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Bit Inflation and Deflation

Bit Inflation and DeflationThe Federal reserve, economists in general, importing and exporting companies, and all of Germany and Japan are very, very, interested in the subject of deflation just about now. Deflation is nothing new in limited form for most of us. We’re used to computer and electronics prices falling in current or nominal dollars (that means the sticker price actually goes down, without any correction for the time effects of interest and inflation). That’s offset by the rising prices of other things in the big picture-unless deflation becomes general. Then money is more valuable tomorrow than today, because it will buy more then. So people become unwilling to borrow, and pay off debt with (comparatively cheap) current dollars. Purchasing is put off as long as possible, because prices will be better later. Buying and selling slow down, employment crashes, money becomes even harder to get, further fuelling deflation. Ugh.

In the internet/Web world, some of these same things can happen, in a sense. Have you met anyone who has sworn off the Internet because there’s too much junk and repetition and the cost is too high? The value of the Web is depreciating for that person, and its cost has not fallen nearly as fast, so he/she unplugs. If enough people do that, the audience for information, entertainment, and advertising, drops, further impoverishing the product and reducing its value, leading to even more users dropping out, etc., etc. Just as there is a core of activity that grinds on regardless in a deflationary economy, because certain things are not discretionary and can’t be put off, so too the Internet would continue to carry out necessary functions for many people even if the perceived value for the average user was falling.

This is part of what is worrying about the level of risk and unpleasantness posed by viruses, the irritation and disruption caused by spam, the frantic sameness of banner ads and their successors, and the painful ennui of plowing through too much rehashing of the same material that anyone looking for actual information endures. It all leads to devaluation and frantic efforts to inject value by people whose last original ideas have long since died of old age.

Bits are so plentiful, in fact, both in terms of bandwidth and content, that they may be the ultimate in deflationary goods. Anyone who can remember scrolling all-caps text on a screen coming over a 300 baud modem as the ultimate in remote home access can hardly be faulted for considering individual screenfuls of words and images to be almost worthless. They aren’t of course, but perversely much, or even most, of the surfing population thinks of them as free. (Free, of course, means someone else is paying. But it’s hard to keep the line between “free” and “worthless” sharp and clear.) So the value of every bit and all the bits is in flux, with no consensus or efficient marketplace to keep their value from gyrating wildly-mostly downward.

We all know what the inflationary IT/internet world looked like, about 3+ years ago. It was fun, but is now somewhat embarrassing to look back on. C’mon, admit it: you actually believed at least some of the guff that was circulating. And you did think that this tree could grow to the sky, and that history was abolished and dead. Uh huh. Now that you and we are so much older and wiser, how do we get up for even a healthy dose of reasonable and much-needed inflation? Are our souls so terminally scarred and cynical that the only reason we’d buy in for a while is to grab a wee burst of rapid appreciation of investment and then make sure to bail before the deluded (i.e., everyone else who was spending money) caught on?

What was up, of course, needn’t come down all the way. Gentle waves of inflation and stagnation (consolidation) and rare whiffs of deflation are part of the nature of things. So the Web will also slough off a fair amount of garbage and move out along some other tangent that will keep us active and interested again, and so on. After all, what else is there to do?

Author: Brian Hall




Categories: Computing, Latest News.