Where Is The Inflation? (continued)

If you read my blog posts regularly you will have noticed that I have written about the deflationary effect of technology a time or two before. Here, for example, and here. One reason that I continue to “harp” on this subject, in addition to the fact that inflation is an important consideration in most matters related to financial planning and investing, is that many of my readers and most of today’s investment experts came of age during a period when inflation was a persistent concern. As a result we tend to think of that time as normal. However, today normal may be different, because some of the important factors which tend to be inflationary are missing, or reduced.

For example, according to the US Census Bureau, International Database as reported here, during the decade of the 1970s the global population growth rate was 20.2%. During the first decade of the 21st century the rate of population growth was only 12.6%, and the expected growth in the current decade is just 10.7%. Further, prior recent inflationary periods occurred during a time when strong labor unions represented much of the labor force and negotiated wages indexed to inflation. And, labor was not as easily relocated to developing countries.

Another significant factor contributing to a low inflationary environment is technology. Today’s technology allows a business enterprise to produce goods (and services) at a much lower cost than could have been the case just a few decades ago. Not only is technology contributing to unemployment and underemployment; as well, the accelerating curve of innovation is having an ever greater impact on wages and costs. As one example of the deflationary impact of technology on costs I present a graphic from Peter H. Diamandis and Steven Kotler’s book, Abundance: The Future Is Better Than You Think.

Please take a look at the graphic above and let some of those numbers sink in for a moment. You could purchase a digital voice recorder in 1978, at a cost equivalent to over $8,000 in 2011, whereas in 2011 your smart phone could become a digital voice recorder for no additional cost. In 1986 your five megapixel camera would cost you over $6,000. Today my smart phone comes with a camera capable of much, much more. At no additional cost. Today we use global positioning satellites to help us navigate the globe at little or no cost, and I regularly meet with my clients via video conferencing. The cost is insignificant. Are our lives improved as a result of these, and other technologies? Greatly. Is our cost of living decreasing? It certainly is with regard to these things. (Citations.)

But what about other things? Food? Energy? Star Wars tickets?

Digital technology is not the only factor involved in the cost of goods and services. Still, as we (hopefully) continue to progress toward better living standards for all people it is reasonable to assume that our increasing, shared knowledge will result in lowered costs for many types of goods and services.

Sustainable energy will cost less.

Our Sun is a potential source of unlimited sustainable energy and our ability to harness this source improves daily. The cost per unit of Sun’s energy has fallen dramatically over the past decades, and will likely become more than competitive with petroleum based energy in the future. According to one Bloomberg study, in 1977 the average cost of a watt of power from a solar panel was $77.67. As of September 2014 the average cost was about $0.61 per watt. That’s 61 cents for a unit of power that used to cost 77 dollars!

However, according to theoretical physicist, Dr. Michio Kaku (Physics Of The Future: How Science Will Shape Human Destiny And Our Daily Lives By The Year 2100) the real game changer will become available by midcentury. Nuclear fusion will allow essentially free and unlimited energy. Talk about deflationary. Today the costs associated with energy add to the costs of virtually all goods and services sold. What will happen to the prices of those goods and services as energy costs fall to nearly zero?

Better food will cost less.

Over the centuries various technologies have allowed better and lower cost food to be available to more people. Ongoing technological innovations can allow this trend to continue. One impressive example is vertical farming – more food on less land. Automated planting, harvesting, etc. would be another. (Side note: I read recently that one of the reasons that incense was important to ancient peoples was that it could be used to mask unpleasant smells around the house, including those of spoiled foodstuffs. Not only has food become less expensive, but also of better quality.) A couple of years ago my family was visiting EPCOT, the Experimental Prototype Community of Tomorrow, the Walt Disney World park devoted to technological and scientific innovations and applications. We signed up for a special tour called “Behind the Seeds”, which is a backstage tour of one of the Disney agriculture and aquaculture facilities where much of the food is grown for some of the Disney restaurants. It was fascinating! I would recommend this tour to you the next time you visit EPCOT. It will open your eyes to the future of foods. I found a few YouTube videos taken by tourists. If you are interested here’s one to get you started.

For years now one of the phrases that I have heard over and over from various folks involved in various businesses is the need to do “more with less.” And businesses are doing more with less. So are farmers. And the farmers of the future will do even more with even less. More good food. Less land. Less water. Less energy because of less travel expenses. Less food contaminants and pesticides. Less inflation.

Star Wars tickets?

Well, the inflation adjusted cost for some things has increased over the years. According to one source the average cost for a movie ticket today is $7.92. In 1910 the average cost was $0.07. Adjusted for (general) inflation $0.07 would become $1.71 as of 2013.