A LOOK AT ECONOMICS THESE DAYS - INFLATION ECONOMICS SHOULD BE REPLACED BY DEFLATION ECONOMICS

GOOD DAY TO YOU – A LOOK AT ECONOMICS

THESE DAYS - INFLATION ECONOMICS SHOULD BE REPLACED BY DEFLATION ECONOMICS

I THINK IT SHOULD BE THE END OF INFLATION

WELCOME THE ERA OF DEFLATION

IT IS DEFLATION TIME ……… ERA OF DEFLATION

GOVERN YOUR ECONOMICS WITH DEFLATION

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I remember reading KEYNES three four decades back …….. not much I remember ……… but I do remember his quote -

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“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” John Maynard Keynes The General Theory of Employment, Interest and Money (1936)

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Technology is deflationary. That is not conjecture. It is the nature of technology. And because technology underpins more and more of the world around us, it means that we are entering into an age of deflation unlike any the world has ever seen. We might not like what that means, or be ready for the changes that it foretells, but it doesn’t change the facts.

Our economic systems were not built for a world driven by technology where prices keep falling. They were built for a pre-technology era when labour and capital were inextricably linked, an era that counted on growth and inflation, an era where we made money from scarcity and inefficiency. That era is over. But we keep on pretending that those economic systems still work.

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We are at a critical point, because many of our choices are in fact choices about economics. Most choices come down to economic realities: a trade-off between our perceived value and price. We might aspire to be more environmentally minded while choosing to drive a car that is convenient for us and a toll on the environment. We may want all of our food to be organic but be unwilling or unable to pay the extra cost for it. Businesses are no different. A business is just a collection of people making choices with the aim of growing a better business while, at the same time, in competition with other businesses trying to do the same. “Better business” often comes down to the harsh realities of economics—or the value that the business brings to its users (whether that value is perceived or real). Those economic choices to compete and win more of scarce markets lead to almost everything else. From your income and lifestyle, to your opportunities for travel and leisure, to how you care for your family, economics is fundamental to it all.

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Every so often, we learn something new that rewrites all of what we have come to know and trust. In those moments, our foundation of knowledge crumbles—and with it, many of the beliefs that we have built on top of it. Those transitions are hard because we do not easily let go of our beliefs.

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We are at a crossroads. What worked before will not work in the future. Technology is moving too fast—and it will only move faster from here. Even if we wanted to, we can’t put the genie back into the bottle. We need to build a new framework for our local and global economies, and soon, or the same technology that has the power to bring abundance to us and our world will instead destroy it.

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The only thing driving growth in the world today is easy credit, which is being created at a pace that is hard to comprehend. The rise of that credit and corresponding debt is keeping us locked into a system where we are the proverbial frogs in a pot with the heat of the water slowly rising and we do not notice. And as we try to artificially drive an economic system built for the past, we are creating more than just economic trouble. On our current path, our world will become profoundly more polarized and unsafe.

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There is loss in hope for a better future for large portions of the population. Underlying this loss of hope is a new economic reality where it’s not just the poor who are missing out on economic gains. Much of the middle class is also feeling squeezed. Instead of technology allowing for a fifteen-hour work week, as Keynes predicted when he penned his 1930s essay

“Economic Possibilities for Our Grandchildren,” vast numbers of people are working longer, in jobs they rightly fear will soon be gone. Trapped—wondering how they will provide for their families and basic needs when the other shoe drops. At the same time, we are seeing a massive rise in inequality: even in countries like the United States.

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It is easy to point at the wealthy and assign blame, but the focus should instead be on a broken system that reinforces radical inequality. In fact, many of the wealthiest families are aware of the very same risk to society and are intent on trying to fix it, either by entering the debate and making their voices heard and/or committing to philanthropy. The Giving Pledge, signed by 204 pledges at the time of writing, dedicates the majority of their wealth to giving back. But it shouldn’t even be necessary.

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The concentration of wealth has not been this high since the late 1920s. The world naturally becomes more unsafe when large amounts of people with increasing anxiety about their own economic future see incredible wealth creation in the hands of very few people. That environment provides fertile ground for revolutions. The loss in faith of systems meant to be reliable predictably leads to blame and division—all of which can be opportunistically redirected to target groups such as immigrants, religious groups, political parties, other countries, and so on. In other words, populism explodes because of an unjust system. It’s hard not to look back to a similar loss of hope and rise in populism and ideologues around the world in the early 1930s, which escalated into World War II.

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It is the same loss of hope that is driving elections today. Countries that once considered themselves enlightened are torn by ugly xenophobia, committed to protectionism and closing their borders. Entire populations are being swayed by politicians who incite more anger and polarization by creating “us versus them” narratives without understanding the root causes of our new reality. Many of them are using social media as a powerful weapon in their aim to consolidate power.

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Around the world, authoritarian regimes are flourishing. The trend of more wealth inequality, more polarization, and more discord is a major threat to our collective future. And it is all being caused by the same thing: adherence to an economic system designed for a different time.

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How did we end up here? And where are we going?

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The age of inflation

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All of our lives, we have lived in a world where hope for a better future was a motivating force in economics—a world where growth reigns. Our parents grew up in that same world, and so did their parents. It is what we know.

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It is generally espoused that the idea that no matter who you are, if you work hard enough or are innovative enough you can achieve almost anything you desire. Ever-higher-paying jobs are central to this construct. We expect to start our careers, earn more over time, and hopefully at the same time outrun rising prices. If we are lucky enough to have bought assets, the rising prices of those assets, because of inflation, creates longer-term wealth. If we leverage those assets by adding debt, our return is even greater because the asset increases in value while the dollars that we pay back in debt are priced in today’s dollars—and with inflation, and growth in our incomes due to the inflation, we pay back the debt tomorrow in dollars that are worth less.

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Housing is the classic example of this leverage. All the while, inflation also increased the value of their home.

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Almost any asset shares the same fundamental story, whether those assets are stocks, resources, or art. And there is nothing fundamentally wrong with the equation. It has driven enormous wealth and prosperity. True, asset owners have prospered more than others, which has contributed to inequality, but overall in the world, this process has driven much of the world out of poverty.

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But what happens when we can’t count on a system of growth and inflation anymore? What if a more powerful force renders most of our efforts to create inflation irrelevant? And what if, by desperately trying to cling to an outdated inflationary model, we drive more wealth inequality, more polarization, and more discord into our societies?

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Today, we are in that scenario. The continual growth and inflation we expect—the system we’ve built our nations’ economies around—is ceasing to exist. Technology is a deflationary force so great that, in the end, nothing we do will stop it.

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GOD BLESS !!

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Much Love –

Sudhanshu

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