Why Deflation is the Key to an Abundant Future by Jeff Booth

Jason Hartman centers this episode on deflation. He brings on Founder of Build Direct, Jeff Booth, to discuss how they see deflation playing out in society and the economy. They look at whether it is good or bad to have deflation. Then they look at how governments approach the topic and how investors can benefit.

Announcer 0:01

This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.

Announcer 0:12

Welcome to the American monetary associations podcast where we explore how monetary policy impacts the real lives of real people and the action steps necessary to preserve wealth and enhance one’s lifestyle.

Jason Hartman 0:30

It’s my pleasure to welcome Jeff booth. He’s the founder and former CEO of Bill direct a technology company that aimed to simplify the building industry. He’s founding partner of audio labs, co founder of Abbey invest and Knock knock, and he’s also the best selling author of the price of tomorrow. Why deflation is the key to an abundant future. Jeff, welcome. How are you?

Jeff Booth 0:55

Great. Thanks for having me this

Jason Hartman 0:57

and you’re coming to us from one of my favorite cities Vancouver, Canada. Right.

Jeff Booth 1:00

It’s pretty beautiful. Yes.

Jason Hartman 1:02

Yeah, it is. It’s a it’s a great place. So I have long talk to my listeners, Jeff about how there’s sort of this war of opposing forces, if you will. On one side, there’s technology and globalization, both very much deflationary. And on the other side, there is irresponsible monetary and fiscal policy inflationary, and which one will win? We don’t know yet because the outcome has yet to be known to us. But deflation does make life more abundant. And, you know, if I look around in my own life, I constantly think about it. And I think wow, just everything I buy is so much less expensive than it used to be. And, like the economists they use hedonic adjustments hedonic Li adjusted, it’s better and it’s even cheaper if you hedonic Lee adjust with the exception of assets, real estate, much more expensive, and you get a lot less Plot less land with your house, etc. So it’s hard to really kind of figure this out, isn’t it? But tell us about deflation being the key to an abundant future

Jeff Booth 2:09

there is no doubt there’s nothing that governments can do long term to stop deflation, nothing. deflation will win short of

Jason Hartman 2:18

can they just print so much money that no matter how good technology is and how much Moore’s law and power the processor you know, doubling every 18 months, no matter how deflationary that is, can they just be so irresponsible in printed Zimbabwe level money and, and prevent deflation is it

Jeff Booth 2:39

so that’s on the way to deflation on the other side of right. But But in the end, fighting deflation is like fighting gravity, you and yours, you’re gonna waste a whole bunch of money and you’re not going to fail you’re not going to stop it in the end. You said it perfectly that you have an opposing force. If you look at the CPI and the things that are inflating health care, education. Yeah, education, the house prices and everything else. All of those are inflating on naturally because they’re they have so much money chasing when you have zero rate, interest rate policies. And essentially you’re punishing saving, you’re creating an incentive structure to not save. And you’re creating an incentive structure on the posing to create more depth in that, in that debt creation 180 $5 trillion of debt creation in the last 20 years to try to grow out of a deflationary environment. It actually adds to disinflation, because if you assume you have to pay back the debt. At some point, consumer spending has to go down, you’d use growth in the short term, expensive growth in the long term. So that hundred $85 trillion of printing to record debt creation, did boost economies, but it was like pushing on a string, it’s actually only increased GDP globally by 46 trillion. With all about printing, so you can see structurally you have to have a brand So it takes more and more debt to chase less and less growth. And then we’re at a point where it not just takes it doesn’t just take that it takes bailouts and complete butchering, of any sort of capitalist capitalist system and free markets that we grew up with. So it’s really easy to see what’s, what’s going to come. Okay. So butchering of capitalism, which by the way, I agree with and the pre Coronavirus, we could argue that capitalism and free markets had a chance. Now, I think we are firmly in an era of socialism mmt modern monetary theory maybe, or wellI in 1984. Who knows? I mean, you know, the Austrians you’re just out of luck, folks. So the Austrian economists, the Austrian School, it’s just not happening. What do you mean when you say that you say it’s now in 2008? We had so my business in 2008. Banks on the other side of the ocean wouldn’t accept LC its letter of credit because didn’t trust the counterparty risk. And so the global economy effectively stopped is because people didn’t trust balance sheets of different counterparties. And bailing out that system was which really was socialism for the rich kept some our asset prices artificially high and reduced to the value of cash and doing so and set us on to essentially you pay, we papered over 2008 that created more divided society, as if you were an owner of assets or stocks, the stock prices went up, when they should have gone down. If you didn’t let that happen if you actually let capitalism clear the market, they should have gone down we should have entered a depression it would have been ugly, but it would have been quick. It would have been quick and people were cash would be the new leaders. Instead, you destroyed the value of cash and you incented use them incentive asset holding and you actually took down the value of savings more. Is it any wonder in a system that works like that, that come from Would not save money for a rainy day. Because if you’re making the money worthless, and you’re going to bail out the system over and over again, then being in cash is the worst thing you can do. So you set up your own demise of because of kind of a perverse incentive system that values depth and asset prices hired to try to get good growth in the inflationary environment.

