There’s a feeling you have when you just uncover a fact so shocking, and yet so obvious, that’s hard to put into words. That’s what I felt when I saw this wonderful statistic: as far as I can tell, the only category of products that had a deflationary rate, averaging -7% a year for the past 20 years, was “Information Technology, Hardware And Services”. I had already read about this trend back in my days as an undergrad in Economics (15 years ago at this point), but to be confronted about the stark reality of these numbers ends up being a punch to the gut, and candy to my brain.

It’s definitely tragic that this happens, for several reasons, and we’ll get to those. But when I say that this is candy to my brain it is due to the intersection of two subjects I care and happen to know about. And I got excited thinking about all the implications that this has for my understanding of our world.

The first thread I started pulling: what does this actually mean. We can all reason about inflation, at this point the concept has been drilled into our brain: if an inflation rate is 5%, your 100€ from today will be worth ~95€ next year, ~90€ the year after, and ~37€ in 20 years. But a deflation rate is the mirror of this: your 100€ today would be worth ~427€ in 20 years. Ah, yes, the wonder of compounding interest, the most powerful force in the universe. Putting this in laymen’s terms: if you wanted to buy a product that in 2005 would’ve costed you ~427€, you only needed to spend 100€ today.

As if this isn’t shocking enough, my first reaction was actually “this can’t be right”. Even though that sounds like a huge number, for certain subcategories it seems like a severe underestimation. Let’s ignore the impossibility of finding, in a retail setting, a phone from 2005, let alone one that would’ve costed 427€ back then. Other than for memorabilia purposes, no one of sound mind would pay 100€ today for a phone from 2005; there’s better options in that price range. So, you understand how much more deflation certain categories (phones, computers, tablets, etc) actually had.

But the second thread we need to pull at here is the fact that the same category of “Information Technology, Hardware And Services” was the highest performing industry of the last 20 years. Those same 100€ from 2005 would’ve gotten you ~1700€ by now if you had invested it in an EFT dedicated to the tech sector. Pretty amazing. But here my economics training started to really dissociate: a deflationary pressure on the economy is supposed to be a pretty alarming thing, let alone -7% a year for 20 years straight, and yet what we observe in this sector is the exact opposite, as the tech sector absolutely flourished while under deflationary pressures. I’m honestly so shocked by this realization that I won’t even try to give an explanation, technical or not, for this disconnect between theory and reality.

When I bought the chromebook that is part of my mobile setup, I knew more or less what I was buying, it was a relatively “underpowered” device, but my use cases are modest (and using Linux helps). While I noticed the slower performance compared with my 8 year old desktop, I also see that it’s sipping ~2.5W on average, and the battery lasts for more than a working day. This is honestly unbelievable, given that I paid less than 250€ for it.

I have to wonder: the productivity gains in the tech sector are undeniable. It’s also where fortunes, small and large, have been made. If you want to get rich, go into tech. If you want to get really rich, be really good at it. And if you want to get obscenely rich, you better start your own company, have a good product, and get really friendly with the right VCs. But what was the price to pay for all these productivity gains? Was it related with the fact that everything else became more expensive? All that capital that was put into tech, wasn’t put towards investing in the sectors that we’ve seen struggle lately. That has an impact on the development of the economy, and we shouldn’t ignore it.

And this ties back to a point I will try to bring home in a next post. We need to make the best use possible of the possibilities afforded to us. And that implies a responsible use of resources, which is clearly not happening in the tech sphere, and one of the reasons why I think it’s important to talk about a better way to do it and help people achieve that goal.