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What technological deflation could be doing to the economy

Earlier in the week, I came across this post (via Fred Wilson), arguing that rapid technological progress is causing systemic deflation in the broader economy.

Here’s a chart that illustrates the author’s point:

What is happening here is that despite advances in technology and increases in productivity, real wages have been stagnant for decades. (This chart is for the US, but it likely applies to many other countries.)

This is an interesting paradox. For a long time, increases in productivity were met with corresponding increases in income. So why the divergence?

The author believes that it’s because the gains brought about by “extreme technological progress” are being unequally applied to the economy. In other words, they do not benefit the majority of people. He then goes on to argue that we could be entering an entirely new macroeconomic era: 

“Economic growth may be over soon, at least in absolute terms. On the other hand that will be at least partially offset by the technological deflation. So instead of the decline of the innovation it will be just the opposite, the explosion of the innovation that will turn the economy to the decline. And moreover, it will not be a tragedy since we will be able to produce higher standard of living with fraction of the GDP today. Few adjustments needs to be done into our economic system to cope with the change for sure.”

When you read things like this it makes the idea of a “basic income guarantee” seem far more palatable.

The other chart that stood out to me was this one below, which shows the declining cost of solar panels and the rise of global solar panel installations. 

It’s a great reminder that it’s only a matter of time before we wean ourselves off of oil. And, that we could be headed towards some sort of third industrial revolution where the marginal cost of energy is almost zero. Already about 25% of Germany’s electricity comes from renewables.

On that note, I am going to end with a fantastic interactive chart from The Economist (screenshot below) that outlines oil reserves around the world by country. If you click through to their website, you can then toggle the price of oil (per barrel) to see how much of those reserves are actually viable.

With the price of oil where it is today ($27.88 per barrel as of January 20, 2016), there are only a handful of countries with profitable oil. I am sure you could have guessed which ones.

What will happen if, or should I say when, that oil is no longer needed? 

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