Jason Hartman 6:22

So when you say you, you mean, the government and the central banks all over the world? Yeah. All over the governments and central banks all over the world. Yeah, got it. Okay. Yes, they definitely distort the market. They don’t allow one of the most important things markets do which is known as price discovery. And so they keep kicking the can down the road effectively, right? Because they never want to have pain on their watch. And so they try to just minimize the pain but that has its own consequences, of course. But let’s go into the technology angle and Well, actually, maybe before you do that, one of the sub chapters in your book is entitled The Ponzi economy and I would love it if you would elaborate on that for us.

Jeff Booth 7:05

It’s connected to what we just talked about the amount of debt created and at some point, people realize the debt can be paid back, and you reset and the recovery thing to reset. Now let’s reset through bankruptcies and depression or it’s reset through essentially debasing currencies and creating hyperinflation, or reset through revolution. Once you’ve passed that when people realize that that can’t be paid back, it can go on for some time like that, well, people don’t realize this and people realize that the debt can be paid back and starts to turn into upon this, the last one and the last one in two that gets really hurt. And so, connecting the dots to all of these things, if you just start with kind of first principles on inflation or deflation, they’re not good or bad. They just have different winners and losers, right? deflation makes sure the value of money go up because goods and services go down in relation to To your money. So I don’t see how that’s necessarily a bad thing. Um, inflation is the opposite, that makes your assets worth more, because because your money is worth less. Now, if governments to say said instead of we have inflation targets of 2%, if they said, We want to destroy your currency at whatever cost, you might have people up in arms. But if you drive inflation into that deflationary environment where it wants to go, asset prices explode in value, that’s what happens. And so that’s what you’re seeing. And the owners of those assets

Jason Hartman 8:32

become the winners because they own hard assets that have intrinsic values that you’re not

Jeff Booth 8:37

it’s not just hard assets, the stock market right now has no bearing to reality whatsoever. Right, right. prices go up in something. So if you have stocks and everything else, there can be shares of companies that people deem valuable. There’s a race to, to hold things that are going to go up because of the stimulus.

Jason Hartman 8:56

You know, it’s kind of interesting when we look at the macro The inflation deflation picture. In a way, you could almost argue that deflation causes inflation. And here’s what I mean by that, you know, when all of your consumer products are so inexpensive as they have been getting, I mean, certainly, everything’s cheaper and better than it used to be. Then you have these other asset items where you have consumer deflation and asset inflation, they get more expensive because people have more disposable money with which to invest. The market starts getting flooded with money, it pushes stock prices up, pushes real estate prices up. You know, it’s kind of interesting from that perspective, in a way too.

Jeff Booth 9:40

And if you think about if you let natural price discovery happen, what would it look for the acceleration of COVID? On zoo, right? So, company went from 10 million users to 300 million users and in a month and a half. I suspect that witnesses over 300 million users isn’t going back to 10 million years

Jason Hartman 9:59

right? But it’s not going to stay at 300. But it might be at 100 and 50 million,

Jeff Booth 10:03

right. And everyone who goes incremental users is less those commercial real estate.

Jason Hartman 10:08

Well, yeah, commercial real estate is there. I mean, the retail apocalypse has been going on for years. But now it’s the hotel Apocalypse, the office space Apocalypse, and who knows what else you can artificially bail out those industries and keep prices high,

Jeff Booth 10:22

right? And then what you’d have to do with in addition to that, is you have to put all of the people left out of society that you can because you enriched the people with those assets, you’d have to pay them more to it so that it could pay rent on those assets. So the amount of wasted money going into something effectively trying to fight gravity is gonna break systems, it’s gonna, it’s gonna break currencies. So

Jason Hartman 10:48

why are governments and central banks so afraid of deflation? If you say that technology is deflationary, which I agree with, and so is globalization. Why fight it? Why don’t like what’s the problem? Why are they fighting it.

