Why so many people are feeling squeezed.

What’s the United States’ biggest export? iPhones? Airplanes? Nope – it’s deflation. For decades, American companies have led the global push to make things cheaper.


Today, that push has become a shove: deflation has become an unstoppable force with huge consequences for people and the planet.

Two recent American innovations – eCommerce and fracking – kicked global deflation into overdrive. Here’s the result:

1) Deflation has become a quasi-permanent, gravity-like force. The relentless downward pressure on costs and prices, traditionally thought by economists to be cyclical (part of the business cycle), is now structural (here to stay).

2) Everything’s getting cheaper, faster than ever. Everything, that is, that can be produced more efficiently with the help of machines and software – especially if humans can be paid less in the process, or cut out completely.

3) Jobs are disappearing and commoditizing rapidly, as companies cut costs. That means more un- and under-employment, and shrinking wages, even while the economy is growing.

4) The environment’s getting caught in the squeeze, too. Lower prices mean more consumption, more resources pulled out of the ground and carbon emitted.

Let’s take a closer look.

Deflation in Consumer Products

Product prices started falling 30 years ago, and never looked back.


In the mid-1990s, consumer prices started falling. The chart below, from the St. Louis Fed, shows prices from 1995 to 2016 for ‘durable goods,’ or stuff that lasts a while (like cars, appliances, and jewelry).

Screen Shot 2017-07-04 at 2.53.28 PM.png
Chart: St. Louis Fed

walmart-always-low-pricesThe cause? Cheap overseas (especially Chinese) labor, global trade agreements, falling shipping costs due to containerization, and the emergence of big box stores and mass-discount retailers (Walmart, Costco, Toys ‘R Us, Ikea, Old Navy).

By the 2000’s, Internet shopping and even more retail competition had kicked in. Premium brands suddenly had to compete with discount brands, store brands, and a raft of new online brands. The Internet made it easy to value-shop, challenging brand loyalty.

81ULDCkqOjL._SL1500_And then there was Amazon. It’s fair to say that if Amazon sells it, it’s been deflating.

Amazon can force manufacturer pricing down in a never ending ‘race to the bottom‘ using its data and merchandising algorithms. It can sell the world’s products cheaper, because it doesn’t have to pay for stores or the people to work in them (Walmart has 2.3 million employees, Amazon has 340,000, plus 45,000 robots).  And it can lock in buyers with unmatchable loyalty programs (Amazon Prime has 90 million members).

Prices for non-durable goods have been deflating as well, thanks to all this new competition. See this post by fashion designer Elizabeth Suzann for a great read on why apparel prices keep falling, and the related environmental impacts. Or this Wall Street Journal article for an explanation of “the longest stretch of falling food prices in more than 50 years.”

Deflation in Energy

Energy costs have dropped quickly, resulting in higher consumption and faster environmental destruction.

In less than a decade, fracking (hydraulic fracturing) wiped out the global balance of energy supply and demand, with dramatic consequences. American oil imports have slowed to a trickle, and low-cost drilling technology has been exported around the world, unleashing massive energy price wars.

Here’s the St. Louis Fed chart comparing the growth in U.S. natural gas production since 2006 with the deflating price (the chart for U.S. oil production is nearly identical):

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Chart: St. Louis Fed

And here’s another graphic showing how quickly deflation’s wrenching pressure can shrink an entire industry: to survive in the domestic oil business from 2013-16, you had to double your efficiency (e.g. by automating to slash costs in half) in just three years:

Chart: Reuters

Energy deflation has encouraged the world to burn more fossil fuel, consume more plastic, and emit more carbon. See for example the spectacular spread of cheap plastic bottles (oil is their primary ingredient). A million plastic bottles are bought around the world every minute, according to The Guardian, and most don’t get recycled, but end up in the ocean.

And then there’s cars and trucks, which take tons of energy to build (and operate). Global vehicle production surged between 2004 and 2014 – the period when energy costs started to deflate – according to the chart below. Production had risen even further by 2016, to roughly 94 million vehicles globally.

Screen Shot 2017-07-12 at 3.21.36 PM.png
Chart: McKinsey

Deflation in Services

Deflation is eliminating and commoditizing as many services jobs as possible… no one is safe.

Eighty percent of jobs in the U.S. are services jobs, according to the Bureau of Labor Statistics. And U.S. wages have been deflating (lagging growth) for 20 years, as the BLS data below (1998-2013) shows.

Change in Real Wages.jpg
Chart: Zero Hedge, BLS

Some services jobs, like brokers and agents, started to deflate in the late 1990’s.  Travel agency jobs dropped in half, for example, since 2000 (chart via The Washington Post), as consumers moved to self-service:

Chart: The Washington Post

Distribution-intensive jobs also deflated during that period (e.g. newspaper jobs dropped in half), as lower cost distribution channels (web, apps, streaming) replaced high variable cost ones.

But that was just the beginning. Today, new competitors are everywhere in services, powered by software and ‘winner take all’ economies of scale.

AirBNB, Netflix, Spotify, Venmo, ETFs, Turbotax… they’re sucking cost out of every sector, eliminating workers and salaries. Consumers are choosing these new cord-cutting, on-demand services, not just for low prices but for flexibility and convenience.

