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: