Inflation In The Digital Age
Many talk about the idea of inflation being a state where there is too much money chasing too few goods and services.
While not quite accurate since it ignores the source of the price increases, it does open up a major question in the digital age.
In this video I discuss how this changes everything. It is also something that is completely overlooked. How is this possible when the digital relam is expanding at such a rapid rate?
▶️ 3Speak
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I have to disagree with that definition of inflation. For me every increase in money supply is inflation, every decrease in money supply is deflation. Prices don't matter - there are many reasons for them to fluctuate. Level of economic productivity does not matter - it can be measured in multiple ways giving different results.
What we have now is massive increase in goods being produced and services provided, but the related value is being siphoned from those who made that happen to entities that issue new money.
We could argue that it is ok, because that value siphoned is being used for public projects, IF it was government that was issuing money. The reality is different though. It is private banks that issue money and only tiny fraction of it is passed to public budget. The rest of new money and associated value siphoning is captured by banks.
To be able to invest there has to be surplus - some people had to value future consumption over present, aka SAVERS. Once there are savings we need INVESTORS who will take that surplus and use it to innovate and provide new, more, cheaper products and services. Finally we have all the people that do actual work. All of the above deserve all the new value that is being created by their activity. It is not that banks don't deserve anything for their work, but we should see their products and services to become cheaper over time, banks should be like any other service providers. Instead, through fractional reserve banking and even more through eurodollar system, they get various IOUs (treasuries, bonds, mortgages and million other debt based products), blend them to a pulp and call that money, which they then lend out and charge interest on. The fact that creation of new money that way is driven by market demand (someone interested in borrowing) and general health of the economy (value of IOUs used as collateral) is all good, but it happens at the expense of savers and everyone else that happened to own old money.
I'll use Hive as example of how it should look. Inflation is awarded to those who run and secure the system (witnesses), to savers (VESTS and HBD in savings) and finally those who increase value of the system (authors and curators through rewards, developers through DHF). Even if (when) we create bonds on Hive, they won't increase money supply. To draw value of such bond it has to be sold or pledged as collateral in exchange for existing HBD/HIVE. If we wanted to replicate eurodollar system (we don't) we would need to allow taking such bond and converting it to an asset that is indistinguishable from actual HBD.
Let's say we pack 1000 HBD into 10 year bond, valued 2000 at that time. Normally one needs to sell that bond and get 2000 HBD from existing supply (some buyer needs to exchange their HBD for that bond). What BankOnHive would do is to take that bond without selling it and issue new 2000 wrappedHBD, pretending those are as good as actual HBD. To match eurodollar system those wrappedHBD would have to have the same asset symbol as HBD, making them indistinguishable. It would make BankOnHive equal to Hive network as an issuer of HBD. It should be clear that it would be dangerous and unfair situation.
I agree with your definition of inflation and deflation. However, a Friedman is often the one referred to on this subject, he took the same approach but did denote that if price increases were due to monetary expansion, it was inflation. If not, it was simply price increases.
Semantics? Maybe.
As for the comparison to the Eurodollar system, you are right regarding HBD. The difference is that a Hive bond is not debt since the HBD is the debt instrument. With traditional bonds, that is the debt instrument. Essentially, what has happened, especially with government bonds, is that we are creating money that pays interest. This only compounds the problem for governments as the interest keeps growing.
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Summary:
In this video, Task discusses the concept of inflation in the digital age. He explains that traditional thinking on inflation is outdated as the digital world is characterized by exponential growth, especially in fields like technology. Task emphasizes how the increase in digital products and services outpaces the increase in money supply, leading to deflationary pressures in the digital realm. He uses examples such as semiconductor costs and software development to illustrate his points. Task concludes that the digital age is reshaping our understanding of inflation and its effects.
Detailed Article:
Task starts by introducing the topic of inflation in the digital age, highlighting the need to reconsider traditional views. He explains that while inflation is typically associated with an increase in the money supply outpacing the production of goods and services, the digital world presents a unique scenario where the opposite is true. Task argues that advancements in technology, such as semiconductors with decreasing costs due to Moore's Law, lead to deflationary pressures as the same performance becomes cheaper over time.
Moreover, Task emphasizes the rapid growth and expansion in digital products and services, including servers, storage, and content on platforms like iTunes, Netflix, and Amazon Prime. He points out that the digital realm is constantly evolving, with more people using the internet and creating data, necessitating investments in infrastructure and technology. This continual expansion results in deflationary effects, contrary to the traditional inflationary expectations.
Task provides examples of how companies like AWS, Google, Microsoft, and Tesla invest significant amounts in technology development, such as supercomputers and software for autonomous driving. He discusses the financial implications of these investments and how they contribute to the deflationary environment in the digital age. For instance, the ability to charge for software updates without physical changes to products demonstrates how technological advancements impact pricing dynamics.
Furthermore, Task delves into the role of robotics and automation in increasing productivity and reducing the cost of goods production. He highlights the dematerialization of products in the digital age, where digitized content like songs can be distributed almost limitlessly at minimal costs. Task concludes by reiterating that the digital age defies traditional inflationary trends and reshapes economic dynamics through continuous technological innovations and cost reductions.
In essence, Task's discussion on inflation in the digital age underscores the transformative impact of technology on economic principles, emphasizing the deflationary effects driven by exponential growth, innovation, and increased efficiency in the digital realm.
Notice: This is an AI-generated summary based on a transcript of the video. The summarization of the videos in this channel was requested/approved by the channel owner.