One of the most hotly debated topics in the world of blockchain and economics today centers on inflation and interest rates, and the future of the economy. Quite a few people believe the case for investing in some cryptocurrencies is built on the likelihood of future inflation, something they see as a near certainty given the combination of low interest rates and quantitative easing.
Given that interest rates represent the “cost” of money, interest rates that are near zero imply that money is, in a sense, free or very nearly free. Consequently, there’s a risk that people will use too much of it, leading to inflation as consumers chase a limited supply of goods, in turn reducing their value as prices rise. But what if that calculation is wrong in many cases because there isn’t a limited supply of goods?
Paul Brody is EY’s global blockchain leader and a CoinDesk columnist.
If you live in the San Francisco Bay Area, as I do, electric cars and self-driving test vehicles seem routine these days. If you live in China, you’ve probably haven’t been using cash for ages. It’s not just that some geographies are further ahead than others; some parts of our lives are as well. Instant access to nearly every piece of music ever made? Check. Quick visit to the department of motor vehicles? Probably not in my lifetime.
While progress may be uneven, it is increasingly clear that many of us are starting to live – at least partially – in a post-scarcity world of unlimited supply. Futurists have talked about this possibility for so long, and it has seemed so far away, that we may be failing to observe its slow but steady arrival. In science fiction, this abundant future is often shown as a place of unlimited physical products, but it’s actually arriving as an era of unlimited digital services and ever cheaper, but not free, products. As a result, the future is sneaking up on us nearly unnoticed. For all human history, scarcity was the condition where we lived. Scarcity of food, shelter, warmth, education – whatever it was, there was never enough of it to go around.
For many, the world looks different today. More and more of what we consume has an effectively infinite supply. There is a seemingly unlimited supply of short format videos. No matter how many you watch, you can never consume them all and nobody else is being deprived.
Digital goods have a unique property in that they offer a truly infinite supply at zero marginal cost, but even other products and services are slowly but surely headed in the same direction. Though the cost of a new television or a house may never be zero, they are all headed forever lower thanks to continuously rising worker productivity. In many cases, they will eventually be so inexpensive as to be, for all practical purposes, free.
Additionally, the “zero cost” element of digital technology is gradually impacting every other industry. Gasoline-powered cars are complex mechanical systems where thousands of little gas explosions each minute propel you forward, and they depend upon fuel made from dead dinosaurs. Electric cars, on the other hand, are practically smartphones with batteries and wheels, where much of the value comes in the form of software – which, again, has zero marginal cost. The energy used for these electric cars can come from the sun, which is apparently good for another few billion years.
A “zero cost” market may seem like something new, given that the digitization of our economy has significantly accelerated how consumption works in the last 50 years. But, if you zoom out far enough, there is some compelling new evidence that this trend towards ever lower costs of everything did in fact start a long time ago. How long ago? About 800 years, according to a recent paper by Paul Schmelzing, a visiting researcher at the Bank of England. Typical interest rates of around 15% in the 1300s have given way, over centuries, to real interest rates close to zero.
If Schmelzing is right, the current bout of “free money” isn’t a temporary situation brought on by a global recession and a pandemic, it’s going to be a permanent feature of the global economy going forward. And if that is true, we might want to start thinking about what the world looks like in that post-scarcity future. If money is free and low interest rates don’t fuel inflation in many segments of the economy, then perhaps giving it away – to lots of people, all of the time – is a perfectly reasonable idea.
The consequences of this shift could be large but unpredictable. While scarce physical goods facing supply-chain bottlenecks are rising in price, many digital products and services face no such capacity pressure, making them even cheaper by comparison. That might mean a shift towards even more digital consumption. Alternatively, it might also mean more and more of the money that is available is going to be directed at things that really are scarce, leading to accelerating price increases in other areas such as real estate. “Buy land,” the saying goes, “…they’re not making any more of it.”
A post-scarcity world is arriving and it’s time we started adjusting our view of the economy and, along with it, the value proposition of all our technologies. Blockchains, which can only exist thanks to a near-zero cost of computing, are set to become one of the main mechanisms for efficiently managing scarcity. The role of this technology in the future of our economy looks pretty secure.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
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