When it comes to inflation, there is no shortage of opinions. The Fed has to raise rates before we’re confronted with runaway inflation, says one side. The opposite camp argues that there is virtually no inflation in the system, so the Fed should stay put.
All too often left out of these arguments is mention of perhaps the most important dynamic impacting inflation today: technology. Put simply, technology is reshaping the entire economic, social, inflation and investment landscape. And some of the benefits, especially to the U.S., are profound.
Consider the smartphone. In one device you now have the capabilities that would require the purchase of a dozen or more devices years ago, and at a significant savings. After all, have you bought a tape recorder recently? Or a compass?
The impact of this technological revolution on the economy is mindboggling. Technology:
- Creates transparency, which generally leads to price wars;
- Reduces the total cost of labor;
- Enhances distribution and logistics;
- Creates production efficiencies in multiple forms;
- Enables the development of asset-light businesses;
- Improves the standard of living.
The combined effect of all of these developments is staggering, and not only in places where you would expect it. Indeed, when you think “high tech,” the last place that might come to mind is an oil field. But the application of technology as a deflationary force is nowhere more apparent than in the energy industry. Without question, horizontal fracking is one of the great new technologies of our era.