Mar 24th, 2021
Yesterday we reviewed Jim Rickard’s book “the new great depression” and today we will turn to Jeff Booth’s work - “The Price of Tomorrow - Why Deflation is the Key to an Abundant Future”
Vancouver based Jeff Booth is the author of the “Price of Tomorrow” and he offers a fascinating analysis and argument for deflation in the long term due to technology.
The premise of Jeff’ book is summed up by his analogy:
Engineers in Canada get an iron ring that represents a bridge collapse in Montreal in the 1920s. The ring means "our work has consequences”. Most people in technology companies are trying to make the world a better place, but the increased efficiencies and lower costs they create through their work has consequences. Ultimately that efficiency comes at the cost of jobs over the long term. - Jeff Booth
The idea is that improved technology increases efficiency. With increased efficiency there will be permanent job losses, which is deflationary. Deflation is the result of getting more of something for less money.
For example, in the past, a technology that gives someone access to the cumulative knowledge of all of humanity would be priceless. Today this is commonplace. If you’ve ever seen a homeless person with an iPhone, that is deflation.
Deflation isn’t a bad thing in Jeff’s view, but it will change who are the winner and losers in an economy. Instead of winners being those who benefit from inflation because they own assets, tomorrow’s winners will be those who create real value, as I believe it should be.
Jeff says that since technology is deflationary, our inflation-based system is impossible to continue forever. He believes that the existing inflation-based economic system will break eventually and technology like Bitcoin will enable peer-to-peer banking that will form the next economic system.
Until then, with government printing happening in a big way, asset classes like stocks, technology monopolies, and real estate will see increased prices. Jeff warns that since most people don’t own investments, there will be huge increases in taxes on all assets to pay for the cost of living for the majority of people who own zero assets.
Jeff says if central banks keep printing, the next problem will be much bigger. I quote “Putting out a small forest fire leads to a buildup of fuel for a more massive fire later.” When the dust settles, we will have a way larger debt and way smaller economy, leading to a loss of trust in government currencies.
Jeff expands on his book by answering questions in interviews, linked in the show notes.
When asked a question about who can participate in his endgame economy, where things are being automated, A.I. is doing thinking for us, and energy is extremely cheap. Jeff says UBI (universal basic income) isn’t the final answer but is probably part of the solution. What is interesting to me is we’ve seen UBI tested in the form of CERB, the Canada Emergency Relief Benefit, and now we are seeing it in the United States stimulus cheques, both these programs are a response to the pandemic, but also serve as an interesting test on the impact of giving money directly to consumers.
When asked on what he prefers, Socialism vs (crony) Capitalism? Jeff's response is:
Both are wrong! He says we have a misallocation of capital with the printing of currency. He says “As we print more, the prices run away on you.” Those with assets get rich, those without assets see the value of their “money” destroyed. They get very angry and the government taxes heavily to give to those without assets. This is crony capitalism and is as harmful as socialism. Both steal from the efforts of the industrious and disincentivizes them. Modern economics is not about value, it is about scarcity, and since technology creates abundance, modern economics will die. Capitalism will work very well when the system is reset.
Jeff says a revolution of our economic system will result in a rise of a peer-to-peer currency like Bitcoin overtaking the US dollar and other government currencies. Jeff thinks the path to this new world of abundance is going to be painful and will mean things like way higher taxes on wealth to pay for the people who have dropped out.
Jeff Booth’s outlook for longer term investments are outlined in another interview. He says it depends on what central banks will do. If banks don't print more currency, you will want to be in cash. If they do print more (very likely as seen in the last year) you need to be in the market. Stocks, technology monopolies with “network effects”, and in real estate. You must be aware that much higher taxes are on the way, so making sure some of your portfolio is liquid / mobile. That is very important. Jeff especially recommends some “asymmetric bets” like Bitcoin, read it on Medium here. After reading it, I was convinced to buy some bitcoin as an insurance policy against currency risk.
Jeff doesn’t think a financial or currency reset will happen in the near term because the US is printing like crazy to keep up the status quo, but much of what what he wrote about in his book seems to be happening now in real time.
A summary of his book and a link to his interviews is in the show notes that you can find at www.actpodcast.website.