Moore's Law came into being in 1965 when Intel co-founder, Gordon Moore noticed that the number of transistors per square inch on integrated circuits had doubled every year since their invention.
Moore predicted the trend would continue into the foreseeable future. The pace has slowed over the years and now doubles about every year and a half.
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Won’t Go On Forever
Moore’s Law is not expected to continue forever. Many experts believe it will keep going at a slower and slower pace for another 20 years. Some suggest it is almost completely stopped now.
If it does continue, Moore’s Law will help manufacturers produce less expensive and more efficient computers and other devices that use microchips. This means those devices will cost less to own and every part of the economy that uses them, will become less expensive as well.
Impact On Inflation
The importance of Moore’s Law is seen with inflation. Despite unemployment of 4.3%, inflation in the U.S. remains below 2%. There are many factors behind this but one of them is Moore’s Law. In simple terms, cheaper cell phones and computers hold down inflation which holds that as time goes on goods and services become more (not less) expensive.
In addition to Moore’s Law, technology itself is part of the picture. Technology’s use in producing U.S. GDP is increasing. In 1997, U.S. workers used $0.08 worth of technology to create $1 of GDP. Today, it’s $0.20 per $1 of GDP. Technology is playing a larger and larger role in U.S. GDP.
Holding Inflation In Check
In the consumer electronics sector we see the impact of Moore’s Law in a very direct way. Larger, flatter, better televisions cost less than their counterparts of only a few years ago. The same holds true for any product that uses transistors or microchips.
Beyond smartphones, TVs and Amazon Prime, since computers and computing power touch almost every facet of life in America, inflation is being affected in a small way by the effects of Moore’s Law in all sectors.
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By The Numbers
The 2% number for inflation is important because it is the Federal Reserve’s target above which the Fed says it will raise interest rates. Without Moore’s law, instead of the 1.4% inflation we have now, we would have reached and surpassed 2% some time ago, according to experts.
In fact, since 2001, the declining prices of computer and electronic products and related industries have cut 0.5% per year from the prices companies need to charge for their products. Despite this reality, the Fed has barely paid attention to Moore’s Law. As a result, the expected date when we will reach 2% inflation keeps getting pushed further and further into the future.