Technological Acceleration and the Wet Noodle of Monetary Policy

The American boy of 1854 stood nearer the year 1 than to the year 1900. The education he had received bore little relation to the education he needed.  Speaking as an American of 1900, he had as yet no education at all.  He knew not even where or how to begin.1

If science were to go on doubling or quadrupling its complexities every ten years, even mathematics would soon succumb.  An average mind had succumbed already in 1850; it could no longer understand the problem in 1900 … At the rate of progress since 1800, every American who lived to the year 2000 would know how to control unlimited power.  He would think in complexities unimaginable to an earlier mind.  He would deal with problems altogether beyond the range of earlier society … The movement from unity into multiplicity, between 1200 and 1900, was unbroken in sequence, and rapid in acceleration.  Prolonged one generation longer, it would require a new social mind.  As though thought were common salt in indefinite solution it must enter a new phase subject to new laws.  Thus far, since five or ten thousand years, the mind had successfully reacted, and nothing yet proved that it would fail to react—but it would need to jump.2

The Internet is the most deflationary invention of all time.3

A few weeks ago, the Fed determined that the world was not yet ready for a 25 basis point increase in U.S. interest rates.  They’re smart and monetary policy is their day job, so I’m sure they know better than I about these things.  But still, I find it all a bit befuddling.

techprogress
Illustrative example.

Lately I’ve been pondering whether monetary policy has been largely ineffective at generating inflation4 because the drivers of deflation aren’t monetary in nature, but rather technological.  In 1904, Henry Adams developed a theory (“A Law of Acceleration”) on the exponential rate of technological change; and he posited that around the time we’re living in now, the rate of progress might exceed our ability to deal with it (see chart). (more…)