Harry Dent | Friday, January 25, 2013 >>
Since the invention of the microchip in 1971 it has multiplied by the trillions, creating more chips per person and a revolution in human communications.
So why is the multiplication of dollars not seen as a sign of progress that similarly fosters a revolution in urbanization and the rich specialization of skills and trade… all of which raise our standards of living (just like the microchip did)?
I’ll tell you.
It’s because when people see this chart they react like a deer caught in the headlights. So gold bugs and fiscal hawks pull it out, over and over again, as irrefutable evidence that the dollar is going to hell in a hand basket.
“Look!” they whine. “Your wealth is being eaten away by evil inflation.”
This simpleton chart is the most moronic thing I have ever seen in economics. It means almost nothing.
Here it is…
The Value of Dollar, 1900 – 2011
You’ve no doubt seen this chart dozens of times.
Here’s the thing. If this was in fact proof that our wealth is being eaten away by inflation then that should mean people are much poorer today than they were in 1900.
Have you seen what life was like back then?
It may have been House-on-the-Prairie simply… but it was dirty, dangerous and back-breakingly hard.
Life expectancy was low and quality of life was even lower. One bad season was life-threatening. Unprovoked raids by outlaws or wild animals were all too common. Families largely built their homes with their OWN hands, fished and farmed for most of their own food. There was no such thing as microwave dinners or takeout menus… or even baby sitters for that matter.
By comparison, today we live practically like royalty.
The problem is, we’ve all been conditioned to believe that inflation is a bad thing… and that ridiculous chart is used as the proof.
So let me bust this myth once and for all…
Inflation is actually a good thing (when contained, of course). Over the long-term, it correlates with rising standard of living. And when the population is growing, urbanization is rising, empires are being built and new technologies are advancing… inflation rises.
I learned this, back in the early 1980s, when I was rapidly and intensively studying 3,000 years of western history…
Inflation rose as the Greek and Roman empires rose. It increased during the centuries following the printing press, gunpowder and the discovery of America. Inflation warmed during the last century with the creation of electricity, automobiles, mass production and now the information revolution and Internet.
Inflation was necessary because we needed more cash as each development made our lives better…
We needed more money to pay for the food that someone else hunted or gathered and prepared for us. We needed more money to pay for someone to deliver that food to us 24/7.
We needed more money to pay someone else to take our kids from us for six hours a day and educate them… to look after them while we’re at work or out on the town “taking a break from it all.”
We needed more money to pay someone else to build our homes and holiday homes for us… to clean those homes for us… to supply electricity, gas and water to them so we can stay warm and clean… to cart away our sewage for us so we don’t have to worry about it.
We needed more money to pay doctors, tax accountants, lawyers, dentists, financial advisors, mortgage brokers, real estate agents…
You get my point.
That’s why inflation in the amount of dollars is natural. The costs of goods you consume are going to be higher when you pay a lot of middlemen to produce them and bring them to you.
The thing is, over time our higher wages more than offset the rising costs of living in a more urban, interactive and specialized economy. In fact, our wages adjusted for inflation are 7.1 times higher than they were in 1900 when inflation started rising and the dollar started falling.
So do yourself a favor…
Next time you see that dollar chart and someone tries to tell you you’re worse off now thanks to inflation and a declining currency, tell them they’re a nutless monkey.
Ahead of the Curve with Adam O’Dell
Anyone can pick a good stock every now and then. The mechanic I take my cars to is always telling me about some stock option he’s doubled his money on. What he doesn’t ever tell me about are the other 10 trades he loses money on.