I make a point to go out to Silicon Valley multiple times each year -- and I do so because I need to know what's really happening, not what I read about. Every time I come back home, I have two emotions:
1. I am so proud of our incredible companies and what they have invented and created to make our lives easier and better; and
2. I feel so badly about how the technologies I am witnessing are going to destroy so many jobs, take food off the dinner table and not give people a chance to move up in the world.
In fact, the notion of teaching people how to code, for example, in order for them not to be left behind by the fourth industrial revolution, as they call it, is on so many peoples' minds that it's a contagion. It's why I tried to learn to code when I was at Twilio (TWLO) when we went to San Francisco last month. I wanted to learn what's creating such disruption in the work force. I want to see the consequences with my own eyes.
Yet at the same time that Silicon Valley keeps creating hardware and software eliminating chiefly high paid clerical jobs but also many factory positions -- look at your phone and think of all the jobs those apps wiped out -- the Fed is possessed with the disaster that is full employment. The Fed is oblivious to the changes that are occurring, because they aren't obvious. The technologies aren't shutting down factories. The disruption isn't like the closing of hundreds of Sears (SHLD) or K-Marts. It's a subtle displacement that is helping to re-do the work force -- and if given time, it will allow us to have enough workers to keep inflation in check.
I know it won't be easy. The people who are losing their jobs because of software from Workday (WDAY) or Salesforce (CRM) aren't going to pick up and start making RVs in Indiana. They aren't going to serve tables at a casual dining spot in New York City. You won't see them pop up at the Permian.
It's a mismatch. But when you see the nonfarm labor report each month, which shows all of those hundreds of thousands of jobs being created when we are told we are at full employment ask yourself something. Where are these people coming from? If there was no spare pool of unemployed, then we wouldn't be creating new jobs and wages would be screaming higher so you could keep people at their current jobs. That's not happening.
I think that if you are Fed Chief Jay Powell you have to wait things out. The workforce that is being destroyed by tech is not easily slotted to where the tightness is. But if you wait long enough, it will happen. People have to pay off mortgages, they have to pay car loans, they have to save for retirement. They will accept retraining by necessity.
Why hasn't there been a bigger deflationary change in the regular world from all of this cost- saving technology? I think some of it is because digitization is a double-edged sword. For example, let's say you work in retail and you see that Amazon (AMZN) is encroaching on your business. What do you have to do? You have to create a dual track of people who can grow an online business as well as a bricks and mortar business.
As long as you can develop that omnichannel business, then your company can be viable, maybe even thrive. But what happens when there is no respite from the radical changes, no ability to catch your breath and regroup?
Then you get a Sears -- and that's what can only be called mass unemployment. I know Sears seems isolated, but hardly a week goes by without companies failing, often because they don't have an omnichannel approach that can be competitive.
If I were on the Fed, and I wish I were, I would organize a field trip to see the companies I talk to -- and learn how many jobs are really in jeopardy from a digitized world and how digitization is keeping inflation in check much better than the blunt instrument of the Fed funds rate.
If the Fed were to see what's really going on, it would know that watching and waiting after this next hike wouldn't be so wrong. Every minute, there is someone in Silicon Valley who is trying to think of a way to eliminate waste and overhead and duplication.
What the Fed doesn't know, however, is that eliminating waste, duplication and overhead means eliminating people, millions of them. So memo to Fed: if you give the clock a chance to work, the displaced people will come back to the work force in precisely the places that they are most needed and you won't ignite the kind of inflation that you so pathologically fear.