236: Will Technology Lead to Deflation? Jeff Booth
Buck: Welcome back to the show everyone. Today my guest on Wealth Formula podcast is Jeff Booth. Jeff has been at the forefront of technology for 20 years. He’s founded multiple companies and serves on the boards of even more. He has been featured in multiple publications including Forbes Bloomberg and Wall Street Journal. In 2015 he was named BC Technology Industry Associations Person Of The Year and in 2016 Goldman Sachs named him amongst its 100 most intriguing entrepreneurs so obviously he’s got some chops on the technology side but he is also the author of the book that’s creating quite a bit of buzz in the podcast space these days. It’s called The Price of Tomorrow: Why Deflation is the Key to an Abundant Future and that’s going to be our topic for today. Jeff welcome to Wealth Formula podcast.
Jeff: Thanks for having me.
Buck: So let’s start a little bit with your background it’s obviously interesting. You’re a technology guy so tell us how you got interested ultimately in this in talking about the economy and ultimately came to write your book.
Jeff: As an entrepreneur essentially what you do as an entrepreneur especially today is you try to solve problems and try to find solutions to problems through technology. And so a lot of what I’m doing and I call it my day job is the intersection of technology and that makes me super excited right so some of the companies that information size stage and how fast they grow and when you get it right it’s incredible, incredible growth. I’ll give you an example one of the companies I co-founded last year at this time was doing 300000 a month it’s now doing eight and a half million dollars a month. And so when you know how to build kind of technology companies that can drive that value you have pretty exceptional value creation on the other side. But when I looked out and all of that happening and I looked at my kids and what would happen there and when you saw AI and how fast that’s moving and I realized technology overall is great in this in a company but technology overall is competing with our monetary system the way that we’ve wired the world forever and what that means is it’s predictable what’s going to happen to society and you can see it all around you so that was the thesis of the book.
Buck: So let’s I guess to dive in a little bit more on your thesis. I think it’s important to kind of lay the foundation. As I see it and correct me if I’m wrong we’re really talking about you know two parallel issues that are sort of coming to head. One is probably more familiar to my listeners which is that we live in a debt-based economy we’re accumulating debt we have an inflationary model that pays debt to make it worth less in the future that concept. And then the second element is the rate of technology and how looking at our past does not really give us a good sense of what’s to come and at some point those two collide is and that to me is important to understand in order to kind of get to your thesis. If you agree with that why don’t we start with the technology part first because I think for a bunch of professionals like doctors etc it might be really helpful to understand you know that the complexity of that issue.
Jeff: So even what you just said is not exactly right and so the debt-based economy was in response to the technology and so if you think about this from so and that’s where a lot of people what I would say miss this or miss this argument so technology and I’ll use an example I’ve used on many of the different podcasts and I’ve asked this question to tens of thousands of people all over the world if I fold a piece of paper and if I could continue folding that piece of paper on itself again and keep folding it up to 50 times, how thick is the piece of paper and 99.999 percent of people that I ask that question to say about two inches and that piece of paper you can only fold it seven times but if you could continue folding it would have reached the sun from here to the sun. When I asked that question is so when I tell people to answer the question they believe they oh first it blows them away they go and check on google is it right and everything else and then they believe they understand exponential patterns right after that and that that’s not why I asked the question. If 99.99 percent of people don’t get the answer if it’s not an intuitive answer what it means is we all misunderstand exponential patterns and why that is critically important is because technology is moving in that exponential pattern and so what that means if you overlay that to the financial system and what central bankers missed and everything else is the first fold shows up as nothing we dismiss it. The second fold shows up as nothing we dismiss it. Third fold fourth full fifth fold still show up as nothing and then what ends up happening six or seven fold something like that we get a hype cycle on technology right people say wow it’s gonna do this and then the next fold comes and it doesn’t do that it doesn’t it doesn’t match the expectations and so it just drops and everybody goes it didn’t work. Take 3d printing what people think about 3d printing today versus where it really is that’s that hype cycle or AI before it and everything else and then it keeps folding it keeps on moving that rate and then you get into the big steps and as much as you underestimated it, in the beginning, you overestimated it you massively underestimate how fast it’s moving. So that happens to