have the data along with a chart for free.
How much would it have cost IBM or General Motors to produce something like that 40 years ago?
In summary, the distortion of the economy due to our metrics are causing a misread on what is taking place.
Society keeps marching forward in spite of calls that it isn't.