Digital Deflation : The Productivity Revolution and How It Will Ignite the Economy [Hardcover]

Graham Tanaka (Author)

Book Description

Publication Date: August 22, 2003

Praise for Digital Deflation:

"Technology, productivity, deflation, and wealth creation. It's all here, and Graham Tanaka is right on target!"

--Lawrence Kudlow, CNBC's "Kudlow & Cramer."

"Whether you're bullish, bearish or in between, this is an important book for all investors to read!"

--Dr. Edward Yardeni, Chief Investment Strategist, Prudential Securities

"Once in a great while, an original and thought-provoking book comes along. Digital Deflation is it--a must read!"

--Thomas R. Schwarz, former president and COO, Dunkin' Donuts, Inc.

"Graham Tanaka has sensed, well ahead of most, the issues surrounding the possible emergence of 'deflation.' He demonstrates that our measurement processes, tuned as they are to inflation, are not picking up the declines in real prices that are occurring--and that we are missing the implications for our economy and corporate strategies."

--William C. Dunkelberg, chief economist,

National Federation of Independent Business

"Consumers spend on goods and services with the greatest quality improvement rather than merely responding to price information. Thank Graham Tanaka for laying out this and other valuable insights in Digital Deflation. Read it."

--Wayne Angell, former Federal Reserve Governor

How the "digital revolution" is driving today's economy--and its impact on corporations, government policy, and the stock market

New technologies have transformed how today's economy works. Digital Deflationexamines this new economic environment, from how we got here to where we are going. Eye-opening yet solidly grounded, it explains how low inflation and interest rates, coupled with technology-driven productivity gains, will create massive wealth in the coming decades, and benefit stock market P/E multiples over the long term.

Combining insightful analyses with convincing charts and graphs, Digital Deflationprovides a clear understanding of how digital technologies will continue to alter every aspect of business. Readers will discover:

• Why inflation declined so dramatically in the 1980s and 1990s, and is likely to head even lower
• New measures of economic activity and how they will affect policy
• The laws of digital deflation--how they work and what they mean for corporate decision makers

Editorial Reviews

From Publishers Weekly

Today's world of rapidly advancing digital technology, Tanaka argues, has created a rare phenomenon in the economy: superior products are being delivered to consumers at the same or lower prices than in years past. Tanaka, an economist and money manager, presents his theory of "digital deflation," which converts the improvement in performance and quality of a product or service into an annual percentage increase in real economic value for the consumer. If the government would combine this phenomenon with fiscal policy reforms and a more accurate counting of economic growth, Tanaka says, we would see higher employment rates, declining interest rates and rising stock prices. The book has the intensive, highly technical detail of a doctoral dissertation and is probably too dense for general readers, but those with expertise and interest in the field will find Tanaka's theory stimulating and thoroughly researched.
Copyright 2003 Reed Business Information, Inc.

From Booklist

We usually don't want to hear economists talk about deflation because it reminds us of what happened during the Depression, when prices and wages went into a downward spiral and jobs evaporated. But there is another type of deflation that economists rarely talk about, and that is when the quality of goods rises, yet prices remain stable--in other words, you get more for your money. This is an effect that has been unique to digital technologies, and these "cheaper, better, faster" products are what drove the so-called New Economy of the late 1990s. Tanaka has studied these trends and developed the theory of digital deflation, a phenomenon that he says the government has failed to account for in its economic data. Tanaka believes that digital deflation will allow the prosperity of the 1990s to continue, as digital technology pervades every aspect of our lives to increase both standards of living and job productivity at a low cost. This optimistic vision of the decade ahead includes some enlightening interviews with tech giants, such as Michael Dell and Gordon Moore. David Siegfried
Copyright © American Library Association. All rights reserved

See all Editorial Reviews

Product Details

• Hardcover: 418 pages
• Publisher: McGraw-Hill; 1 edition (August 22, 2003)
• Language: English
• ISBN-10: 0071376178
• ISBN-13: 978-0071376174
• Product Dimensions: 9.3 x 6.3 x 1.5 inches
• Shipping Weight: 1.8 pounds (View shipping rates and policies)
• Average Customer Review: 2.7 out of 5 stars  See all reviews (11 customer reviews)
• Amazon Best Sellers Rank: #1,589,920 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

