why technology hasn’t saved us from inflation (but still can)

August 19, 2008

I have a piece in the Aug 11th issue of Newsweek International, but Newsweek’s website does such a poor job with magazine content that it’s practically unfindable (it’s actually on the seventh screen of this series of perspectives from economists and other experts). So here it is:

Unleash The World’s Engineers
Chris Anderson believes that the price-cutting power of technology can still bring nations relief if only bureaucrats will allow it to.

Technology can be a powerful deflationary force. Thanks to Moore’s Law (the remarkable ability of computer technology to double in power for the same price, or halve in price for the same power, every 18 months) if you want a 50 percent discount on an electronic gadget, just wait 18 months. Or turn a service into software, and it’s just a matter of time before it is free.

But technology has been unable to offset some of the crucial supply issues around energy and food, both of which are at the core of today’s inflationary quandary. Nuclear power was supposed to bring electricity too cheap to meter, but our electricity bills have never been higher. The green revolution was supposed to bring an endlessly bountiful harvest, making hunger a thing of the past, but we now have rice shortages and corn nearly tripled in price over the past year. And for all of our virtual connection via cell phones, video-conferencing and e-mail, we’ve increased our driving and flying to such an extent that we’ve outstripped global oil-production capacity, driving energy prices to all-time highs.

What happened? Were we wrong to think that technology would deliver us from rising prices? Well, yes, but it’s not technology’s fault. We mostly have ourselves to blame for standing in its way.

Why are agricultural yields not keeping up with population growth? In large part because the European Union essentially banned genetically modified crops both on its own soil and in imports, thus exporting its technology-blocking regulations to trade partners in Africa and elsewhere.

Another reason food is so expensive is that fertilizer prices are also near all-time highs. That’s because the feedstock for much fertilizer is natural gas, and we don’t have enough of that, either. Not because we can’t get it out of the ground using high-tech tools, but because we can’t get it where it’s needed. Of the last 53 applications to build liquefied natural gas (LNG) ports and processing facilities in the United States, 50 were denied because of objections from the communities near where they would be located. Meanwhile we haven’t built a natural-gas pipeline from Alaska in part because of similar environmental concerns.

The shortage of natural-gas-transportation infrastructure is also in part responsible for our high electricity prices, as is the multidecade virtual moratorium on new nuclear power plants after Three Mile Island. Meanwhile, policies putting high import tariffs on foreign ethanol (to protect American corn farmers) have raised the price of gas, while a refusal to follow California’s lead on car efficiency standards has allowed national gas demand to grow faster than supply.

All this said, I believe today’s inflation will ultimately speed the adoption of technologies that can fight it. The higher prices get in the atoms economy, where things get more expensive every year, the more incentive there is to move goods and services to the bits economy, where things get cheaper. How high will airfares have to get (think they’re high now? Just wait for new carbon taxes to kick in) before you invest in good videoconference gear and skip the flight altogether? How high will gas prices get before you decide to work a few more days a week from your fully wired home office, or skip the mall and shop online from home? The best way to lower energy prices is to cut demand.

In a world where seemingly everything is getting more expensive, the price of digital technology continues to fall and the differences between those two economies are growing. If getting rich was the incentive to go digital a decade ago, saving money may be an even stronger motivation this time. 


via The Long Tail by Chris Anderson on 8/17/08