all of us because we misunderstand how fast it’s moving. So today we’re now on if you compare moore’s law to that paper folding exercise we’re on fold 33. So in fold 34 doubles all of the technology we’re looking back at going forward doubles it right in 18 months to two years and technology technology provides massive efficiency that efficiency is deflationary it’s not a guess right that’s the it’s all around you your phone that you use it 20 years ago was just a phone now it’s your camera it’s your music player it’s a your ai assist and everything else in fact we celebrate that deflation all around us as a and it’s moving faster and faster into all corners of society. Now going back to your premise. So when I saw that and I saw what I’m doing in technology what I mean essentially every ceo me included or a chairman you put technology into increased benefits and reduced labor right nobody puts technology into to increase labor right and so we use it to reduce who would make it make our lives more efficient free our times so to CEOs and that’s what’s happening. Now compare that to if what I’m saying is true is a thesis we should see evidence of this against our existing monetary policy which works the other way they’re competing forces right and that evidence is what you just talked about in debt is it’s not the debt itself it’s the debt is brought to try to stop that right. And so technology is moving that fast it’s doubling and doubling and doubling and in response to that government’s thinking that they can grow against that lower interest rates first which causes more debt right which causes more debt which causes more debt and in the last before Covid we had 250 trillion dollars of debt to run 100 or to run an 80 trillion global economy. That’s not the point. The point is 185 trillion of that new debt came in the last 20 years predictably against what I’m talking about and if you take that the next step and we’re seeing it right now is the debt has to be exponential going forward to stop technology from collapsing the entire thing.
Buck: Let me back up one bit here and just have you clarify for us a little bit this idea that the technology is what is creating the debt, I mean some people might be listening and saying well well that there certainly I get that might be part of it but we also have wars we’re fighting we’re also you know we’ve got social security and we’ve got medicare we’ve got all sorts of other issues that are you know driving up debt as well. So what can you kind of tell us to sort of reinforce that part of the thesis because I think that’s a pretty you know that’s an important element of what you’re saying.
Jeff: So if you look back today since 1995 right and looked back to central bankers projection projections of growth versus their interest rates and look back to interest rates on a straight line down right and every time you try to increase interest rates market collapses and as you put more as interest rates go down essentially what you’re doing you’re trying to juice the economy right that’s what you’re trying to get. You’re trying to because if now with this much debt what and you could have you could have kept the entire world financial system in place if you raised interest rates instead of lower than about 20 years ago it would have caused a deflationary depression it would have caused wipe out of debt and but this system would have healed itself Instead that you lowered interest rates and lowered interest rates and lowered interest rates and in response to lowering interest rates, and by the way it did grow the economy but nobody asks if people get caught in an independent kind of in a part of the system and they don’t ask this. Well my house went up right and housing always goes up but they didn’t ask the other side of that would housing go up if you didn’t have 185 trillion dollars of additional stimulus? You would see the actual truth everywhere but the problem is now the problem is so big by kicking the can down the road it would have caused a deflationary depression in 2000. Now the entire system unwinds if you allow to so to even look at today’s the stimulus talk about today and everything else and once that starts to unwind then it unravels the entire system because it’s all connected.
Buck: No I get that part but I guess going back to the question of how you know technology as you know so I guess what I’m gathering from what you’re saying is that technology increasing at you know you know technology causes the debt is kind of the question I’m trying to get at.
Jeff: It doesn’t cause the debt it causes the response by central bankers to keep things growing against nature because essentially against that natural force right think of all the things you get free now in your phone that don’t require labor sure and governments need to try to drive labor and the economy growing to keep jobs to keep the economy growing so they unwind it doesn’t end that’s what the response is so technology in its reduction of cost you had to keep things going up in price.
Buck: So let’s say and again just playing devil’s advocate and trying to understand trying to hit at the core of your thesis here. Some might say well you know we’ve had changes in technology before we went from an agrarian economy to an industrial one and sure we didn’t need the farm hands anymore but they went to work in the factory so why can’t we expect the same thing to happen as technology progresses, don’t we make other jobs? Don’t we continue being productive?
