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The Fed is mistaken for inflation and productivity



<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "With regard to inflation, & nbsp ;Federal Reserve& nbsp; The officials remind me of the characters Estragon and Vladimir in the existential part of Samuel Beckett "Waiting for Godot. Fed Chairman Jay Powell and the company seem to think that higher prices are coming soon, & nbsp;stick to their 2% inflation goal& nbsp; despite doubts as to its attainment. I have the impression that, as the invisible protagonist of Beckett, inflation will not manifest itself. "Data-reactid =" 15 "> As for inflation, Federal Reserve officials remind me of the characters Estragon and Vladimir in the existential piece of Samuel Beckett's" Waiting Jay Powell, President of the Fed , and the company seem to think that higher prices will soon arrive, meeting their 2% inflation target despite doubts about its ability to be achieved. I have the impression that, as the invisible protagonist of Beckett, inflation is not going to happen.

In fact, it's not just Powell and his immediate colleagues. Fed officials have been mystified by the lack of price increases for years, which is curious because, for me, the reason is blinding.

Of course, it's technology.

Technology limits prices

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Technology – more precisely the digital revolution, the Internet, and the mobile technology – they lower the cost of almost everything we do, they limit or lower prices in the energy, food, clothing, transportation, etc. (Yes, I know energy and food, are not part of the core of the kernel & nbsp;Consumer price indexbut these sectors are key elements of the overall pricing of our economy. ) "data-reactid =" 19 "> Technology, especially the digital revolution, the Internet and mobile technology, is driving down the cost of almost everything we do – keeping prices low or lower, energy, food, clothing, transportation – you name it (yes, I know that energy and food are not part of the core of the consumer price index, but these sectors are elements key to the overall price of our economy.)

The misunderstanding of the Fed is not limited to inflation, it is linked to the digital revolution. What is so clearly missing from the Fed, and one that can be intuitively and reluctantly observed, is that we are in the midst of a strong growth in technology-induced productivity. And this increase in productivity is extremely deflationary.

You do not need a doctorate in economics to understand that. In fact, I would argue that being a party to the economic status quo could make you blind to this new paradigm because it forces you to adopt traditional measures that seem to miss those gains.

Stanley Druckenmiller, founder of Duquesne Capital Management, speaks at the Sohn Investment Conference in New York on May 8, 2013. REUTERS / Brendan McDermid (USA – Tags: BUSINESS)

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" We have 2% inflation … target that if we do not meet, it's Armageddon, I have trouble with his precision and his attention [paid] to that, "said prominent investor Stanley Druckenmiller & nbsp;on CNBC recently. "You may not agree with me, but I think we are in one of the biggest booms of productivity inflections since the late nineteenth century. I am very confident that real GDP does not measure it. "" Data-reactid = "42"> "We have an inflation target of 2% … which, if we do not realize it, is Armageddon – precision and attention [paid] Said Stanley Druckenmiller, a leading CNBC investor recently. "You may not agree with me, but I think we are in one of the biggest booms of productivity inflections since the late nineteenth century. I am very confident that this is not measured in terms of real GDP. "

I agree with you 100%, Stan.

A valuable basket of free services

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Consider Google (GOOG& nbsp;GOOGL) products and services in this context. "data-reactid =" 45 "> Consider the products and services of Google (GOOG, GOOGL) in this context.

Think of all that Google provides for free to consumers: search, maps, e-mail, browser, etc. And think about the increased productivity of cards, for example, cards. It is a basket of extremely valuable services.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "A & nbsp;recent articleThe MIT website reinforces this point: "According to & nbsp;research published today in the Proceedings of the National Academy of Sciences, Internet research is the most popular category of digital goods. The median user would need $ 17,530 in compensation for giving up search engines for one year. Users would need $ 8,414 to lose access to e-mail for one year and $ 3,648 to do without digital cards for the same period. "" Data-reactid = "47"> A recent article on the MIT website reinforces this point: "According to research published today in the Proceedings of the National Academy of Sciences, Internet research is the most popular digital asset class.The median user would need an allowance of $ 17,530 to give up search engines for a year, while users would need $ 8,414 to lose the search engines. Access to e-mail $ 3,648 to do without digital cards for the same period. "

Izmir, Turkey – March 27, 2011: Close up of the main Google Maps page on the web browser. Google Maps is Google's popular map solution. It uses satellite generated images and provides detailed maps around the world. Source: Getty

The downward pressure on prices and inflation in these digital businesses and in related businesses is massive, but most of the time, it has not been taken into account by the Fed. (By the way, I understand that we pay for these "free" services by collecting our data by Google, and that may or may not be a good compromise.)

