Building An Abundant Future Through DeflationBy
My first personal blog in years. I actually looked back through all my posts and find it interesting how so many of my opinions have changed in the last few years doing my 2nd startup, moving to America, becoming a father. I don’t think I would write a blog praising Marget Thatcher as much today considering what I now understand about the after effects of her legacy, although I still respect her as a leader and her ability to drive change when the UK needed it.
So what has inspired me to finally write a blog after all this time?
I recently came across Jeffrey Booth in several online interviews and decided to buy his book (The Price of Tomorrow) to hear his arguments in full. As a technologist like myself, he’s articulated the core problem with the current social-economic system perfectly which I sum up as:
Technology should be driving deflation, things should be becoming cheaper and more abundant, yet for some reason everything seems to be getting more expensive and wealth inequality is exploding.
The fact he published this just before the Covid pandemic is very timely, as we’re seeing some of the issues he criticized playing out in real time as the Central Banks create TRILLIONS of dollars of new debt to keep the current system from collapsing.
We’ve watched this influx of debt prop up zombie companies, take the stock market to all new highs, and create a huge demand for single family homes as people move out of the cities and can spend more with some of the lowest mortgage rates ever recorded, driving up real estate prices despite whats happening in the economy.
Common sense no longer prevails. I got out of the Stock market just in time, because even before Covid I couldn’t believe that my investments made any sense (for example one of my investments that has traded at a P/E ratio of 15 for years, has traded at closer to 26 for the past 12 months, without a significant change in revenue growth to justify that increase!). It was “obvious” the market was overpriced and due for a crash, but because the Government stepped in, its not so obvious anymore, and perhaps I would have been been better off staying in the market, instead of now risking my cash being inflated away.
The “obvious” advice, many of our parents have told us, to work hard, save up, just doesn’t work anymore as we’re seeing with a whole generation now unable to move out from their parents house. We’re either heading towards hyperinflation, in which case I’d want to go all in to Bitcoin, or we’re heading towards a massive deleveraging, a massive depression with massive deflation, where cash will be king again (not trash as Ray Dalio calls it), and keeping all my money on the side lines was the right thing to do.
Its hard to know where to invest when the market signals are so manipulated right now. Most of the investment advice I’ve had all my life has been about using “good debt” to buy real-estate and businesses that generate cashflow. But right now, is that a good strategy, even with all the potential “bargains” I suspect will appear in the next year. If the party stops and you’ve used debt to acquire your empire, you will be destroyed in a deflationary environment.
It all comes down to the government. The market no longer is “free”, it has been nationalized by the governments. If they keep the printing/debt machine going, the party could go on for another year, or 10 years, during which cash is just eaten away with inflation, and potentially negative interest rates. But if they stop it, no longer able to stomach piling on the debt as they veer close to the line of hyperinflation, the whole market will collapse, zombie companies will go bankrupt, huge job losses, depression, and asset prices that have no chance of ever returning to the current highs for a very, very long time, if ever.
I feel like investors are essentially playing Chicken with the Fed’s monetary policy, hopefully selling out before the crash when they announce that “QE infinity” is over.
Jeff gets straight to the point that many people in the Bitcoin community have been saying for years: the current system collapsing is not a matter of if, its a matter of when. It will head that way because technology will exponentially deflate our economies, destroy jobs (which will not come back in other forms as some optimists assume), and ultimately lead to an abundant future for everyone, or a highly unequal future where we’re forcing people into such deep poverty they have no choice by to revolt against the few of us in tech that have gained from the trend.
I’ll let you buy and read the book for yourself to go into all the arguments behind this statement. Where I feel the book kind of finished off early, and he even admitted he needed help, is with predictions and solutions on what the new world would look like after the collapse, if we allow deflation and technology to take its natural path.
A Techno-liberal, Not a Technocrat
My interest in the social-economic system started mostly back in 2008, when a wave of books and discussions about AI and robots annihilating jobs and pushing us all towards unemployment, began to appear. As someone deeply involved in technology, it seemed very obvious this was where the human race would end up.
Since then I’ve found myself soften from a hardened Capitalist to become a slight-Socialist, but I prefer to be called a “Technologist”. This is not because of any particular ideology, its just trying to imagine how our society becomes in a world that doesn’t require jobs or competition over scarce resources, when technology makes almost everything abundant.
