Last week, we presented a chart that showed the CPI for urban wage earners over the last 60 years. What was shocking, frankly, is that nothing mattered other than credit creation. Changes in prevailing interest rates both up and down had virtually no discernible effect on the steady march higher in prices. Wars, macroeconomic events, crises, the rise and fall of the business cycle, elections, none of it mattered when it came to rising prices.
Upon further reflection, it is even worse than what we previously thought. Innovation and overall rising productivity, in theory, tend to promote price deflation. We certainly can see it in our electronic devices and capabilities. The first computer that we purchased for our business contained a whopping 32 kilobytes of random access memory (RAM). The operating system and the software that was running it had to share the RAM as well as the available space on the floppy drive. Our first purchase of a hard disk drive was also an amazing (at the time) 5 megabytes of capacity, costing around $5,000 adjusted for inflation in 1981.
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