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Digital Deflation

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Digital Deflation

The Productivity Revolution and How It Will Ignite the Economy

McGraw-Hill,

15 min read
10 take-aways
Audio & text

What's inside?

Due to better tech, product quality is up, prices are down and, yet, the U.S. fears inflation more than deflation. Why?

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Editorial Rating

7

Qualities

  • Controversial
  • Eye Opening
  • Background

Recommendation

Imagine that companies throughout the economy had access to new, better technology every year, and made better products without raising prices - in fact, while cutting prices. Now imagine that the regulators and policymakers used outmoded measurements and models that ignored these quality improvements and this downward price trend. Imagine that the Federal Reserve saw a risk of rising prices even when prices were falling. Imagine that the Fed kept tightening the economy unnecessarily, sending interest rates up, slowing growth, inducing stock market crashes and recessions, and doing the opposite of what it should. If you can imagine all this, you have a picture of U.S. economic reality as seen by author Graham Tanaka. It’s a picture no one, especially investors, should disregard. getAbstract.com found his book immensely interesting - too long by half, with too many repetitious references to his previous publications (perhaps just his way of saying, "I told you so"), often tendentious and labored, but not to be ignored. Just be cautioned: this sounds somewhat like the bubble speak we heard at the end of 1999 and the beginning of 2000 - other times of strong growth without inflation.

Summary

Demographics and Inflation

The U.S. enjoyed relatively stable economic expansion from the end of World War II through the 1950s and 1960s. Established economic models worked well. Then something unexpected and inexplicable happened - inflation broke out and ran rampant through the 1970s. The U.S. economy performed very badly. Productivity stalled and fell. Why? Although no one recognized it at the time, the cause of this inflation was demographic. Baby Boomers began to enter the workforce in the late 1960s, as did women. The U.S. government was pursuing policies aimed at expanding the number of jobs - a policy dictated by the "Politics of Need," the need to respond to urgent socioeconomic reality. Expanding jobs and stimulating the money supply led to a fall in productivity and a rise in inflation, thus the 1970s inflation was a demographic phenomenon.

By the 1980s, the demographic transition had happened. Women and Baby Boomers had made their way into the work force. Regulators responding to a new "Politics of Need" reversed the arguably misguided policies of the 1970s. Meanwhile, companies were beginning to find effective uses for digital technologies - especially...

About the Author

Graham Tanaka, C.F.A., is president, chief investment officer and chief economist for Tanaka Capital Management, Inc., and the TANAKA Growth Fund. He has held senior level positions with Morgan Guaranty Trust and Fiduciary Trust Company of New York, and serves on the board of directors of TransAct Technologies.

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