Why higher inflation is ahead July 2020

We are at a point in history, where some major disinflationary (and deflationary) forces of the last 3 decades in the process of reversing.

  • Globalisation has resulted in far more intense price competition as service providers and manufacturers in the emerging world, provided goods and services more cheaply to the West. We are now beginning to see deglobalisation (at least for manufactured goods) as a result of the COVID-19 crisis as well as the growing tensions between USA and China. This means that factors other than lower-cost have started to become more important.

  • Note: Deglobalisation will result in not only higher prices but also a lower standard of living (all things being equal) because of the Economic Law of Comparative Advantage. https://en.wikipedia.org/wiki/Comparative_advantage

  • Technology has been a major deflationary force by:      

  • enabling much fiercer price competition via the Internet eg via Internet shopping.

  • Also because of Artificial Intelligence, far greater automation and robotisation.

  • Some are now arguing that the big tech giants like Google, Amazon and Facebook have become so dominant in their sectors that they are now seeking to monetise that dominance (monopoly power) by raising prices and killing off competition - hence higher prices than we should have to pay.

  • This is why the European Union and THE USA government are increasingly scrutinising the monopoly power of these tech giants.

  • https://www.forbes.com/sites/alisondurkee/2020/07/29/as-tech-giants-face-congress-heres-what-americans-actually-think-of-big-tech/#35d3830d561f

  • https://www.bbc.com/news/technology-53571562

  • China has been a major source of disinflation and deflation in the West. The growing tension between USA and China including tariff barriers, seems to be pushing the world into a new Cold War where countries and companies will have to choose sides - USA or China. This is inflationary - and an overlapping issue with deglobalisation China has also been

  • Massive growth of western M2 Money Supply, as governments supplement the role of central banks in controlling money supply. And now this is the argument presented by Russell Napier.

  • The connected issue to the is the transition into an era of Modern Monetary Theory (MMT) https://en.wikipedia.org/wiki/Modern_Monetary_Theory  economic policy and also Financial Repression   https://en.wikipedia.org/wiki/Financial_repression .

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