Technology prices have always been falling
We all know that technology product prices tend to fall 60-80% in a decade for the same spec. Whether it’s DVD players, flash memory, TV, computers, servers - they all follow the same pattern.
The more interesting question is why other industries cannot achieve any similar price reduction.
Following the electronics industry model:
- a $3.50 latte from a decade ago should cost today $0.70
- your child’s education “product” should sink from $200,000 to $40,000
- your car of $30,000 should now be $6,000
- heart surgery prices in 10 years should drop from $250,000 to $50,000
Of course it does not happen for other industries.
No other industry apart from High Tech outperforms the pressure of inflation. At least not due to productivity and efficiencies. Only due to falling demand. See Real Estate, Investment Assets, etc.
Consumer food product companies have a similar mantra by holding food prices steady in the stores. To achieve that they have to keep improving efficiencies by 4-5% each year just to eliminate the impact of material and labor price inflation.
Then there are industries that do the opposite. Even in today’s economy health care related costs, education and some professional services prices are still growing at 5-8% far outpacing inflation and GDP growth (or lack thereof).
The Monster is not Deflation but Lack of Innovation and Productivity
There is all this talk about the deflation and how falling prices will kill the economy. Maybe so. However I think the real debate should be about productivity, innovation, efficiency and hyper competitiveness.
Annual Productivity Growth 2000-2005 (OECD 2008):
- Technology: 17%
- All Manufacturing: 5%
- Metal products: 3%
- Textile/apparel: 5%
- Heavy Equipment; 3%
In the US - industry productivity has been lackluster outside technology. That’s what the tech sector has that no other industry seem to have. In the coming year of falling prices maybe other industries get to practice a little high tech life.
