Imagine the day your boss comes into your office and says, “Mike, I have some bad news for you. Because of global competition, we have had to reduce our costs and we have decided to outsource your position.” You reply, “How can you outsource my position when everyone in the country is already working?” He replies, “We are not outsourcing it to this country! We are shipping it to India.” That’s when it hits you. What is the unemployment rate in India?

This debilitating transition scenario is beginning to happen more frequently than anybody cares to admit. The internet has transformed the world into one big homogeneous market. Engineers from Indiana are competing for jobs with engineers from India. Retail clerks in Boston are being replaced by online software developers in Beijing. The whole world is competing with everybody else. So why are we focused exclusively on the United States unemployment rate?

Let’s face it. The internet has changed the world forever. We have all become part of a global marketplace. Competition is everywhere, and when the number of competitors goes up, prices (and wages) tend to go down. Then, with multiple global competitors, all products eventually become commodities and the whole value chain begins to focus on cost reduction. (The internet is now taking the number of competitors to infinity.) Before we can enjoy rising wages locally, we must first use up all the slack in the global labor pool. Until then, wages will continue to decline. We are about to enter a long  period of Global Deflation.

To help us understand how deflation works on a global basis, we need a few new visual models to explain these complex economic concepts. I liken these models to ‘Deflation Sunglasses’. When I put them on, all these economic complexities become clear.

These models are based on three key principles:

1. The forces of inflation and deflation are always in a “tug of war”. On the deflation side are:

   Ageing demographics, overcapacity, and extreme global debt levels. On the inflation side there is money printing, continual expansion of this debt, and government infrastructure spending.

2. Deflation can only be fully understood from a global perspective in U.S. dollars as all countries are trying to ‘export deflation and import inflation’.

3. The internet is the “Silent Killer”. It is the greatest deflationary force of all time.

Based on the principles above, I believe we are about to enter a long-term deflationary world. We will see oil prices drop,  retailers  reduced to “Showrooms and phones”, and asset taxes will replace income taxes. Since dollars will be worth more in the future, we will enter a counter-intuitive world where venders will want payments to be delayed, not paid up front. There will even be banks formed where transactions are logged, but nobody ever pays. In this topsy-turvy world, we won’t begin to see significant wage growth (and  the associated  inflation) until the whole world get close to full employment. But how will we know what’s happening if we are not measuring the right things. In fact now, we are not even asking the right questions. We are all using old models that are now outdated and often misleading. We should be asking questions like “What the unemployment rate in India?” So, the next time Janet Yellen, from the U.S. Federal Reserve, tells us about the national unemployment rate,  we should lament……………… “ It’s about Global Unemployment, Janet !”