Jeff Booth 11:00

Okay, so first let’s go with how deflationary right because it’s actually just starting. So if you look at your phone, your smartphone, yep, that was only invented 13 years ago, right? My first phone cost me 1200 dollars. Yeah, my pay.

Jason Hartman 11:12

Hey, I got a better story than you got my first phone cost me 30 $200 it weighed 14 pounds. And it mostly stayed in the car, but you couldn’t take it out and have like this big huge lunchbox. And I don’t know cups, right? Yeah, that’s all it did. And now, you know, so then the phone bill was $45 a month base plus 45 cents a minute. There were no calling programs. Yeah, you know, my phone bills used to be $800 a month and adjusted for inflation today that probably be I don’t know.

Jeff Booth 11:42

20 $500. Yeah, my first phone bill was $2,000 in the first month, and then all of those make phone calls. Now, everything on my look at your app screen and it’s all free. So the power you have, we think that it’s isolated just to small pockets of their industry right now. But with a What’s coming in technology, and I’m on board to the lots of companies that are developing this technology with AI where artificial intelligence is going. And what’s what’s happening across the landscape. We’re in the first innings of technology, deflation, not across every that abundance. So lower cost, abundance is moving everywhere. And there’s a mistake that people make. And they think economics is about value. It is not about value. It’s about scarcity, and things that are abundant or hard to price.

Jason Hartman 12:31

Yeah, I always say it’s about scarcity and utility. Those are the two it’s not just scarcity. It’s also got to have utility.

Jeff Booth 12:37

Yeah. Let’s use air as an example. The oxygen we breathe the most valuable thing to you, right? Yeah, great. The only place you can charge for air is underwater. So what technology is doing across all of these industries is it’s taking down taking up abundance and taking down that cost? Yes, that comes at the expense of jobs. So governments are trying to protect jobs. But by finding a system and having more more jobs, but they’re actually making that whole system more vulnerable by doing so, by adding depth to trying to grow their way out of it. To answer your other question, why is it so deflation so bad? Because if you have that, and you allow deflation, the debt gets more expensive to repay, that can’t be repaired. So you have a bit of a structural change in society, with central banks and governments not realizing it early enough. And having a problem so big, they don’t know what to do with. And so the problem keeps getting bigger at every staff, and that’s what you have. But why there’s business analogues all over the place for this. It’s the same as blockbuster 9000 stores not seeing technology and how fast Netflix emerges because now download speeds could increase and the business changes overnight and blockbusters 9000 stores become a noose around their neck and they think by adding candy aisles and popcorn to their stores, they can change that. And that is a really good analog to what’s happening today, with central banks and governments trying to delay the inevitable. See, that’s

Jason Hartman 14:09

the thing I always say, Don’t bet against the Fed, as much as I philosophically hate what the Fed and governments will not just the Fed, but every central bank is doing, you know, because I think a lot of money, the value of money ought to be dictated by a free market. But it doesn’t matter what I think what matters is that they are the two most powerful entities, governments and central banks, the human race has ever known. And by betting on deflation, you’re bidding against them, because not only is every individual’s debt and every company’s debt, more expensive to repay in a deflationary environment, but also the national debt. And hey, if we want to wipe out our debt to China and Japan and everybody else, then all we got to do is keep inflating and you know, we just pay it back and cheaper dollars. So it’s a pretty good business. plan for them. But you’re saying technology is so powerful that it can’t overcome massive amounts of money creation?

