Chipping away at inflation

This week saw the 15th anniversary of the first ever web banner ad. HotWired (now defunct) was the first web site to sell banner ads in large quantities to a wide range of major corporate advertisers. HotWired coined the term “banner ad” and was the first company to provide click through rate reports to its customers. It was paid for by American telecommunications company AT&T.  And here it is:

Undoubtedly, the world of web advertising has changed a lot over the past 15 years and will continue to evolve going forward. In 1994, Larry Page and Sergey Brin (the founders of Google) had yet to meet at Stanford and Google was spelt “googol”. Mark Zuckerberg (co-founder of Facebook) was 10 years old.

For us bond investors, technological advances have been very important in driving down inflation via productivity gains – output per hour has increased markedly, resulting in lower costs and lower prices for producers and consumers. Technological advances have also accelerated globalisation,  another main driver of productivity gains over the last three decades.  Alan Greenspan put a lot of faith in gains in productivity from technological advances, and noted in 2002 that “arguably, the pickup in productivity growth largely reflects the ongoing incorporation of innovations in computing and communications technologies into the capital stock and business practices. Indeed, the transition to the higher permanent level of productivity associated with these innovations is likely not yet completed”.

The productive power of the internet still has much further to go, and will be good for both inflation outcomes and good for growth.