Technology is Deflationary
Technology, like Nature itself, has no emotional stake in what is creatively destroyed.
We all know the Federal Reserve is terrified of deflation, because they keep telling us that deflation is the equivalent of death and inflation is the equivalent of oxygen. What they fail to mention is that inflation is only oxygen for debtors barely able to service their debt and those who profits from debt, i.e. bankers and financiers.
For everyone earning a wage or salary, inflation is the equivalent of death by a thousand cuts and deflation is the elixir of life. When prices decline, our money goes further, i.e. our purchasing power increases.
Only bankers, governments and other parasites that live off the carrion of debt fear deflation and try to destroy the purchasing power of wages with everything in their power. The irony of all the parasites pushing inflation as the cure-all is the only real cure-all to our present stagnation and decline is the complete renunciation/write-off of unpayable debts, a systemic bankruptcy that rights the ship of state and the economy by writing off bad debt and blowing off phantom collateral, i.e. assets that are supporting debt whose valuations have been pushed to the moon by easy-money and low interest rates.
Let's start our discussion of technology and deflation by asking one question: has there ever been a central authority that tried to stop the spread of technology and won?Not to my knowledge; new technologies that offer enormous benefits (think affordable eyeglasses) and astounding reductions in cost spread like wildfire, even when central banks and states are dead-set on suppressing their creative destruction of Status Quo vested interests.
Sorry to bring the bad news, Fed inflationistas, but technology is irrevocably deflationary. The exceptions are: regulations that require additional technology to benefit life safety, and entrenched interests that erect barriers to competition and new technology, for example, Big Pharma and the sickcare industry.
When state-protected cartels rule the roost, costs go up no matter how much new technology is introduced. State-protected monopolies (sickcare, higher education, etc.) can suppress disruptive technologies, at least for a while, until their bloated, high-cost, diminishing-return structure collapses under its own weight.
Obamacare is a Catastrophe That Cannot Be Fixed (December 6, 2013)
The real unsubsidized cost of Obamacare for two healthy adults ($23,244 annually) exceeds the cost of rent or a mortgage for the vast majority of Americans. Please ponder this for a moment: buying healthcare insurance under Obamacare costs as much or more as buying a house.
The Orwellian Affordable Care Act will not last, because it is intrinsically unaffordable, wasteful and inefficient. Only those whose care is paid by others via subsidies think it affordable; on a systemic level, it is doomed to implode, and the sooner the better in terms of enabling technology to creatively destroy vested interests.
Technology is enormously deflationary on a number of fronts.
1. Perhaps most importantly, technology eliminates costly human labor. In the late 19th century, roughly 50% of the labor force worked on farms. Today, the number is 2% of the workforce.
At the turn of the 19th century, the largest category of employment was domestic help. The rise of electrical appliances and machines of convenience eliminated much of the need for domestic labor.
The next sector to undergo large-scale destruction of jobs was manufacturing. The process of replacing human labor with robots and software automation in factories is still underway.
Advances in software are now eliminating white-collar office jobs and retail employment. People like me (self-employed information workers) can now produce output and manage services that required three to five people a mere 25 years ago.
Although many believe new technologies create more jobs than they eliminate, there is precious little evidence of that today. Anyone who thinks biotech is going to create millions of new jobs needs to survey the job market for PhDs and those with Masters degrees in biotech fields--biochemistry, etc. The job market is tight, not expansive; these high-tech sectors can only absorb so many graduates, regardless of their level of training.
Just issuing diplomas does not create jobs for graduates.
As technology eliminates millions of jobs by replacing human labor, wages decline and the percentage of national income that goes to labor also declines. This means there is less money for consumption, pressuring prices of consumer goods. This is broadly deflationary.
Here is labor's share of income:
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