“Zero Money”: First Principles Thinking About Monetary Value
Change the Money, Change the World (14)
Part 4(B) — Phases of transition to a novel paradigm 2(A)
In this essay, I am in the process of substantiating that there is a much more promising approach in a deflationary system of decentralized digital currency. There is a lot of evidence we are evolving a peer to peer monetary sovereignty, free of third-party governance. I continue with a multi-part description of the second of the four phases that need to occur. Each successive phase is built on the previous ones, as the previous ones are being completed:
2. The deflationary impact of technological disruption for the current monetary paradigm
I will attempt to summarize the main ideas of Jeff Booth’s thesis on this, then expand on his thesis by asserting that we need to foster a new technological monetary system for an abundant future: It is essential to deprogram and re-educate our entire society after 80 years of cultural conditioning that has resulted in a passive acceptance of the current economic paradigm. The age of inflation is already over, but the vast majority do not know this. Growth through credit and debt needing higher prices and wages for more jobs cannot outrun technology reducing prices by removing jobs. Corporations can only maintain superior competitive advantage by employing technologies that remove jobs. Only a collective insanity thinks jobs and economies can expand enough to repay exponential debt creation while exponential technological innovation drives prices lower. Lower prices can only motivate employers to pay lower wage levels, but this need not mean a lower standard of living:
“… With the incredible amount of debt today … price deflation would create a … negative feedback cycle … driving growth against … technology deflation, global debt could become a number so high that the only way out is to hit the reset button … the rules will change instantly”
The Price of Tomorrow — Why Deflation is the Key to an Abundant Future by Jeff Booth
I will list some of the economic factors Booth details with respect to their inevitable deflationary impact. Subsequent to his scenario encapsulated in the above quote, he goes on to stipulate:
“… the pain of an asset unwind and negative feedback cycle means that governments will try to stop it by all means necessary … the International Monetary Fund … authors discuss how central banks can design and operate a system where interest rates could be far more negative … as interest rates drop … deposit holders move their money out of banks and into cash … the proposed solution sees a mechanism where negative exchange rates are applied … so cash would be taxed at the same negative interest rate”
Booth asserts the IMF has basically lost the plot because drastically below zero interest rates for such a mechanism would be needed. That need exceeds the limits of how a central bank could reduce interest rates. He also acknowledges that the debt and credit cycles have had a very positive effect in alleviating world poverty, and for the first world, have supported rising prices across asset classes for those who could invest. This has generated job creation for the people who could not invest, but who do have the greatest propensity to spend. Also noted is that the technology sector was greatly accelerated by available venture capital. He then concludes that section of his book (Pages 100–104):
“But that boom has now led to another boom, a phase shift where all the rules change … The simple power of technology is that it allows for abundance without the same amount of jobs or income … if we let it. It is a fact that we better get used to if we want the same abundance in our lives.”
There are a number of industries, businesses and economic issues that support anticipation of technological disruption of the Keynesian model. Advances in technology are following a geometric progression. I think most people are familiar with Moore’s law of doubling of computer power and halving of cost every couple of years. This has held up, but is expected not to. Such specific models, in this case specific to the transition of transistors to the silicon chip follow not a continuous hyperbolic curve but an S-curve (what is called the Sigmoid Function). Meanwhile, though, new disruptive technologies begin before the end of the previous one — for example a new S-curve for quantum computing. A geometric progression takes place in the set of a particular new technology that eventually begins to level out. Then a disruptive innovation enters that set and a novel paradigm emerges to continue progression. So geometric progression remains the apt description for technological advancement.
Our understanding of geometric progression is difficult to grasp. Our life experience is a reference for what we expect, so we unconsciously think technology will advance in the next 20 years at the rate we have seen, but that rate is actually closer to twice as fast in less time. I will provide some sets of examples: technological advances we are familiar with and advancing now, more significant trends not yet fully recognized in the mind of the general public, and technological change with radical social and political ramifications. The reason for this divergence from speaking strictly on digital currency innovation is twofold: initially because digital currency is coming faster and more pervasively than is generally recognized, but more importantly because it will really change everything in its social and political ramifications as a means for having currency that can adapt and match the unprecedented deflationary impact of the coming technological disruption in computer science.
We can begin with three clear examples of things actually happening already:
a. Self-driving vehicles will be a huge disruption of the automobile and trucking related industries. It will replace most people and businesses owning and operating cars and trucks. Instead, will arise computer platform companies providing ubiquitous transport needs and enjoying the profitability of the network effect of providing what is needed where and when. In this transition, there are tremendous implications for land use, and of course for jobs no longer needed, and for prices going down.
b. Zooming all the way in on Google maps gives you a position right on the street; we have all done that. This is just a taste of what is coming in augmented virtual reality. Mixed realities created with satellite imagery, GPS, mapping and video and other technologies will offer remote viewing and analytic activity without physical travel. In time, the user interface experience can approach that of people traveling to onsite places, events, and other interactions. We can imagine the disruption to the immense travel market, and other entertainment and recreation possibilities as virtual reality advances. Not so immediately apparent though, are the many implications for business and research. Such augmentation will allow entirely unprecedented ways of planning and analyzing real world strategies and potential results. The labor and costs of the virtual world experience will greatly undercut that of real world logistics required for real world investigations and measurements.
c. Additive manufacturing and 3D printing has advanced in speed, and continues to demonstrate potential in applications for materials far beyond plastics: metal, glass, food and a range of new nano-materials. We haven’t seen yet a printer next to the microwave or in the garage, for home, office or workshop consumer product production. However, we are seeing amazing printing applications in the medical, automotive and aerospace industries. They are producing quality and other performance results for prototype design then production of lighter, better machines, engines and parts. Some traditional manufacturing of high cost/low volume parts have also been replaced by additive manufacturing.
The three examples above are just samples of concrete things we have all seen. Any and all such examples have in common providing us with more abundant goods and services at lower prices while in turn leading to fewer jobs at lower wages. In short they are deflationary. There are much more significant and disruptive trends are not yet fully recognized in the consciousness of the general public, and some radical social change issues that will drive transitioning out of the existing economic situation. These trends will be described in the later sections continuing about the second of the four phases that need to occur in a transition to a new monetary paradigm.
The existing credit and debt economy has completed several cycles accumulation unsustainable debt and has entered a culminating major correction. Not only is there unsustainable debt, fiat currency printing has exploded such that there is a real danger of hyper-inflation coming to the second world and eventually to the first world just as it has to the third world. The deflationary impact of geometric technology innovation may begin to offer a disinflationary solution, but this solution creates a world of lower prices and wages requiring itself a new monetary and fiscal model in replacing the fiat currencies now the monetary reserves of nation states. A pan-national adoption of a fixed amount of units of a medium of monetary account is required. A social and political struggle will have to ensue to adapt the current world to this major paradigm shift and gradually adopt to a technological monetary medium of money.