What, a techie worry about inflation? Never!

I’ve been thinking about my expenses over time, and not only am I now spending less in real terms (adjusted for inflation), I am now spending less in absolute terms (raw dollar amounts at the time of purchase). Here are some examples. I bought a 20″ flat-screen display for my computer three and a half years ago for $700. I could get the same thing nowadays for $200. I spent around ~$1400 total on a new computer back in January 2007
, versus the ~$500 total I spent on a new computer this month that is better than the previous one in almost every way. And I haven’t bought a flat-panel television, a digital camera, or a mobile phone recently, but I may soon, each of which is now cheaper than ever before. Technology expenditures make up a substantial portion of my budget, so when the price of technology continues dropping year over year, I notice a big difference in how much money I’m saving up.

In the developing world, or amongst those living below the poverty line in developed nations, inflation has not been kind. Cost of living increases have been especially vicious, doubling the price of many basic food staples in the past year alone. Gasoline price increases have also dealt a cruel blow. Yet few increases have hit me very hard: my food expenditures are still a comparatively tiny part of my income, health care increases don’t affect me much because I’m young and I get free insurance through my employer, etc. The one increase that hasn’t been kind to me has been the price of gasoline, as I do commute to work regularly. But the price in gasoline has still been offset by all of the money I’m saving on gadgets.

Take an average 5% cost of living increase year-over-year (if ones income is also increasing at 5% a year, then ones real wage remains constant). Then look at Moore’s Law, which specifically addresses the increase of transistor density on microprocessors over time, but which can also be applied to the cost of technology of equivalent performance over time. Moore’s Law gives us a doubling in performance every two years, or equivalently, a halving in price for the same performance every two years. That’s a 30% annual cost of technology decrease for equivalent performance.

If you’re trying to stay on top of the latest and greatest in computer technology, then yes, costs haven’t decreased over time; a top of the line graphics card or processor will always be expensive. This is because the performance of computer components is increasing with Moore’s Law (thus canceling out the exponential price decreases), so the tiers remain roughly equivalently priced over time. But what was the high-end tier two years ago is now the low-end tier today. Most consumers’ technology needs do not grow exponentially like the technology itself does.

If all you’re doing is word processing, web browsing, and email, you don’t need to keep up with the latest and greatest hardware like gamers do, so a computer with basic functionality is much cheaper now than it was before. Many other consumer electronics items follow this basic curve as well: quality digital cameras are far cheaper than they’ve ever been; the same for big screen flat-panel televisions. You can get a 50″ flat-panel television for $1,500 now; two years ago, it was around $5,000. All hail rapidly decreasing costs of technology!

So if you’re a techie like I am, and you do spend a significant portion of your income on technological gadgets, do not fear the passage of time: relish it! Even though our economy is really tanking at the moment, I can’t be too sad about it. The march of technological progress continues ever onwards, bringing us ever more amazing things at ever-decreasing prices. The effects of time are hitting lots of people really hard as the prices of most basic needs grow much more quickly than real wages, but not everyone is suffering.

5 Responses to “What, a techie worry about inflation? Never!”

  1. Cyde Weys Says:

    Another example of amazing technological advance and price decrease over time would be the MicroSD Flash card. If you’ve never held a MicroSD Flash card before, just know that they’re the size of a middle finger fingernail, and about as thick as well. You can now buy 2 GB of Flash in MicroSD format for $8.75. Last summer at around this time, that price was $25. The summer before that, well, let’ just say I would’ve scoffed loudly in your face if you told me such a thing would be available for such a low price.

    I visited the Smithsonian Air & Space Museum earlier this year. One of the exhibits was a data storage unit from the 1960s. It stored a couple dozen thousand bytes of data, weighed many hundred pounds, and was about the size of a large household safe. I happened to have a MicroSD card with me at the time, and I pulled it out, held it up next to the huge data storage unit for comparison, and couldn’t help but laugh. And then I realized that, not too far in the future, our continuing technological advances will make all of the cutting-edge gadgets I currently marvel at seem just as obsolete.

    “2 GB in the size of a fingernail? Bah! We’ve got 4 TB in the size of a speck nowadays!”

  2. Jeff V Says:

    5% seems a bit much. CPI (Consumer Price Index) goes up by about 3 % per year and most economist think that CPI slightly overstates real inflation. It is probably much closer to two and a half percent.

  3. William (green) Says:

    I think SD cards are about the smallest size of data storage I’m comfortable with. microSD feels like I’m going to lose everything if I sneeze.

  4. Cyde Weys Says:

    Jeff V: Those numbers are always rigged by the administration in power so they aren’t quite so embarrassing. For instance, the “core inflation” statistic that’s currently used (which is maybe where you got that 2.5% figure from) excludes both food and energy costs — the two sectors that are growing at ridiculously fast rates. Throw in health care expenses that are growing at twice the rate of real wages, and we have a problem.

    William: That’s why you always leave MicroSD cards inside of other things. I only have one, and so I always leave it in my device, but if I ever wanted to take it out for some reason, I have an SD card-sized adapter that it fits into. That’s how I would store it.

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