If you take AI and nano-technology to their natural conclusions, whether its 50 years, or 1000 years, there will be a point where we’re essentially like the Greek Gods sitting around with not much to do. Every need will be satisfied, either by AI robots serving us, or nanotechnology building complex machines and objects atom by atom from their raw materials. Combine that with Augmented Reality, and a normal day would be like Hogwarts, where we can “magic” objects and entire worlds around us whenever we want.
It seems obvious to me that in that type of world, Healthcare is free (only America seems to have a problem with that one today), world hunger and poverty is eradicated, and no one needs to rely on a job to get income to survive anymore.
As a Founder, who’s grown up in middle-class Britain, with medical parents that earned good money, I’m very aware that the reason why there’s a lot of startup Founders like me (white/arab, middle class), is because our biggest risk quitting our jobs and starting a company is “boo-hoo, now I need to move back in with my parents or get a high-paying job at a big tech company”. Hardly any of my circles were ever at risk of being homeless or losing it all. Either our families, or our good educations would bail us out if needed. This is why you don’t see a lot of minority founders, I can’t imagine being so flippant about quitting my decent job (twice now) to start a company with a non-guaranteed outcome, if my fallback was homelessness or not being able to get a job to pay the bills.
So for me, when I imagine this future world, I am an optimist. I don’t believe people will become lazy and not work just because they don’t need to. There’s plenty of rich kids that add value to society and don’t just become drugged out party-time trust fund kids that do nothing with their lives. I believe if I’m still motivated to do something even when I had the opportunity after my last exit to take a few years off work (it gets boring after about 6 months) that most people would too.
If you believe that, then its very easy to imagine an amazing world where everyone can spend lifetimes pursuing their passions and creating a new era of enlightenment. Some of our greatest scientific discoveries during the 19th Century were by rich guys with too much time and money on their hands, exploring fields like electricity, Astronomy and Biology. Darwin would not have come up with Evolution if he didn’t have the luxury of wealth and the time that bought to work on something that probably had no day-to-day value on his survival. Survival was catered for by his wealthy father, leaving Darwin a lot of time to ponder bigger questions.
Technology and the abundance it brings has the opportunity to give this to everyone, and only cynical humans and antiquated power structures will get in the way of this.
That’s really the only debate in all this to be honest, do we believe Humans will screw it up and use technology to create an Orwellian future where we’re all controlled by a few powerful groups (the Technocrats) or do we believe that we’ll end up in an amazing world like the one I described (Techno-liberal). Technology exponentially advancing and being able to produce either of these outcomes is a given, one of those outcomes will happen as long as we don’t destroy ourselves in the interim period.
Crossing the Chasm
I’m a big believer, having been in the startup space for a few years now, living in uncertainty with no guaranteed success at the end of it, that in an uncertain future, all you can do is choose the future you want, and work towards making it happen (obviously assuming that desired future is physically possible in the real world).
I want the techno-liberal world, I think everyone does. But there are a lot of questions about how our social-economic system would actually work in that world. We don’t have any period in history to refer too, where the whole world didn’t need to work or fight for survival, and all their needs were almost free and abundant because of technology. We will have to invent and innovate to create something new.
But we’re not the first generation to ponder these questions, and we have anecdotes we can refer too (like my previous example of people who grow up with money and wealth and what they end up doing with their time).
I’ve gone through phases where I supported Universal Basic Income (UBI) to reading and debating with friends The Zeitgeist Movement, and its proposal of a resource-managed economy that doesn’t require money.
The challenge I’ve had is neither is a clear winner. The Zeitgeist movement sounds amazing, but never (at least for me) answers the question of how you reward people who make significant contributions to society, or how you manage scarce resources like a small private island getaway that would be destroyed by 7-11 Billion people wanting to visit it during their lifetime. I don’t think anyone would argue that an Einstein or Steve Jobs shouldn’t get some reward or recognition for their contributions, and the moment you introduce some kind of point reward system which can be “spent” to access those scarce resources, we’re now back in the territory of money. Maybe Virtual Reality will be so real one day the private island scenario won’t be an issue, as anyone can visit it virtually, it will become virtually abundant. But I’m sure there will always be some resources that are scarce, and some need to recognize the people who have made significant contributions to society, and may have preferential treatment to those scarce resources in recognition of their contribution.
