Several days ago, I explained why a declining industry has opportunities (this article). It can reach the bottom soon and begin to rise if it is necessary for society.
That told me the mechanism of inflation, which means rising prices for essential items in society. Let’s talk about it.
How to comprehend the current era
Sometimes, we want to know how the world functions. Such logic enables us to predict the future of society and invest properly. That enriches us.
One mysterious social phenomenon is the economy. The economy has cycles. However, it is sometimes confusing and contradictory, especially during a declining period.
For example, we are in a period of inflation where prices are soaring. This time, we are facing strange phenomena, as follows:
- The prices of socially essential items, such as food, energy, and construction materials, have soared suddenly, although they had been stable for a long time.
- Some of those fundamental producers are setting new record profits, while others are going bankrupt.
- Despite the poor economic conditions, there is a notable labor shortage in the socially fundamental industries, such as agriculture, mining, construction, delivery drivers, and waiters. Labor shortage is something that usually occurs during a good economy.
- Even if the government tries to solve the labor shortage by bringing in refugees, the economy doesn’t improve. That causes dissatisfaction for native people.
- Although profit margins of innovative technologies are decreasing, the major investors, including governments, are still aggressively increasing their investment in innovative fields.
Those phenomena look confusing and contradictory. That is why we want to know the mechanism of the economy.
One way to comprehend them is to understand the overview of the era. That might clear your confusion about the contradictory reality. Today, I will explain why.
The logic of inflation
An overview of the era can help explain the logic behind the current inflation.
A good economy is brought about by technological innovation and the development of a new frontier. It requires more human labor because they can create wealth more efficiently.
For example, the Roman Empire became prosperous due to its conquests and the development of surrounding regions. It had more advanced technologies than other small neighboring tribes. By conquering and establishing more efficient agriculture, transportation, and urban functions, the empire was enriched.
The same goes for the recent internet innovation. People have conquered and developed a new frontier called the Internet over the past decades. That created an economic boom.
The pioneering of new frontiers enriched both the pioneers and their investors. It required more human labor on their new conquest. They became more confident and greedier, so many people began to allocate more manpower and resources to the industries related to the conquest.
However, there are limitations on manpower. The Roman Empire saw a decline in its domestic industry workforce. As a result, a labor shortage in the fundamental industries occurred.
That caused prices to soar for fundamental items.
Even though the Roman Empire imported slaves to address labor shortages, it didn’t work well. This is because the majority of investors were still focused on conquest. The profits were reinvested in the new frontier, although profit margins were beginning to shrink.
The social imbalance and confusion
That caused a social imbalance and confusion. Many people didn’t notice that the profitable places can shift periodically according to the society’s focus.
The soaring price benefited the fundamental producers. However, many civilians were unwilling to engage in those industries due to the negative impression toward them. Many people admired the pioneering and looked down on the foundational, traditional business fields.
In addition, during changing eras, technological transformation often occurs. Traditional industry workers and elderly business operators tend to be vulnerable to environmental change. That leads to the two extremes of high-profit producers and failing ones.
That accelerates inflation and dissatisfaction for civilians.
Conclusion
That is the overview of the principles that occur during the early period of confusion.
History repeats itself in different forms.
Many people didn’t notice that the profitable places can shift periodically.
This perspective might help you adapt to the times.
Thank you for reading this article. I hope to see you in the next one.