Jeff: I explore that all over the place in my book like I go down to the sand and back up on the book. Just so people realize when we did this before right it let’s use the industrial revolution right same thing changed labor and we created more jobs with the electrification right and what did the world look like through that right resets of currencies everywhere and wars everywhere right because you had to reset the same thing happened every single country tried to manipulate currency as this was happening, making lives more efficient and you had to reset and take it all the way down the ground and rebuild it and rebuild it again and that could happen out of what we’re talking about that could very much happen what we’re talking about. Here’s where people and again and economists are just they if 99.9 of people get fooled by that same thing would do stand a reason the economist get fooled by the same thing as well on the paper folding sure yes we all get fooled and economist models look backwards not forward and that’s what people are doing right now with what you’re talking about the same thing. If you knew I’m at the front end of some of these technologies yeah right I’m at the front edge of AI and there I was at a meeting of in artificial intelligence one of the world’s foremost artificial where one of the leading central bankers compared what happened with tech with artificial intelligence it was happening with artificial intelligence with electrification. And I couldn’t help thinking I’m sitting there in the audience thinking are you kidding me when was the last time that anybody thought electricity was doubling and doubling in doubling it was moving linear across society not doubling right or did anybody ever think that electricity could be smarter than us because that’s what they think with AI right and so they these are completely you’re using two different frameworks right and you’re projecting the forward the future with an archaic framework that’s what’s happening.
Buck: Got it okay so let’s assume we’ve got deflationary environment deflationary pressures which I think we’re already feeling deflationary pressures for a variety of other reasons too, where does this go from here? You know obviously, we’re continuing to governments are continuing to pump money into economies we’re continuing to central banks want inflation and they want inflation as you said because when we can borrow today and pay back tomorrow in dollars that are worth less you know everybody’s happy with that in general so at what point does that stop? What are the phases that you see coming up and maybe you know if you can try to give us some sense of how quickly those types of changes might occur.
Jeff: So these are as far as quickly people also misunderstand the feedback effects of the system because they’re looking at one component part of the system. I use the example of housing. They think housing always goes up without asking can we print at that rate going forward if you, if we can housing will go up but it won’t go up for this reason. People think it will go up because the currency value and it’s going down. So in this environment but then if I zoom up a level every country thinks the same thing and this is a global phenomenon. So you have a whole bunch of actors in a system acting in their own best interests creating chaos in the overall system. The two systems technology creates that deflation and it’s incongruent with our existing monetary policy no matter what right those are two totally different systems and they don’t fit together the people’s mistake in trying to fit them together is they carry one what how the old system works into the new system and they can’t see it right. So let’s just from a first principle standpoint those things cannot go together. So now then let’s explore what likely happens to protect the existing system and what ends up happening on the other side because of it so what happens to protect the existing system is you’re seeing it all around you right governments have to inflate right and the first step of that inflation comes with central bank policies who print money and that money printing goes to the banks essentially they take bad debt off the bank step balance sheet and replace it with good debt and take the liability on this central bank’s balance sheet. But the central bank right now goes to the bank banking sector won’t lend right because there’s no good businesses to lend against right there’s not enough good businesses where they can make money going forward so you have velocity of money collapsing because of that right. The next step to that is okay because the central bank cannot force a private entity to lend the private end this relationship is is actually just all going into asset price inflation right so prices are going higher and higher and higher in our assets and most people are getting killed right because what ends up happening is if inflation is like inflation is just a hidden tax but it’s a hidden tax on the people that are most vulnerable because what inflation is really saying is I’m going to decrease your wages right inflation is wage deflation right. So there’s a whole bunch of people working for wages that don’t have assets and the assets are going up in price and their wages are going down against those assets and they can’t feed their families right and so what’s about to happen is you’re going to go to the same so you’ve destroyed the free market you haven’t let things fail and you’ve taken the risk on the central bank and by doing so and you had to because if you actually let things fail who has the paper who has the debt on the commercial real estate that needs to be written down 50 it’s a banks right and if the banks fail everything fails and you all have the whole so you’re forced into this thing where you have to keep doing it right exponentially more. The next step of this is because of that breaking of the societal rules and a whole bunch of people are losing out you elect people who will say I will give you free money without understanding where the free money comes from because the until now it’s just been socialism for the rich now it’s going to be socialism for everybody. And as you do that you have to get MMT you have to get fiscal politics because the banks won’t land you have to get that to people to be able to spend without asking where the money is coming from right so you have to print a whole bunch more money and you have to do helicopter drops MMT and effectively at that time the fed loses its independence and treasury governments take over the fed because people demand them to right I’m going to and at that time when that happens you can expect they will start to be able to drive inflation and then hyperinflation that’s because you’ll just inject it into people’s hands all of those people will not ask the question they think they’ll get free money but the free money comes with destroying a private market. So essentially consolidating power into government more and more power into government and government can’t make choices like a free market can make so so you better hope along that path for benevolent leaders because you’ve concentrated all power into the government.
