Technological innovation should naturally cause deflation (falling prices). The Fed's 2% inflation target requires printing enough money to first counteract all technological deflation and then add 2% on top, making the true inflationary effect much larger than officially stated.

Bear markets are not all the same. Deflationary shocks (like 2008) cause rapid collapses as earnings evaporate. Inflationary periods (like 1966-1982) cause a slow, grinding decline in real returns as valuations compress, even while nominal earnings may grow.

Technology (driven by Moore's Law) makes things cheaper (deflation). To support a debt-based system, central banks must print money (inflation), creating an unsustainable cycle where every $1 of GDP growth requires $4 of new debt. This is a fundamental, structural flaw.

Technological innovation should naturally make goods and services cheaper every year. When prices rise instead, it's a sign that central banks are 'stealing' that progress through inflation to fund government spending. Crisis-led deflation is bad; innovation-led deflation is beneficial.

While innovations like AI are disinflationary in a vacuum, history shows this effect is consistently overwhelmed by expansionary monetary policy. For over 200 years, central banks have created 'man-made' inflation, meaning investors shouldn't count on technology alone to keep prices stable.

While technology creates efficiencies and drives down the cost of specific goods, it cannot overcome persistent money creation by central banks. Since abandoning the gold standard, overall price levels have consistently risen despite massive technological leaps. AI will likely follow this pattern.

As AI gets exponentially smarter, it will solve major problems in power, chip efficiency, and labor, driving down costs across the economy. This extreme efficiency creates a powerful deflationary force, which is a greater long-term macroeconomic risk than the current AI investment bubble popping.

Grant argues that modern economics, with its focus on metrics like CPI, misses the full picture of inflation. He revives an older view that excessive valuations and leverage in markets are a "species of inflation" in themselves, a concept modern central banking ignores.

Grant uses the railroad boom as a historical analog for AI, arguing such technologies can cause a sustained, beneficial decline in prices and a rise in real wages. This "positive destruction" is a form of productive deflation often overlooked today.