The Price of Tomorrow is a book written by Jeff Booth that talks mainly about the impact of technology on the economies around the world.
Booth’s central thesis is that technology constitutes a tremendous deflationary force for the economies around the world, and he predicts the end of inflation.
It’s interesting how he predicts the end of inflation, but at the same time, he is an advocate for Bitcoin against currency debasement.
Below are my notes on some of the chapters.
Introduction: The End of Inflation
He begins with how technology will propitiate the end of inflation and that the only thing creating growth today is credit, which relates to the idea of creditism by Richard Duncan.
Another exciting idea proposed by Duncan has to do with growing inequality between those who have assets and those who don’t.
Booth talks about how debt was $62 trillion in 2000 while the economy’s total GDP was $ 33.5 trillion. In 2018 debt was $247 trillion, and the economy was just $80 trillion—marginal diminishing results at its best.
On one side, says Booth, we have the deflationary technology force, and on the other, the central banks are trying to stop it with the printing machine.
According to Ray Dalio, when debt grows too much, there are four levers to get out:
- Defaults or restructuring.
- Transfer of money from the rich to the poor via higher taxes.
- Central bank money printing.
Dalio concludes that in the end, every government ends up printing. The other solutions are too painful, and the 3re doesn’t happen without revolution.
How the Economy Works
Here Booth gives the traditional approach on how the economy works; the GDP, all that is produced in an economy, is made up of 4 components:
- Consumer spending and personal consumption (C)
- Investment (I)
- Net exports (X)
- Government spending (G)
The formula for calculating GDP (Y) is simple: Y = C+I+X+G
Higher-income countries rely on C consumption for GDP growth, while emerging countries rely on X because they have natural resources. This may be an oversimplification, of course.
And then comes the relationship between the US and China.
The US has 70% of the economy based on consumption, while China only has 30%.
China favors production with tax incentives and requires lower wages compared to the world.
The US requires consumption to keep growing; that’s why it favors consumer credit, low rates, and lower taxes.
Donald Trump’s tax cuts increased trade deficits with China because a higher consumption in the domestic economy meant more imports from China.
At the same time, China has been buying US debt with the excess dollars that they were generating, allowing the US to have low rates and keep increasing consumption and keep buying from China. Booth says that this can be understood as vendor financing. ^^
If China stops buying US debt too aggressively, it would collapse US consumption crippling its economy.
The US is taking debt at a pace of growth much faster than the growth of the economy.
The economies have target inflation which makes sense on the side of debt.
As the US dollar became weaker around the world with quantitative easing, asset prices raised.
A devalued currency makes labor cheaper, and so the exports are more competitive in the rest of the world.
All the countries are devaluing their currency in a race to the bottom, making all asset prices go up.
Like all the countries are devaluing their currencies to favor their exports, the following steps are tariffs and trade wars.
Booth is a big proponent of the idea that the whole economy is based on inflation.
The biggest problem we have right now is that the inflation we counted in for growth disappears because of technology.
Minksy was an American economist that said that all the periods of financial stability ended with the rise of debt, The Minsky Moment. Is the tipping point where the asset bubble collapses.
It is Hard to Think Differently
The most exciting idea in this chapter comes from the founder of Amazon.
Jeff Bezos focused on what is not going to change instead of on what is changing. Focusing on what is not changing allowed them to create a business strategy.
The Technology Boom
One of the great remarks Booth makes in his book is how the human mind is not used to think in terms of exponential growth.
He provides several examples of how people find it challenging to understand the concept:
- The typical example of the chessboard and how one grain of rice can grow exponentially to more than all the grains of rice in existence.
- The example of folding a paper 50 times that would reach the Sun, 149 million km thick.
Technology is compounding itself, and we do not even realize it.
He also speaks about the sigmoid function of technological growth.
He talks about how autonomous driving will plummet the need for parking space via the increased usage in 5% of the time.
Booth talks about 3d printing and how a company named Carbon can print the new Adidas Yaez.
Another effect of technology being deflationary is that it destroys jobs.
I took $185 trillion of debt to generate $46 trillion of GDP growth over the last 20 years. This trend will accelerate. In 2018 the world had $250 trillion in debt to run an $80 trillion world economy.
This is a massive drag on growth because of interest rate payments.
The Future of Energy
Talks about the first two laws of thermodynamics:
1st law: the amount of energy in the world is fixed. Energy cannot be created, only transformed.
2nd law: energy always moves from higher to lower concentration; in other words, heat dissipates.
The energy of the Sun goes into space.
Steam from boiling water into cooler air.
All transfer of energy in a closed system generates more entropy.
Because when it is transformed, it moves from higher concentration to lower concentration. This is what happens on our planet.
