Will AI drive massive deflation

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Daily Videos on Economics and Freedom by an economist, former MBA professor, and former bartender.

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The "computer revolution" should have up'd productivity like the steam engine and electricity, but no. All that productivity has been sucked away by growth of government.

CurtHowland

Thank you for all your videos, superb 😊

jesusbaetana

This is essentially what the book "The Price of Tomorrow" by Jeff Booth is about. Technology is fighting Inflation.

QDogg

As soon as this video is brought to you by Carls Jr, you know we've arrived.

kylewatson

Thanks... always very concise and no BS

vtecgrin

Bots take jobs and produce goods The unemployed use what to buy these goods? 😂😂😂😂😂😂😂😂😂

gereral_jackofalltrades

Kathy still has money after all her bad and WRONG calls .

neilshahndynasty.

Great stuff Peter! Keep up the good fight…

Mike-tlg

Precisely. I do not know how Cathie does not get that. Let's say AI or something makes such an impact one year than prices actually go down. This is very unlikely BTW, not in such a sudden way, these things take longer to ramp up. But lets say that happens... What is Government (any Government) going to do:

A) Lets pay some of the growing debt, in fact lets try to balance budget over time by not growing spending faster so that tech deflation overtake our spending spree...

B) Party! No need to worry! AI (or whatever) will pay our bills, MORE DEBT for next decades! Mr Central Bank/Fed credit, PRINT please!

There is exactly 0 chance todays governments will chose A) (Maybe Milei, but that would be it)

This is precisely why deficits are NEVER a income problem, AND ALWAYS an expending problem.

joseluisvazquez

And so the question needs to be asked, why do we still have the Fed?

alexdetrojan

Flawed logic, which I'm surprised because Pete is usually so spot on about economics. Let's take his example a mug example a few steps further. The company making mugs only sells them at the lower price because they're earning more in profits selling at that lower price. Also, since people buying mugs are paying less, they have some extra money. Thus the cheaper price for mugs makes EVERYONE in the economy richer. When everyone's richer, the demand for all goods and services increases, and when demand increases prices increase. For mugs, the supply effect is stronger than the demand effect, so their price goes down, but for every other good, there's only the demand effect and the price increases. Assuming no more currency is issued, the average effect on inflation is ZERO.

"Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced ONLY by a more rapid increase in the quantity of money than in output." - Milton Friedman (my emphasis on ONLY added). Friedman's brilliant statement (he ain't the GOAT for nothin') also applies to deflation: the only way there can be deflation is if there is a more rapid increase in output than in the quantity of money.

Now someone might be tempted to say MY logic is flawed because AI isn't just going to make the price of one good cheaper to produce, it's going to make the price of ALL goods cheaper to produce. First of all, there are a few goods whose quantities are fixed or close to fixed, like rare books, gold, and land, and if everyone is getting richer, the price of those items will soar. Second, there are some items like helicopters and mansions that currently only wealthy people can afford, but as AI makes us all richer, more people will be able to afford them, and although AI's affect on supply will be to decrease their prices, the effect on demand will overwhelm the effect on supply so their prices will increase. Finally, as has happened throughout history, as the population gets richer, entrepreneurs invent new products. New products screw up inflation calculations because there's no way to handle an average price calculation when there's suddenly a new product introduced, but essentially how it's handled now is that as the new product is added to the bundle of products being averaged, all the pre-existing products are assigned lower weights in the bundle, thus their prices going down doesn't effect the bundle as much because they're a smaller percentage of what a typical person buys.

By the way, these last two effects - shifts in buying patterns and the effect of brand new products - cause a lot of arguments about whether inflation is being handled correctly. I'm not up to date on the latest literature, but I looked into this fairly closely around 2006 and the concensus was that inflation was being overestimated by something like 1%. That might not seem like much, but it completely changes some of the things we "KNOW" about the economy. For instance, when you hear how middle class wages have stagnated or slightly decreased over the past few decades, that changes to a fairly robust increase, if we decrease the inflation factor in calculations by 1%.

So the net effect of AI is to make the population richer. Where Pete is actually correct is that the government through central banking manipulations, i.e. creating more money can effectively steal a portion or even all of that increased wealth through loose money policies and use it to fund a bigger and bigger government. Essentially what's happening is that the productive proportion of the economy is getting smaller so that even though it's getting much more productive, the wealth being generated is squandered to support the non-productive (government) portion of the economy.

ajlenze

I cannot find your interview with Kevin mate?

therealscot

Deflation in jobs. They will deflate that market incredibly.

grantgoldberg

There will be fiat inflation till the end of the debt-based system. Anyone with anything resembling an attention span should be aware that there is *durable deflation* in Bitcoin terms. Go check the numbers.

derikuk