It’s been seven years since policymakers started using the term “transitory” to describe the period of low interest rates that we are still experiencing. Rates have been held low in part because inflation remains near zero. This morning, Personal Consumption Expenditures dropped again to a 1.3% increase. That means that we are only spending 1.3% more for our personal effects this year than last year. While personally I think it’s great that my paycheck doesn’t feel quite as tightly stretched to cover costs of living, others feel that we need to be seeing a 2-3% annual increase in the price of goods and services to maintain a healthy economy. Those expositions are coming from the very body that regulates interest rates, but perhaps that argument is fundamentally flawed, given the advances made in the sectors that make all that stuff.
Attempting to figure out the future of our evolving world economy, there is a hypothesis which argues that technology has driven down, and will continue to drive down the cost of goods and services. The price increases that we have experienced in the past are irrelevant moving forward because the way we make and consume things has changed. It has been estimated that 38% of American Jobs are at high risk of being replaced by robots (or other artificial intelligence) over the next 15 years. Robots currently account for about 10% of all tasks performed in the manufacturing sector. That number is anticipated to rise to 25% in the next eight years alone. Increased automation of course has its advantages, one of them being a productivity gain of 32% in the last 14 years. That expansion of output has brought more goods and services to the market, which means more supply, which drives down prices. And while I love getting good quality stuff at a great price, I also recognize that without a job, I can’t buy anything.