Jeff Booth 15:09

Right, some sort of let’s say you did. Right. And so so just was it yesterday, there was talk about not repaying China, or letting local bankruptcies in the bond market collapse cities in the US. What do you think that does to world trade and debt and the debt markets? It explodes, right? Everything changes in an instant. So things that seem likely never change, and change in an instant. At some point. What happened last week in oil was two weeks another an oil is a really good example. I’m sure if you ask most people, they’d say, put your money in oil because you can never lose that negative $37 oil fee. For you get paid to, again, because it’s abundant, because there’s no place to store it anymore. And it becomes nobody wants it. And so there is going to be a time when people in the bond markets, I think If she’d probably right now are still going because the dollar is going to get stronger and interest rates are going to go negative. And the dollar is still going to get stronger in spite of that, because the US has the reserve currency. And other countries are failing faster and meeting those dollars desperately, which is creating demand for US dollars. But at some point that’s coming, that’s going to break Why, why does it break? It breaks because either us can’t pay back the debt, crabs into hyperinflation changes the let’s say, you and I trade together, and I’m in Canada and you’re in the US, and I bought a whole bunch of money from you. And then I decided to pay you back in booth dollars with a different denomination. Will you trade with me again? Or will you not want something more secure? Well, here’s the deal. I may not want to trade with you, but I may not have a choice for two reasons. Number one, you may be my biggest customer with the biggest economy and the next part of that is number two. You also have the biggest military, the human race has ever known. And you’re gonna force me to trade with you, essentially, I suspect on both those answers that don’t solve that dilemma, you’ll find if you’re going to trade with somebody, because they’re a big buyer, but they never pay their bills. It seems like a greater fool philosophy.

Jason Hartman 17:18

Well, I mean, you know, the us if we’re doing the US China metaphor, right, which I think we are, maybe we’re not, it seems like we are, then, you know, the US pays gets the goods from China pays it back in cheaper dollars. And that’s a pretty great deal for the US. I don’t know why Trump is complaining so much about I get the trade war, too. You know, that’s sort of a

Jeff Booth 17:37

separate kind of issue in a way. But as far as the inflation issue of, you know, buying goods, paying them back and cheaper dollars, that’s a pretty great deal for the US it is but it’s the same deal for China. It’s actually a good deal for China to do what China does is they devalue the currency so they have cheaper labor to play that game and then the trade wars start because because wait stealing our jobs because they have cheaper labor because they’re artificially changing the currency. And as they change the currency that value everybody that everybody knows they have to they have to devalue the currency. Money floods out of China into real estate and the US further out of exasperating the problem. So you have when you don’t have a base of currency tied to something and every government is printing their own currency, the currency is you have you have manipulation of pricing everywhere.

Jason Hartman 18:29

Sure. Do. I mean, I agree. I’m just saying that the reality is I don’t know if that game ends very easily. It seems like they can kick that can down the road for a long time. I don’t like it. I’m not saying it’s right. I’m just saying it is, you know,

Jeff Booth 18:42

they might be able to say that I’m getting it but the cost of kicking the can down the road means asset. So today, what would you do? Let’s play outpost right. In one scenario that’s going to happen and I would say that’s a high probability something. So that is going to at whatever cost bailout markets in there We’re gonna keep going. That means that in the short term asset prices explode, real estate explodes higher everything else, everybody searches for safe haven, asset school explodes higher everything else to be able to protect against that happen. Step two of that taxes have to go up significantly to pay back that debt assuming it’s going to pretend to be paid back. Step Three of theirs when not and that slows economies and we get here again, and so forth, that is debase your currency. So that’s the path on that and it won’t stop the technology deflation in the end anyways, because technology is marching forward or that doesn’t happen on that and companies go through or countries go through a kind of an orderly unwind. It looks more like a managed it says it looks more like a managed depression

Jeff Booth 19:55

and you rebound stronger on the other side.

Jason Hartman 19:57

The thing is as much as we might criticize the US for the way they’re handling it. It’s pretty much the game plan of almost every developed country. I mean, you think our debts bad look at Japan, you know, they’ve got 230% to GDP debt. You know, ours is only like 100%. I mean, we’re really good and they don’t have the reserve currency are the biggest military or anything or the biggest economy. So in Japan has that Japan’s just not going to exist in 70 years? I mean, they can’t if they don’t have immigration or children. You know, if you don’t have any people, you can’t have a country. I don’t know. It’s just a very weird situation. If you have a comment on that, go ahead. But I want to ask you in chapter four of your book, I love talking about self driving cars. But before that, you talk about doubling up. And I’m curious what you mean by that.

