Harry Dent: Since the invention of the microchip in 1971, the device has multiplied by the trillions at exponentially lower costs, creating more chips per person and a revolution in human communication.
Yet people have trouble applying the same logic to the multiplication of dollars.
Why not? With more dollars we’ve been able to foster a revolution in urbanization. It’s allowed the specialization of skills and trade, all of which has raised our standard of living – even when adjusted for inflation.
So why is this not seen as a sign of progress?
I’ll tell you.
It’s because economists and financial analysts, for the most part, are idiots.
More specifically, the analysts who misinterpret the most meaningless chart in all of economics.
You’ve no doubt seen this chart dozens of times.
At face value, it is rather shocking. That’s why people who see it are quick to jump to faulty conclusions.
But it doesn’t mean a damn thing they say it does.
Looks bad, doesn’t it? Our All-American dollar has gone down 97%!
Guess again. This chart holds about as much meaning as my left toenail!
Yes, overtime the so-called “value” of the dollar has decreased as we’ve created more of them, like microchips…
But since 1900 we have dramatically increased our standard of living. Yet many continue to whine and complain that, collectively, our wealth has been devoured by evil inflation.
It’s moronic, but who can blame them?
We’ve all been conditioned to believe that inflation is a bad thing. Gold bugs and fiscal hawks tell us over and over again there’s irrefutable proof that the dollar is going to hell in a hand basket. And this ridiculous chart is used as evidence.
But the truth is, inflation – when held in moderation – is actually a good thing.
Think about how people lived back around 1900 when the U.S. was emerging as the up-and-coming new global leader.
Life expectancy was low, and the quality of life was even lower. There were no microwaves dinners or takeout menus. Families largely built their homes with their own bare hands, and fished and farmed for most of their food. All it took was one bad season to threaten your life and your livelihood.
It was dirty, dangerous, and back-breakingly hard. By comparison today, we practically live like royalty.
And it’s all thanks to inflation.
Over the long-term, inflation correlates with a rising standard of living. Inflation rises as populations grows, empires are built, and new technologies advance.
I learned this back in the early 1980s when I undertook a rapid and intensive survey of 3,000 years of western history.
Inflation rose as the Greek and Roman empires rose. It increased in the centuries following the printing press, gunpowder, and the discovery of the Americas from the late 1400s forward. And it’s boomed in the last century with the creation of electricity, automobiles, and now the Internet.
In brief periods like the 1970s, inflation goes to extremes and hurts the economy, but that is the exception, not the rule. And even in such periods, rising costs encourage new innovations that pay off for many decades…
Do you realize that personal computers emerged in the late 1970s near the top of that inflation cycle?
But swinging back to the broader picture, in each stage, inflation of dollars was necessary.
We needed the cash and more of it to implement each of these developments, and ultimately make our lives easier.