16 of 18 people found the following review helpful:

1.0 out of 5 stars Blue Money Report, December 8, 2003

By 

Paul Petillo (NY) - See all my reviews

This review is from: Digital Deflation : The Productivity Revolution and How It Will Ignite the Economy (Hardcover)

Graham Tanaka was bouncing around the airwaves recently promoting his new book and the silly argument that productivity can be calculated according to the latest GDP. His 120% notion or as he explains it, 1% of increased productivity equals a 1.2% increase in GDP or 120% increase over nothing is a little risky of an assumption. The methodology used is at the heart of what many should begin to look at as a false recovery.

Tanaka, who seems like a very nice gentleman and noted economist as well is telling us that if inflation stays low, fiscal stimulus stays brisk and accommodative, and technology continues to increase at the same pace as it is currently occurring, this will force the cost of technology down while increasing productivity. The end result of all of that progress will be profits and prosperity for decades to come. Maybe, maybe not. If the current GDP numbers are any indication, technology had very little to do with it.

Last quarter was the result of more than just lower prices for technology - as yet in any real demand. It was rebates and tax cuts, a one time occurrence that primed the economic pumps, as well as still cheap refinance money and credit. This helped consumer drive their share of the market.

But productivity comes from business investing and that is still not quite there. That is largely because, no matter how business tries to calculate Mr. Tanaka's equation, a company must assume that the statistics published by the Bureau of Labor Statistics are accurate. And they seem to not want to believe those numbers.

The BLS has the ability to keep inflation low as they incorporate what the Europeans call quality changes into their calculations. These quality changes, the assumption that quality changes will drive down prices as new products are introduced. For instance, computers are a million times faster than the first one built fifty years ago. If the BLS were to quantify such an assumption, these computers would be worthless. The cost of that first computer was a million dollars. Considering how fast they have gotten and how many are sold in the US each year (10 million), this would mean that the quality of the technology has increased 1 trillion dollars while at the same time lowering the price to, you guessed, it... nothing.

19 of 23 people found the following review helpful:

1.0 out of 5 stars A Difference of Opinion, November 3, 2003

By 

Carl Jones (Seattle WA) - See all my reviews

This review is from: Digital Deflation : The Productivity Revolution and How It Will Ignite the Economy (Hardcover)

According to Jeremy Grantham, founder of GMO and manager of $48 billion (that's billion with a "B") in assets, the market is currently overpriced with a trailing P/E of 24. The trendline P/E is about 16 and Tanaka suggests in his book that it should be even higher than 24.

In fact, Grantham reasons that the expected annual returns on large cap and small cap U.S. stocks over the next 7 years to be 1.4% and 2.5%, not some ultra bull market that Tanaka is suggesting that is driven by growing PE's.

Why should we listen to Grantham? Simply put, he is respected in the investment community and has $48 billion to prove it.

15 of 18 people found the following review helpful:

1.0 out of 5 stars Bloody Awful!, December 9, 2003

By 

Randolph Rosella (Washington DC) - See all my reviews

This review is from: Digital Deflation : The Productivity Revolution and How It Will Ignite the Economy (Hardcover)

As an educator of finance I read scores of business book per year (fortunately most of them are provided to me free of charge from the publishers), but it is a rarity that one is so bad that I feel compelled to besmirch it. However I've wasted hours reading this rubble and am irritated that this "book" could make it to publication.

How does Tanaka think that lowering the Fed Funds rate beyond 1% will help? It is a pity that a somewhat educated man has not read Daniel Leigh's "Monetary Policy and the Dangers of Deflation: Lessons from Japan". Additionally, it is a poor all round read and is probably the most redundant thing I've read since Cat in the Hat.

The only deflation I foresee, is the sales price as the publisher is left with piles of unread books. For environmental sake, I hope that if Tanaka ever feels compelled to write again, he will publish his work online and save some more worthy trees.