This is fantastic work. It is worth reading because it’s wrestling with issues that most of the economics profession is too vain/conservative to acknowledge. I fear the author makes $100 worth of arguments out of $80 worth of theory and $50 worth of data. But we know that technology is deflationary, we just do not know to what extent.
The accelerating pace and diffusion of technological change has taken control of an ever-growing fraction of the world economy. This fraction is being assimilated into a different set of economic fundamentals, such as the rapid and exponential price deflation inherent to technology. The effect of this was insignificant until recently, but is now beginning to create conspicuous distortions in many economic metrics, and is just years from being the dominant force across the entire economy.
In response to technological deflation, the central banks of the world will have to create new money in perpetuity, increasing the stream at an exponentially rising rate much higher than is currently assumed. This now-permanent need for monetary expansion, if embraced, can fund government spending more directly. This in turn creates a very robust, dynamic, and efficient safety net for citizens, while simultaneously reducing and even eliminating most forms of taxation by 2025.
Failure to recognize that technological deflation mandates permanent and ever-rising central bank monetary expansion that can and should gradually become the primary source of government spending will precipitate a major financial crisis starting as soon as 2017.
The nature of current worldwide technology is to link various disruptions with each other, consume monetary liquidity to generate deflation, and lower the effective prices of most goods and services over time. Therefore, the entirety of worldwide technology has to be seen as a holistic economic entity, and can be defined as the ‘Accelerating TechnOnomic Medium’, or ‘ATOM’.
We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.
When a wise man points to the stars, an imbecile criticizes the finger.
– Confucius (modified)
This book is the culmination of years of observations in combination with some proprietary research across different fields. The process of shaping these ideas involved deep immersion on both ends of the political spectrum, as well as in many alternative ideologies across fragmented parts of the Internet. I have had to adopt various online personas and wade through swamps of fanatics and mentally ill people, pretending for years to have views that I actually do not hold in real life, to find the occasional genius who delivers one profound sentence after another. Then the same had to be done in the opposing ideological camp. The process of creating transformative new knowledge is a messy one, full of many dead ends, distractions, and dances with lunatics. From this process, I hope this research has given rise to material that starts a trickle that grows into a stream, and later into a mighty river.
The accelerating rate of technological change, while previously a topic of interest only to futurists and related technophiles, is now at a stage where insufficient awareness has tangible costs to individuals.
Economic growth, which has always been closely pegged to technological progress, has similarly been accelerating through centuries of data, and we are now entering a steep trajectory for the trendline, indeed the ‘knee of the curve’.
The world economy has been underperforming for years, with growth rates continuing to register well below the aforementioned trendline rates. This is due to the silent suppressive effect of some outdated policies and macroeconomic assumptions.
Technological deflation, while easily accepted when one is a shopper for a new computer, is almost entirely ignored by macroeconomists, even as effects of this deflation on economic data are pervasive and rising.
Technological disruptions across disparate areas are all interconnected with each other, and mutually reinforcing. There is a fixed but rising amount of aggregate disruption that is underway at any given time, in accordance with the accelerating rate of technological change. These first five bullet points effectively describe what we define as the ‘ATOM’.
Monetary expansion by central banks has served to merely offset the accelerating deflation that technology is generating across the economy. This deflation is international in nature, and so is most monetary expansion, no matter which country originates a particular expansion program.
Artificial Intelligence (AI) will be able to move many types of productive output into tax-free locations, eroding the tax base of high-tax locations. The borderless and untaxable nature of AI will effectively tighten the screws on nations and jurisdictions that tax productive output excessively.
Excessive fear of inflation, and assuming that even 3% inflation is high, has led to a chronic decline in Nominal GDP. This is a source of many types of malaise in the economies of wealthy countries that ‘Real’ GDP will not detect, and is constricting the rate of technological progress and productivity gains.
The ATOM will react to ensure technological progress reverts to the trendline rate, bypassing or toppling obstacles such as inadequate fiscal, monetary, and regulatory policies in the process. This will begin to happen in around 2017 or so, and may be at a speed far too rapid for many governments to react to.
Barring the pre-emptive adoption of the technology-friendly monetary policies recommended here, another major financial crisis and deep recession will commence by around 2017. Existing methods of monetary expansion will prove ineffective, causing great fear and doom-centric commentary. In reality, the solution to the problem is elegant, simple, and ushers in a new era of rapid growth.
Central bank monetary expansion has to be made permanent as a policy, and openly declared as such. There can no longer be one-off programs tied to an assumption that each one is the final round of Quantitative Easing. Assets stored on central bank balance sheets can never be sold back into the market, so the balance sheets themselves are moot.
Monetary expansion has to be of a direct, diffuse nature. Current methods of bond-buying used by the US Federal Reserve are well into the point of diminishing returns, and end up concentrating the QE in very few hands. The only real discussion and analysis should be about the rate of annual increases. The US Federal Reserve has not yet been granted this power by the US Congress, which restricts the Fed’s ability to do what is necessary.
Monetary expansion has to rise at a compounded rate of 16-24% a year, possibly higher, to offset technological deflation and keep the Wu-Xia Shadow Rate in step with the size of the deflationary force. Current patterns of monetary expansion and the absence of inflation already supply the data to support this conclusion.
Since most government spending in the US and similarly advanced nations constitutes direct payments to individuals, these payments should be formalized into a Direct Universal Exponential Stipend (DUES) that is paid equally to all citizens, and is funded by this central bank monetary expansion.
This DUES constitutes a dynamic and rapidly strengthening safety net, as well as a catalyst for entrepreneurship. Unlike negative interest rates, this does not punish savers, and is more scalable in accordance with accelerating technological deflation.
Federal income taxes can be phased out gradually and systematically, with all Federal government spending covered by monetary expansion, which itself is mostly the DUES.
This sort of reform taking current levels of technological progress and the associated deflation into account to create tax, monetary, and regulatory policies far more favorable to entrepreneurship transcends both socialism and capitalism. It is also the only way to harness disruptive technologies, such as AI, into a vehicle of broadly increased human prosperity.
The US is not going to be the first nation to transition to such a new policy era, and certainly not before the next crisis. Hong Kong, Singapore, Canada, and Switzerland are more suitable candidates to be the first countries to reform in favor of 21st century economic forces.
Few individuals, even if they work in the technology industry, have trained themselves to think like an active part of the ATOM. This mindset can be very profitable once adopted, and will become one of the core skillsets that an adult needs to have in order to prosper.