October 24, 2022

A New Economic Normal

Boomers hit peak retirement in the 2020s. That should mean unemployment will continue to stay low, wages will continue to rise, and that will all put pressure on inflation for a long time, along with Russian mineral resources falling off the market, and overseas labor costs appreciating (higher wages in developed markets where labor and manufacturing have already been outsourced, mainly China & India).

Part of the story is that we had a massive confluence of three deflationary pressures through the 90s to present: Labor deflation, Tech deflation, and Resource deflation.

Our biggest bulge in working-age westerners (Boomers) hit their peak skill years in massive numbers, keeping wages for skilled labor low & easy to source. The collapse of the Soviet Union dumped massive quantities of underpriced commodities and mineral resources on western markets, as their high-end manufacturing collapsed. And, shifting manufacturing to China & the far-east kept wages low for decades (on the low end). All of this, combined with the deflationary pressure of technology & automation (increasing worker productivity), brought prices for most goods down dramatically.

But, all of these trends are reversing in the long-term.

This should create a lot of demand for even more systems which increase worker productivity– AI, automation, etc. -- which should be great for all of us in the tech industry, because there aren't a lot of other solutions to the problem (unless you can figure out how to massively lower demand while people are earning more than ever due to skilled labor shortages).

Even with the wage increases we saw in the last couple of years, a majority of these wage gains are probably ahead of us (potentially delayed by any cyclical activity).

It's probably nothing for you to worry about. But, it's likely to be a long-term trend that becomes the new normal for decades to come, and this will shape how we live for a few decades, at least.