Jeff Booth 20:44

So technology, and it’s more than Moore’s Law, Moore’s law, but let’s use Moore’s law as a case of exponential growth. Right. And so whether it moves from Moore’s law to quantum computers or whatever, but let’s see, the Moore’s Law doubles every 18 months to two years. Right. And to see that effect, the same effect that’s in your cell phones projected forward is that take a doubling up? I think it tricks most people can understand that the pace of change. So if you pulled a piece of paper on itself, if you could for economic folded on itself seven times, but if you could continue folding to 50 times that piece of paper, would we trim here to the sun? And I’ve asked that question to 10s of thousands of people in audiences all over the world, most people guess about two inches. And so what that tells you is not a whole bunch of people really misunderstand exponential technology, exponential patterns. If you compare that analog with paper folding to the sun, to what’s happening with technology, we are on fold 33 right. In 18 months, the technology that we see will do so we’re looking backwards and all the deflation that we’ve seen and all the money printing to be able to stop it is looking backwards in the rearview mirror. Looking forward. what’s what’s going to come across society is so staggering and people aren’t prepared for it. And there’s nothing governments can do the software because it’s marching forward. And it’s it’s AI is moving at lightspeed across industry, self driving cars, additive manufacturing, name an industry that isn’t going to see,

Jason Hartman 22:14

again that it’s truly amazing. I mean, it really does feel like we are at a hockey stick inflection point in the world of technology. But I try to think back to the past and you know, I’m, I’m a pretty decent history student. Maybe they thought the same thing when the steam engine and the sewing machine was invented, and, you know, every other innovation, you know, everybody thought there’s going to be unemployment. And then by the way, those things you just mentioned, are unemployment. promoters, to say the certainly the self driving car, maybe the most of any of them. So

Jeff Booth 22:47

I don’t know, say quick what you just said, the first time when you fold a piece of paper once or twice, there’s no way you can predict that I’ll go to the sun. No, three times four times. There’s no way you’d make that prediction. That same thing happens with technology can occur early predictions. There’s a whole bunch of people saying what this is going to do. And then it folds once. And it disappoints, and it creates nothing. Right? It look, there’s no change. And that change compounds on itself and compounds on itself and compounds on itself. We are. So now if you take that, that analog, so they said the same thing against electricity, or they said the same thing again, so that electricity was a general purpose technology, that as it rolled into society, it did create deflation. And there were a whole bunch of wars with governments to go to be able to try to

Jason Hartman 23:35

pay i think i think it was Buckminster Fuller said, electricity eventually gets so cheap, they’ll just give it away. It’ll just be free. But that didn’t happen.

Jeff Booth 23:42

And by the way, maybe that still happens. Right? Maybe Maybe he was just early.

Jason Hartman 23:47

Yeah, maybe.

Jeff Booth 23:48

Electricity is a bad analog for artificial intelligence. Artificial Intelligence is moving exponentially. And nobody ever thought electricity would be smart instruments which most of the topics Researchers believe is we’re on a path to be able to get to every job is a function of our intelligence, which it clearly is. and artificial intelligence has the possibility to be smarter than us. It’s hard to see how logically there’s way more jobs out of that type of technology.

Jason Hartman 24:15

I agree. I think unemployment is definitely a big concern. And I think that might be the need for universal basic income and amazingly even some of my most Austrian School libertarian friends believe that we are headed quickly toward UBI Andrew Yang was on my show before I interviewed him the presidential candidate who’s behind the the universal basic income concept and it may be coming may be upon us, you know, for sure. What about the laws of energy? I mean, right now we’re in this oil glut market, but that’s kind of a weird anomaly probably. But But energy just in general, we were talking about electricity. And for any of this stuff, you got to have energy, anything on them.

Jeff Booth 24:54

There’s a whole chapter on it and kind of and I think we’re still some ways off there still, but solar is competing for lowest cost energy, and that we’re a long ways off solar contributing goal or the energy needs. But the path of reduction, if you looked at the trend on solar cost, whether it is today and project that forward, energy is going to be deflationary as well for economies. And when economies are built with 10% of all economic openness and energy, and if you have an incentive to have cheap energy, your economy does better. It’s what drives cool natural gas oil and drove it drove the military machine to protect that cheap energy. Yes, you and you could argue this, if you have solar that is getting to be the cheapest energy and that continues on a downward trend like it seems to be continuing. That changes economic paradigm across countless industries.

Jason Hartman 25:52

Yeah, it really does. We will see where it goes. Jeff, give out your website and wrap it up with a closing thought. If that wasn’t your closing thought you

Jeff Booth 26:02

You can follow me

Jeff Booth 26:04

on Twitter, at website’s Jeffrey booth.com. And great talking with you, Jason. Thanks good to talking with you too. And thanks for joining us.

Jason Hartman 26:17

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