On the other side, continuing with Capitalism and money as a point system to measure our respective contributions to society (which today has been screwed up with people adding little contribution to society getting more “points” for doing nothing more than playing the current system like Banks), UBI has gained traction.
But Jeff makes some good points against UBI. How do you determine a fair income with everyone living in different areas or with different situations like the number of kids? How much do you tax the wealthy before you see their income disappearing offshore or outside the system in Crypto? As people who know me since I moved to high tax California, my opinions on taxes have completely changed from the UK. In the UK I felt I got a fair deal in return for my taxes. Here I pay higher taxes and don’t get healthcare, public transport, well maintained roads or even decent public schools, having to pay for everything privately out of my net income. The trouble with taxes is you don’t have any real control over how they get spent. If the government is badly run (as it definitely is here), you can’t not pay them, and you don’t get any real choice on how their spent either. Your only choice is to leave, which for us would mean giving up all the amazing tech opportunities in Silicon Valley (but we debate leaving regularly).
I would loath paying more taxes here until the government started providing good public services like I’d argue we have in Europe. However in an abundant world, where technology and AI may even make healthcare virtually free, society could provide good public services, for less and less tax money each year. AI would be uniform, and patients wouldn’t be at the mercy of a human nurse or doctor that wasn’t very good at their job, the same AI could be provided to everyone equally.
However where Jeff stops in his book I feel, is if it isn’t UBI, then what is the answer? I get how a de-leveraged, deflationary system will still provide me opportunities to create companies and build wealth (in fact I would prefer it as the rules will be clear and fair, unlike today’s system where we’re at the mercy of the governments decision on how much money/debt to create). But for everyone else, who isn’t a Founder, is starting without the opportunities I had, what’s the solution for them? Does Jeff imagine us all becoming small business owners, each making enough money, which will go down each year with deflation, to support ourselves so we can still purchase all our needs, albeit cheaper than before?
On the one hand starting a business will be super easy. I can’t wait for the day AI can develop software from scratch. Instead of having to find and build a team of engineers, that will take months to launch a new idea, I’d be able to design and iterate software in minutes, and throw it away if it doesn’t work. My gross margins and respective cashflow from having a small to almost no employee business would be amazing, and I’d be able to pivot without worrying about layoffs and other factors that affect real organizations with large human teams.
But how many Founders, writers, artists, creators do we need in the world before it becomes so saturated it becomes ultra-competitive to do anything (pushing us back into the scarcity mindset)? For example, China is infamous for cloning popular Western services like Twitter. Weibo rose from a sea of over 3,000 Chinese startups competing in that space, and in the end they only needed one Twitter clone, not 3,000. Competition forces innovation and the exponential deflation of technology, but it also has losers who may spend a lifetime never breaking out in a world where they have to make money to survive and everyone can launch and copy ideas easily because of technology.
Therefore, if we are to continue to have some point system, like money, to recognize the value people respectively contribute to society, and provide some system that allows us to share scarce resources, then perhaps UBI is the interim step to get through the chasm.
As the GDP deflates, and things trend to zero, tax revenues to pay it would shrink, until people essentially get hardly anything each month, but now live in a version of the resource-based economy imagined by Zeitgeist.
I wish it was as simple as debating the best system with rational people and being able to execute to make it happen quickly. Both Jeff and The Zeitgeist Movement spend a lot of time in their books talking about human psychology and why humans will resist or fail to adopt these ideas until its too late. Whatever the solution is, it will have to take human psychology into account to get us from here to there.
So like Jeff, I’m left wondering what the answer really is, and how we get there. Which is why I put this blog out there, to hopefully connect with other people who’ve thought about this problem in depth, and through discussion and debate perhaps we can find a solution to what will probably be one of the biggest economic shifts in our lifetime. If we don’t, I fear we will continue down our path or division, inequality and competition to survive, and derail the entire human civilization into another dark age, or worse.
David – great post and thanks for leaning in to this important conversation.