Buck: So at that point I mean at some point this culminates you know presumably in some kind of you know Bretton Woods type reset or what’s sort of the end game what’s the transition
Jeff: Those resets remember the two incongruent systems yeah and those that’s very rarely come through choice those resets come through war and somebody winning a war. And so you can see if you look at society the divide of society how do you get elected in this cycle. What you say is it’s not that person’s fault. It’s not the system it’s that person’s fault sure you blame people and you create revolution by blaming people first in the country and then as you get elected it’s not enough because it’s a structural issue so now you need to create blame somewhere else China Russia somewhere else. So you can see this playing out as a board game all over the world right now you can see the the the and so so what I would say is why that’s also why bitcoin is running away right now in price and people all your listeners should go out and explore it and buy some as fast as they can because it’s a lifeboat against what’s about to happen. That’s what’s happening it’s a lifeboat against this coming storm and because it sets the rules instead of politicians setting the rules for a difficult currency that would allow deflation it forces that hand and as more people adopt it. It’ll become more and more trusted and my hope is that it’s it is the way we transition.
Buck: So the idea being you think like some sort of bitcoin based economy?
Jeff: So whether central banks eventually have to pay to bitcoin and keep their own currencies or a bitcoin-based economy if they choose not to I think that’s where we’re going. Because it’s hard to see in an environment of of of trust like we have like so so this so if you go to the US currency can be manipulated right and every time it’s manipulated it pushes pain to the rest of the world that’s using the US currency and so so every other currency is in a fight against that trying to be able to manipulate their own currencies. Can you imagine people today saying I’m going to trust yuan as a reserve currency will they ever trust any reserve currency again going forward I suspect not especially can you imagine our politicians today anywhere coming together and saying we’re going to create a currency that forces this to stop, I suspect not.
Buck: So Jeff I know you don’t have a crystal ball but how quickly do you see all this happening? I mean you know obviously if you know you’ve said we can’t look at you know we can’t look at technology in the rearview mirror because it’s moving you know linearly compared to where we’re actually looking when we’re looking upfront. So is this you know something you know the events that you’re talking about in your view or in your modeling, how soon does this become a critical issue and where you start seeing you know either some kind of need for a global reset or you know some kind of civil unrest or you know global unrest, you know are we talking years are we talking decades?
Jeff: We’re certainly not talking decades which are and again look around right look around just open your eyes and look around and look around you can see it all around you. And when I wrote the book I remember it’s pretty it predicts all of this right it’s predicting, Covid was an accelerator to this but when I wrote the book it plays out exactly what’s happening, and for a lot of people that have read the book it said their wealth has exploded because they understand what’s actually happening and what the next steps are right and what ends up happening. But if you look at kind of a timing thing on this and you say it is happening but it’s happening on a path. You’re asking me to predict when it all breaks right and that’s impossible to say when does it all break because it’s more likely to be this. That fiscal policy that I’m talking about MMT and everything else it will actually work and people will be deluded to think, so for a time a whole bunch of people will get paychecks right chosen by the government and it will actually work for a time for it for a time. And so but what that’ll do to other countries right you’re going to be swinging back and forth with all countries kind of competing and devaluing their currencies at the same time and you don’t you can’t predict when the whole thing unravels. Just like when people say when people want to look at okay AI taking all our jobs right AI being smarter than humans. People are looking at a light switch and saying that’s the time and arguing about whether it’s 10 years 20 years 15 years five years, they’re arguing about the light switch the moment. It doesn’t matter. The trend takes away jobs the entire time right the entire time the trend of the taking away jobs causes the whole thing to accelerate the existing monetary policy system to collapse faster and it’s literally impossible to pick the time. It would be way better to pick the trend.
Buck: Sure well that’s this really interesting stuff. Obviously we could talk forever but I think the point is this is probably a book you want to pick up it’s The Price of Tomorrow: Why Deflation is the Key to an Abundant Future. Jeff well you know thank you very much for joining us on Wealth Formula podcast and we can only hope you’re wrong.
Jeff: But maybe not like that’s what the book points to. There’s actually why is stuff getting cheaper bad in our lives. The air we breathe is free and abundant why is that a bad thing? It’s just bad because we’ve wired our system differently.
Buck: Got it thanks again Jeff