Thursday, September 13, 2012

Quantitative Easing versus Moore's Law

I wonder if inflation can be viewed in terms of a balance point between these two factors. Quantitative Easing and Moore's Law? When central banks do Quantitative Easing, there is a tendency for inflation to increase as more money is created to chase the same number of goods and services. On the other hand Moore's Law and other technological advances has the effect of pushing down prices in many sectors of the economy. Increased efficiency of manufacturing and new opportunities for creating value at low cost; such as things like "crowd sourceing" on the internet keeps inflation low in other sectors of the economy.

Prices and wages fall in some sectors of the economy due to the "Moore's Law" type forces of technology and globalization. At the same time, central banks, such as the Federal Reserve, create new money to try and stimulate the economy. Does this new money really help or does it just go into inflating assets such as house values?

Seems like our economy has been splitting into different inflation realms for many years now. Wages and the prices of many products remain stagnate while things like housing bubbles take place making the cost of living unaffordable for large segments of the workforce.

Inflation can no longer be viewed as a monolithic threat. Some sectors of the economy are subject to inflation while the forces of technology and globalization hold down prices and wages in other sectors. Possibly this is one of the factors contributing to the growing disparity of wealth in the US as well as the rest of the world.

I bring up these worries in light of the latest round of Quantitative Easing announced today by the US Federal Reserve. Assets that the Fed plans to buy are said to be in the housing sector such as buying up mortgage backed securities. This may bring house price inflation back. A strong housing market does create some jobs in real estate and construction and house furnishing industries, but is it really the best way to boost our economy?

Wouldn't it be better to try and more directly fund stimulus type investments in public infrastructure and research? Don't we need to invest in more sustainable technologies for laying new foundations to economic growth. Investments in new types of technology such as solar energy can help us maintain economic growth without so much worry about global warming.

Of course Congress, especially the Tea Party House of Representatives, doesn't really believe in these type of investments so maybe there isn't much else the Fed can do to stimulate the economy in the face of high unemployment.

I bring these questions up, but admit that I'm not really an expert on economics. I'm awaiting the vast amount of analysis and comment that will appear in the media, on Facebook and so forth following today's news from the Fed.

One example of Moore's Law type forces at work:

Flashlights based on light emitting diodes. I've retrofitted this LED shop light as a bike light. The first one I got from several years back was $20. This summer I found a barrel full of them for around $8 apiece with even a better switch. Lots of products are just getting cheaper and better in spite of things like quantitative easing, but some things are getting more expensive. In the future, will the majority of people be able to afford housing and healthcare? How much will corporate executives make compared to most workers? It's the splitting of society.

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