This might seem like a strange topic when inflation is on everyone's mind. Unfortunately, this is something that will be short lived.
Why do I say "unfortunately"? I know most people believe the inflation bad, deflation good idea. The problem with the opposite is true. Certainly, massive inflation can have negative effects. However, deflation is a much worse enemy.
The problem is that, for Western countries, they have not seen a overwhelming deflationary period since the 1930s. This was known as the Great Depression. If you are unaware, do a bit of research about the sentiment at that time. I can assure you that it was not optimistic.
Today's problems could feed into this. However, it is much bigger than anything we are seeing economically. The next bout that we will be dealing with, likely in the next 24-36 months is driven by technology.
Image generated by Grok
Warning: Massive Deflation Ahead
The advancements in AI are becoming clear. Most to study this economics of this understand that we are seeing the breaking of labor and capital. That relationship is the foundation of modern economies. What happens when this is blown to hell?
That is something that nobody can answer. Many are opining about some steps that can be taken but the reality is we do not know how this will unfold.
What we can articulate is the fact that more weight is moving towards capital, and away from labor. In the past, to increase output certainly required more money. However, to achieve that end meant more people were involved.
Let us take a factory as the example. To start, people were hired to build it. After that, equipment, made by companies that employed people, was brought in. The lines, even if automated to a degree, had human workers. Then we have those who worked in sales, advertising, delivery and accounting.
What happens when these are replaced?
I know, many believe it is not going to happen. My view is they are wrong. The bottom line is the cost per task (whatever that might be) is dropping rapidly. We honestly do not know where the floor is.
One thing history has taught us is that technology moves things either towards, or two, zero.
This is deflationary.
Everything In A Few Seconds For (Near) Free
I asked Venice.ai to give me a short biography of Zelenskyy, the leader of Ukraine. This is what it provided.
Volodymyr Zelenskyy is a Ukrainian politician, actor, and comedian who has been serving as the President of Ukraine since 2019. Born on January 25, 1978, in Kryvyi Rih, Ukraine, Zelenskyy rose to prominence in the entertainment industry before entering politics. He graduated from the Kyiv National Economic University with a degree in law, but instead of pursuing a career in law, he turned to comedy and acting.
Zelenskyy's comedic career took off in the early 2000s, and he became a household name in Ukraine with his comedy troupe, Kvartal 95. He also starred in several films and television shows, including the popular Ukrainian sitcom "Servant of the People," in which he played a high school history teacher who becomes the President of Ukraine. The show's success propelled Zelenskyy to national fame, and he decided to run for president in 2019.
Zelenskyy's presidential campaign was marked by his anti-corruption and anti-establishment rhetoric, which resonated with many Ukrainians. Despite having no prior political experience, he won the election in a landslide, defeating incumbent President Petro Poroshenko. As president, Zelenskyy has focused on reforming Ukraine's economy, fighting corruption, and strengthening the country's military.
In 2022, Zelenskyy's leadership was put to the test when Russia launched a large-scale invasion of Ukraine. He has since become an international symbol of resistance against Russian aggression, earning praise for his bravery and determination. Zelenskyy has also become a key figure in international diplomacy, meeting with world leaders to secure support for Ukraine's defense and reconstruction efforts. Throughout his presidency, Zelenskyy has remained committed to his vision of a democratic, prosperous, and independent Ukraine.
As they say, this is the worst it will ever be. Even if there are some errors (I didn't read through) over the next couple years, it will improve. What is important is that I issued a simple prompt and received the result in a few seconds.
This is, however, the tip of the iceberg.
OpenAI is considering adding higher subscription levels for it services. While this is not finalized, it does show what we could be faced with.
Among the various agents being developed, one targeting high-income knowledge workers is expected to carry a monthly subscription fee of $2,000. Meanwhile, a dedicated software developer agent is rumored to be priced at $10,000 per month. The most expensive offering, aimed at facilitating PhD-level research, could reach the upper tier of $20,000 monthly.
Even if the pricing is off, think about it this way. If OpenAI (or any model) is able to code within a range of the top coders, we are looking at $120K per year. Of course, the output will be far greater since the agent can work around the clock. In other words, if the coding capabilities are there, $10K per month will be cheap.
So much for the learn to code.
This is happening across the board. Look at the price for PhD-level research. How many people are typically required to achieve that? It is often teams that are employed. In this sense, $240K could be cheap.
Also, what could take the team 3 months could be done by the AI in, possibly, hours.
Technology Is Deflationary
Technology is deflationary. We are seeing one of the most powerful technologies to emerge and, for the most part, it is free. People can use a variety of chatbots to get dozens of prompts per day. Over time, this is going to move into the hundreds and then thousands.
What is likely is the disruption caused by OpenAI receives the same. While $20K is a steal compared to a team of PhDs, what happens when someone offers the capability for $5K per month. As we see, some are often willing to turn it out for free.
Rinse and repeat.
We could be moving towards a post-monetary world. AI and robotics are going to cause massive disruption. Jobs will be the casualty, something we might be seeing. Did you notice all the layoffs by technology companies over the last year?
Where do you think the impact of AI might emerge first?