Radical cheapness

We're tallking about the book Abundance: The Future Is Better Than You Think. One consequence of these waves of technological change is basic needs could get much cheaper. In fact, in a fascinating table they work out what the components and functions of a 2011 smartphone, including GPS and video cameras, would have cost to buy in about 1982. The answer: $902,605.

Of course, technology has fallen in price far more than other needs like housing or healthcare or education, which have in fact got more expensive. But the innovations we saw in the last post are likely to lead to significantly lower costs for most of our basic needs as well. They become abundant rather than scarce.

The typical American spending breakdown shows that 75 percent to 80 percent of the money we earn goes to meet basic needs such as water, food, clothing, shelter, health care, and education.

This also means that 75-80% of the current economy will be under hyperdeflationary pressure. It's already evident in the clothing sector, for example. The quality and cost is so much better than when I was a kid.

Of course, the usual positive story is that plunging costs for one set of purchases means demand can rotate to new goods and services. People suddenly have spare income to buy new items. But it may not be that simple if the new goods and services can themselves be produced extremely cheaply as well.

Take employment in services, for example. One other major new innovation is likely to be robots will finally become useful on a much bigger scale.

Whether it’s shelf-stocking robots maintaining inventory at Costco or burger-slinging robots serving lunch at McDonald’s, we’re less than a decade away from their arrival. Afterward, humans are going to have a hard time competing. These robots work 24/7, and they don’t get sick, make mistakes, or go on strike. They never get too drunk on Friday night to come to work Saturday morning, and—bad news for the drug-testing industry—have no interest in mind-altering substances. Certainly there will be companies that continue to employee humans out of principle or charity, but it’s hard to envision a scenario where they remain cost competitive for long. So what becomes of these millions of blue-collar workers?

Again, the economic challenges are much larger in coming years than most people - and most leaders - realize. It's more than just fixing social security or attracting manufacturing plants to Iowa or the Mezzogiorno.

It's a phase shift in how people live.