Ouroboros

There has always been a premium for problem solvers. Anyone who can assess a situation and render it obsolete is among our greatest leaders and innovators in history. But much like any pharmaceutical discovery, every solution is riddled with side effects. Some are more harmful than the original problem itself. In one industry, problem solving may have become the problem. Don’t worry, pharmaceutical sales reps. You’ve been taking your well-deserved beating throughout the pandemic. You can sit this one out. But this industry might be the real reason for inflation at the present time. Nope, not the federal government, not private equity, or even the Federal Reserve. You guessed it: technology!

The Hidden Costs of Technology

But wait—technology has been responsible for lowering poverty rates worldwide, connecting the world with the click of a button, and creating more billionaires than the entire oil and gas industry. So why is technology the problem? To understand, we must first examine what technology truly is.

Technology, in its essence, is a problem solver. It is ever-evolving, with its only objective being to make a process, product, or service more efficient. Technology removes unnecessary systems, processes, and middlemen. It seems like a win-win for everyone, right?

Not so fast! While technology does solve problems for consumers at a consumption level, its impact on your dollar tells a different story. There’s an important concept in economics called the velocity of money.

The velocity of money can be calculated as the ratio of nominal gross domestic product (GDP) to the money supply (V = PQ/M). It gauges the economy’s strength or people’s willingness to spend money. When more transactions are being made throughout the economy, velocity increases, and the economy is likely to expand. The opposite is also true: when fewer transactions are being made, velocity decreases, and the economy is likely to shrink.

So, what does that mean exactly? The velocity of money refers to how many times a single dollar can be recycled through a community. The more hands that touch the dollar, the more wealth is created. Here’s an example.

The Fall of Blockbuster and the Rise of Netflix

If you’re old enough to remember Blockbuster, you know it was a movie rental store chain across America that allowed you to rent VHS tapes or DVDs and return them by a specified date. Some of us still have rentals to this day. Those stores employed thousands of people in local communities nationwide. Many of us pooled our money together to watch the latest movie as soon as it hit the shelves. The money we spent went directly to the local Blockbuster. And when the store manager locked up for the night, they typically went home to a house located in the same community as the store. On the way, they might have stopped to buy pizza, gasoline, or drinks at a local pub. The pizza shop would then take the same dollar you spent at Blockbuster. The gas station would get the same dollars and so would the local bar. Those dollars would cycle through the community dozens of times before the end of a fiscal year—all within your community!

But what happened to Blockbuster? Technology! Along came Redbox—a 24-hour machine that dispensed DVDs for as little as a dollar! Although it put Blockbuster out of business, at least the machine was still in our neighborhood, and someone had to refill it. However, technology spares no one. Shortly after Redbox rose to prominence, we stopped leaving our homes to consume our favorite movies, and in came Netflix!

Netflix, our new shiny toy, introduced us to binge-watching and shorter attention spans. The company employs over 13,000 people, most of whom live in a small region of California’s Bay Area. At its height, Blockbuster employed 84,000 people across America. Those dollars would circulate throughout your community. Now, they are concentrated in one region. But the problem didn’t start with Netflix and won’t end with Netflix. This issue traces back to the dotcom bubble in the 2000s. Here’s a chart below that shows when the dollar’s velocity fell off a cliff.

Stagnant Money and Job Losses

Many of the tech companies we love today have solved numerous problems for us, but unfortunately, they’ve created a problem that even technology can’t solve. Not only has technology diminished the velocity of our money by reducing the number of hands that touch it, but it has also permanently removed local jobs, putting a strain on the national budget. How? When fewer hands touch the same dollars, government subsidies increase. Larger subsidies mean a larger budget, which requires more money to be printed to reach enough people. Look at the chart below.

Notice the year 2000—the dotcom bubble. We’ve been running a budget deficit ever since, which forces us to borrow money to meet our obligations. As a result, our national debt increases yearly and exponentially.

Do you see the pattern? Yes, the year 2000 again. Our elected officials want you to believe it’s just the pandemic or that it’s a Democrat or Republican issue. The truth is far beyond their pay grade. After all, the government got into bed with Big Tech to spy on us, all under the guise of national security. And when was that initially proposed? In 2000, shortly after the Privacy Amendment (Office of the Privacy Commissioner) Act 2000 established the Office of the Privacy Commissioner and separated it from the Human Rights and Equal Opportunity Commission on July 1, 2000.

But the Privacy Act didn’t get a single vote until December 2001. I wonder what happened a few months before that to change everyone’s minds so quickly. Nevertheless, the point is that Big Tech and the government work hand in hand, so there’s no reason for them to impose anything in the realm of antitrust or similar regulations. As with many problems, it’s left to us—the people—to solve.

If you want to lower inflation, build and support businesses in your community. Help the government balance its budget by creating new tax dollars through new companies. That way, it won’t have to borrow to pay its bills. If you’re a businessperson seeking ways to circumvent the negative effects of the declining velocity of money, certain business strategies are critical to your survival in this race to the bottom. You need to control your supply chain and vertically integrate your product. Your approach should not be localized; rather, build your business to scale—or else fail. The less money circulates, the lower the margins. You can no longer grow a business by units sold without lowering your cost basis at every growth cycle. Remember, you’re competing with nature, and at the pace we’re going, we’re innovating ourselves out of a pot to piss in and a Microsoft Window to throw it out of!

“Technology progress has merely provided us with more efficient means for going backwards”