In the actual world, we are allocating resources and energy to the exploration, extraction, conversion, and movement of energy.
All the actual energy complex will be obsolete with the coming changes of tech in energy by getting most of our energy directly from the Sun.
In 2 hours, more energy from the Sun hits the earth than the energy used by the whole world in one year.
Booth talks about how the constant increment in investment in solar will lower the cost of energy exponentially until deflation becomes unavoidable because energy is a significant cost of everything (energy accounts for 9% of global GDP).
The photovoltaic effect (light being absorbed by a material and creating an electric current) was discovered in 1839 by Edmond Becquerel.
The first rooftop solar array was created in 1879 by American inventor Charles Fritz.
Modern silicon solar cells were invented in 1954 by Bell Labs.
The current cost per watt of solar energy is $0.82
I liked the concept of Swansons’s Law, where the price of energy falls 20% with every doubling of the shipped volume of energy.
The cost of solar will drop 75% every ten years.
Richard Swanson is the founder of Sun Power.
The technical potential is different from extractable potential. In that sense, solar is far better than any other.
The Future of Intelligence
Booth starts talking about how writing has been the way of human progress compared to oral traditions, where a lot of information was lost across the generations.
Booth mentions how the scientific method was created by the collaborating of various thinkers across history and no one author alone.
The printing press and the ability to transmit knowledge allow humans to correct errors and transfer knowledge.
He mentions how Charles Baggage (1791-1871), a British polymath, invented the first computer called The Difference Engine to correct astronomical tables (he invented it in theory because he never built one).
The Turing Test was proposed in 1950 by Alan Turing (an Imitation game he called) where a human evaluator would have a conversation with two others, 1 being a machine.
Claude Shannon invented “the bit”: if a message cuts the possibilities of uncertainty in half, it is said it has transmitted a bit.
He talks about the Bayesian method and about how computers use it to solve any problems as long they have enough cycles to update probabilities:
How Bayes Theorem works:
Imagine a man waking up in the first afternoon ever on earth and seeing the Sun going down. Estimating the probability of the Sun raising the next day would be 50%/50%.
As long as new days passed, he would update the probabilities of the Sun rising every day.
After a few days passed, if this same man is put at night on an entirely new planet, he would estimate the probability of the Sun raising on 2/3 maybe, because he already has some previous knowledge.
Geoffrey Hinton was the critical professor that moved to Canada and developed a significant breakthrough in AI.
Who Will Be The Masters?
Booth talks about how the brain rewires itself building new pathways with practice and repetition.
He talks about the China credit system rewards where good deeds are incentivized, and they punish the dishonest (they can block people from traveling in trains and planes).
China will end up having a digital surveillance system.
Us Vs. Them
Booth gives an example about the war in Sarajevo and how things can change very quickly.
Jeff Booth likes and hobbies if I have to meet him: YPO member, Skier, Tennis Player, Volleyball Player, Hicker, Camper.
Booth references the book Actionable Gamification where it says that there are eight motivational forces:
1) Epic meaning & calling: i.e., the Hero’s Journey
2) Development & accomplishment: the internal drive to overcome challenges.
3) Creativity & feedback: a creative process where we have to figure things out.
4) Ownership and possession: the feeling of owning something.
5) Social pressure and relatedness: mentorship, belonging, competition, etc.
6) Scarcity and impatience: wanting something because you can’t have it.
7) Unpredictability and curiosity: wanting to know what will happen next.
8) Loss and avoidance: the avoidance of something negative happening.
Reasons for the acceleration of divisiveness in the world:
Maslow pyramid: everyone is in different stages of the pyramid.
The technology targets us individually, thus reinforcing our belief patterns.
Natural tendency to create us versus them: an experiment in the summer camp with kids where the only thing that reunited the groups was a common challenge.
Can We Cooperate?
Booth talks about game theory, the prisoner dilemma, and how these theories are applied globally between countries.
Game theory was developed in 1928 by John Von Neumann.
Strategies in game theory are in continuous flux, making the world much more complex; seldom are we going to find a system that works constantly. Things are always changing.
A Call to Action
Booth elaborates on how companies maintain inertia that restrains them from doing the necessary changes to survive.
He talks about the four types of exits to this crisis and how nobody talks about austerity and debt restructuring.
These first two exits could just be triggered with slow growth.
Everyone talks about exists 3 and 4 that are print the money or tax the wealthy.
Lever 3, printing money, increases debt and kicks the can along the way, but these enormous deficits need growth, and in a recession, deficits could explode.
He proposes a solution where we left the technology deflation run-free and adjusted from there.
Our lives are defined by the positive impact we have on others.