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Monday, October 15, 2012

Deflation everywhere, except monetary policy

The typical view many armchair economists take is viewing the capital markets and central bank policies, calling foul when central planners bend or break the law in the spirit of saving the economy.

I agree in spirit that central planning is bad vs free markets.  If a regulated, transparent capital market was set free to evolve on it's own, there is no question in my mind that the world will adapt to change much faster, and efficiently.

But what most miss is part of the problem IS efficiency.  Technology RUTHLESSLY tears down inefficient and helps evolved business and social fabric to a more efficient model.   What efficiency effects are basically less people can do more.  Meaning, you don't need as much middlemen from the Makers to the Consumers.
As this happens, the net result is if your not a maker, or wealthy enough to be a eager consumer, you fall into the cracks.  This group of people is ever widening, as technology moves forward.

What compounds this effect is global trade efficiency, in effect allowing others around the world compete for work.  Net this is a good thing, for people who most desperately needs work can get work.  But the effect when looked at closer can be more personal and disturbing.  Plus global trade raises questions of what is efficiency....and what is fair.

Easier examples of technology efficiency effect is music industry, software makers, open hardware, financial trading, retail distribution, farming, and hosts of other industries.  When you look at each one to see how they have changed and are changing over the last decade, it is easy to see the displacement of workers.

The makers and consumers benefit from a more direct relationship, yielding cheaper prices and more competition.  But the channel distribution now yields less workers.  Consider WalMart vs mom and pop stores across the country, music stores vs iTunes, local book store vs Amazon.
Farming is moving towards 100% robots ...except for on-call mechanics...as cheap labor is driven out by cheaper labor, robots.

When you see the changing landscape, if left up to a more efficient market, we may see honest assessment of unemployment in USA of 25% or more.  Possibly in some areas of Europe of 50%.  By artificially keeping inefficient human processes afloat with Government spending, Central Bank intervention, what is being done is avoiding the reality today in hope a better answer appears tomorrow.
Extrapolating into the future, (with DOUBLING of technology every 18 months!) this problem will accelerate.  Picture a world where renewable energy accounts for 75% of energy use, self driving cars, planes, google glass, and robotic factories.  A world where a flexible robot can be easily adapted to a wide variety of custom tasks.  This is NOT a world of full employment, for those less skilled simply cannot compete vs automation.

So when people pound the ground that we need to return to an efficient capital marketplace, you best be a maker, a skilled specialist, or a well positioned consumer, for the rest may not like the world that leaves them out.

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