To stave off an economic crash, the Federal Reserve has injected trillions of dollars of liquidity into the markets through quantitative easing (QE), which has some economists worried about the prospect of inflation. At the same time, we are faced with the prospect of disruptive, deflationary tech, which makes me wonder how these two forces will interact in the coming years.
Where Is the US Dollar Headed? Inflation, Hyperinflation, or Deflation?
As usual, doomsday economists have been warning that COVID-19 will result in an economic apocalypse.
Hyperinflation, some catastrophists claim, could crash the US dollar and land us in the same boat as Venezuala or the Weimar Republic.
A deflationary spiral, others suggest, could have the opposite effect, driving down spending, wages, prices, production, and demand.
Assuming the Fed’s policies work, however, the US dollar will trend towards 2% inflation or slightly higher, which is hardly hyperinflation.
In fact, technically speaking, hyperinflation only occurs when inflation exceeds 50% per month for at least a year, resulting in a yearly rate of more than 12,000%.
Most investors, therefore, aren’t worried about a hyperinflation scenario, though there are a few notable exceptions.
Ray Dalio, for instance, has been warning of a tectonic shift in the global economic landscape.
Recently, he has garnered attention for his comparisons between the current economic environment, the Great Depression, and the events leading up to WWI.
Since Dalio is the manager of Bridgewater, the largest hedge fund in the world, his warnings do lend a bit of weight to the more ominous economic forecasts.
Many investors and analysts tend to focus mostly on financial and geopolitical trends, but what interests me is the deflationary role that tech will play during and after the COVID-19 pandemic.
Deflationary Tech: A Force for Prosperity or Poverty?
ARK Invest remains upbeat about technology’s role in the reshaping of society, claiming that, although it will definitely cause a wave of creative destruction, technology will ultimately have a positive impact.
While many believe that automation and AI will replace millions of human jobs globally and widen the prosperity gap, ARK Invest has suggested that disruptive innovation will only result in new job categories that have yet to emerge.
Ikigai, on the other hand, believes that “deflationary technologies of the digital revolution will not naturally narrow the prosperity gap. Instead, they serve as a wedge to widen it.”
To create positive societal change, they say, we need to be proactive and support technologies that will have a “net positive benefit on humanity.”
Others also agree that technology will widen the gap between the rich and the poor, though they propose different solutions to the problem.
Kai Fu Lee, for instance, argued in his book on AI that the widening prosperity gap is essentially inevitable, and rather than allocating our investments towards beneficial technologies, governments should employ citizens and offer them a “stipend.”
Though the future remains to be seen, the vast majority of analysts agree that jobs are at risk and that steps must be taken in order to mitigate serious societal consequences.
Observers have been concerned about these impending trends for several years, but in 2020 matters became even more complicated…
On top of inflationary currency and deflationary tech, we now have the coronavirus.
Not only has COVID-19 fueled QE, as mentioned above, it has also accelerated the digital revolution, driving the forward the adoption of new technologies, such as AI, robotics, and cloud computing.
On top of this, the public health crisis has resulted in job losses, bankruptcies, and even the decimation of entire industries.
As a result, COVID-19 could very well expand the prosperity “wedge” that Ikigai mentioned.
Perhaps this is why so many analysts are advising organizations to rethink their business strategies, engage in rapid business transformation, and prepare for a post-COVID “new normal.”
Consultancies such as McKinsey, Accenture, and HfS Research, for instance, all believe that the global economy is entering a new paradigm and that in order to thrive in that paradigm, organizations need to pivot now.
The same, I would argue, goes for employees – if the coronavirus has resulted in the acceleration of both currency inflation and waves of deflationary tech innovation, the individual worker must begin to rethink their career strategy.
Perhaps the best way to start is by understanding which industries are most vulnerable to automation, what the world will look like after COVID-19, and then investing in skill sets that will be relevant in the new normal.