What, a techie worry about inflation? Never!
Friday, June 27th, 2008I’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.