<p class = "canvas-atom web-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Then let's look at the oil and gas industry The technology is constantly creating new energy supplies as innovation in this sector allows us to drill deposits that would not have been economical even a year earlier. "Each new technological advance in the oil and gas sector creates more supply. & nbsp;Peak oil and the sustainable rise in prices?& nbsp; Forget that. "data-reactid =" 73 "> Now, let's look at the oil and gas industry, technology is constantly creating new energy supplies, because innovation in this sector allows us to drill deposits that do not would not have been economic even a year earlier, so every new technological advance in the oil and gas sector creates increased supply – peak oil and higher, sustainable prices – forget about that.

<p class = "canvas-atom web-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "What about it?" clothing? According to one new study& nbsp; by CB Insights: "Technology is transforming fashion faster than ever. From robots that sew and cut fabrics to artificial intelligence algorithms predictive of style trends, to virtual reality mirrors in locker rooms, technology automates, personalizes and accelerates all aspects of fashion. »Fast fashion, H & amp; Uniqlo and Zara Data-reactid = "74"> What about clothing? According to a new study by CB Insights: "Today, technology is transforming fashion at a faster pace than ever before – sewing and cutting fabrics, according to the artificial intelligence algorithms predictive of trends, towards the mirrors of Virtual reality in the locker room, technology automates, personalizes and accelerates all aspects of fashion. "The fast fashion H & M, Uniqlo and Zara have revived their business all about the business and price more low.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "As far as general merchandising is concerned, it is difficult to Exaggerate the & nbsp;deflationary power of Amazon& nbsp; (AMZN) – and remember, it just starts in the grocery store – do Walmart (WMTThe feats seem almost picturesque. "data-reactid =" 75 "> In terms of general merchandising, it's hard to exaggerate the deflationary power of Amazon (AMZN) – and remember, it's just starting to shop almost picturesque.

The two major exceptions

It is interesting to note that education and health care are the only two major sectors where prices have been rising for years. In the education sector, the number of higher schools is limited (supply), which has led to a high inflationary demand. However, more and more, outside of elite colleges and universities, prices are under downward pressure, thanks to demographic changes and online courses (read it digitally). Health care is frustrating because, despite tremendous technological advances, prices continue to rise, partly because of systemic dysfunctions, but perhaps also because patients will always want better results (lower mortality rate and longevity). increased).

CHICAGO, IL – JUNE 04: Jerome Powell, chairman of the board of governors of the Federal Reserve speaks in front of guests at a conference at the Federal Reserve Bank of Chicago on June 04, 2019 in Chicago, Illinois. The purpose of the conference was to discuss monetary policy strategy, communication tools and practices. (Photo by Scott Olson / Getty Images)

But education and health are exceptions. In most other businesses, technology makes us all much more productive. Talk to anyone in the sales, law, media, hospitality, or even assembly industry, and ask them if technology allows (or requires) to do a lot more work than 20 years ago. They would look at you like you're crazy. Of course, we all do more! Much more!

And yet, the Fed says that productivity has not increased so much. Huh? Exactly what and how does the Fed measure? All of this looks like a kind of disconnect from the real world.

Jay Powell and the governors of the Fed are of course smarter than me. And I'm not one of those trolls who criticize the Fed, but I really think the Fed is missing something here. Something important that has huge implications for interest rates – and even more than that, its management and understanding of the economy.

For me, this is disconcerting – and disturbing too.

It reminds all of Beckett Godot's dialogue:

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "ESTRAGONE:"data-reactid =" 103 ">ESTRAGONE:

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Let's go."data-reactid =" 104 ">Let's go.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "VLADIMIR:"data-reactid =" 105 ">VLADIMIR:

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "We can not"data-reactid =" 106 ">We can not

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "ESTRAGONE:"data-reactid =" 107 ">ESTRAGONE:

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Why not?"data-reactid =" 108 ">Why not?

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "VLADIMIR:"data-reactid =" 109 ">VLADIMIR:

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "We are waiting for Godot."data-reactid =" 110 ">We are waiting for Godot.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "ESTRAGONE:"data-reactid =" 111 ">ESTRAGONE:

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "(desperate) Ah!"data-reactid =" 112 ">(desperate) Ah!

Like Beckett's characters, the Fed is still desperately waiting for higher prices that show no sign of arrival.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Andy Serwer is editor at Yahoo Finance. Follow him on Twitter: @serwer"data-reactid =" 114 ">Andy Serwer is editor at Yahoo Finance. Follow him on Twitter: @serwer

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<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Why should the United States go on Facebook before Amazon, Apple or Google?"data-reactid =" 117 "> Why the United States should attack Facebook before Amazon, Apple or Google

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The fall of 3 iconic German companies is nothing startling"data-reactid =" 118 "> The fall of 3 iconic German companies is simply staggering

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Internet fragmentation creates problems for Facebook, Twitter and Google"data-reactid =" 119 "> The Internet divide is a problem for Facebook, Twitter and Google.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Why does a major technology investor have "growing discomfort with technology"?"data-reactid =" 120 "> Why does a major technology investor have" growing discomfort with technology "?

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