The result? Service workers must compete as commodities in the highly transparent gig economy. And corporate white-collar jobs are deflating, as companies slim down to survive all the new competition.

A few big stars may have the strength to buck this trend (Taylor Swift, Goldman Sachs partners, neurosurgeons…). But most workers are feeling more squeeze than ever. This is as true for doctors and investment advisors as it is for poets and artists.

Also bucking this trend have been healthcare and education – two of the biggest services sectors. They’ve been insulated from competitive pressure, because consumers don’t really pay their costs directly – employers and the government do (via grants, loans, subsidies, Medicare etc).

But this is changing too. Consumers are paying more health costs directly through high deductible plans. Discount chains are rolling out health clinics. Governments are starting to push back on sky-high health costs. And budget stress in higher education has ratcheted up, with weaker colleges struggling to stay afloat, laying off tenured professors, or even closing.

Deflation is coming to every services sector.

Inflation vs. Deflation… A Tug of War For Your Future

You’re either protected (more or less) from deflation by owning assets, or you’re not.

Deflation has one natural enemy – inflation. And the battle between them is fiercer than ever today.


What’s inflating is asset prices – stocks, real estate, bitcoin… anything perceived as a store of value in a world where a significant fraction of the population has more money than they know what to do with.

What’s driving asset inflation is low government interest rates. The U.S. Federal Reserve, Bank of Japan, European Central Bank – they’ve all been running their printing presses at top speed to keep rates low and stimulate their economies, which makes their currencies worth less (inflation).

With inflation and deflation both raging, the rich get richer, and everyone else gets squeezed. If you own stocks and real estate, your money is on an escalator which seems to be always going up, and the cost of stuff you buy is dropping (deflation), so you benefit both ways. Everybody else (who doesn’t have assets on the escalator) is getting squeezed on income by deflation, and falling further and further behind.

Stocks and real estate won’t go up forever, unless governments keep inflating their currencies. Eventually the enthusiasm for high momentum stocks will be damped by the reality that those companies face more low-cost competition than ever. When this happens, there will be a lot of losers. The few winners (still-operating escalators) will be those companies doing the best job at deflating markets.

What You Can Do About Deflation

Deflation is a primal force that will shape the rest of our lives. And it will be up to individuals to fight its worst impacts.

Governments can’t control it; they don’t necessarily even understand it.  The U.S. Federal Reserve, for example, thinks unemployment is low, and all is good. But they’re mystified why wages aren’t rising along with productivity, and they don’t count as unemployed the millions who’ve given up looking.

Deflation surely has its benefits – it can empower individuals with access to capabilities previously unimaginable.

But deflation’s biggest winners will be a small group of global companies and their shareholders. And many consumers won’t win – if your job’s getting commoditized, deflation will lower your income faster than it increases your buying power. Deflation also makes a lot of harmful stuff cheaper (drugs, weapons, fossil fuel), and concentrates power in the hands of fewer and fewer individuals.

What can you do to push back on deflation? Here’s ten ideas:

1) Don’t buy crap just because it’s cheap. Define crap any way you want. But the less cheap crap we all buy, the less cheap crap companies will make.

2) Buy from diverse sources. Spread around your economic support, even if it’s less convenient than buying everything from one or two websites. That’s the best way to keep deflators honest and mitigate their power.

3) Support ‘labor-of-love’ entrepreneurs. Defying deflation, many people will do high quality things as a labor of love (both for-profit and non-profit). But to sustain these efforts, they need a financial model that scales. Help them find one.

4) Ask to speak to a person. Humans can be held accountable, software can’t. People are competing for jobs against bots and machines, and human work is fundamental to survival and self esteem. Insist on human contact!

5) Understand the global financial system. Get smart about how the economy works, how money and assets work, how deflation and inflation work. Everyone should understand this stuff – not just a few people at the center of it.

6) Uncover and understand hidden costs. What happens to that empty water bottle… is it really getting recycled? What are the true environmental costs of your natural gas heat from fracking? Find out, and tell everyone you can.

7) Hold deflators publicly accountable. Use social media to challenge deflators and hold them accountable to your values.

8) Insist that deflators pay taxes. Wealthy capitalists who make billions off deflation shouldn’t pay lower tax rates than everybody else. The ‘carried interest tax’ is an egregious example of this.

9) Don’t work for bad deflators. If you’re working at a company that’s deflating the world with destructive consequences… find a different company to work for.

10) Outsource less of your life. You can pretty much outsource every shred of your life these days. Don’t do it! Make things, build things, provide some of your own services, keep some balance and control.

This is all easier said than done, but nothing worthwhile is easy.  We all have a little bit of power on this planet, if we choose to use it!

Note: a version of this post appeared as commentary on Fortune.com on Feb 8th, 2018
Thanks to John Gregg, Tony Harkins and Eric Knorr for providing feedback on early drafts of this article.

Container ship artwork credit: Mike Kimball

Dave Margulius co-founded and was CEO of Quizlet Inc., where he worked to provide free and low-cost access to high quality learning tools for millions of students around the globe.