For the past two years, one word has kept coming up: depreciation. Housing first, then expensive consumer goods—cars and the like—getting betrayed by resale values. Fixed assets and durable goods seem to lose value faster now, as if that has become the normal state.
I woke at four this morning and couldn't fall back asleep. My small business will probably show a net loss this year, even if I pay myself nothing; the books may still be in the red. Lying awake, my mind drifted, and I suddenly saw something: the problem isn't just that my product has depreciated. My customers have depreciated too. For me, the customer has always mattered more than the merchandise. I sell people the best product I can at a fair price, they get what they need, I make a margin, and both sides are happy. Customers care about price and quality; I care about price and whether the collaboration itself feels good. This year, almost every field is running on price cuts. To protect their own margins, customers press me hard on price. I resent it. Paid service begins to feel unpaid, and my satisfaction with customers falls. Once my satisfaction drops, I stop treasuring them, stop worrying about losing them, stop fearing that I might not serve them well.
Not caring is my version of their depreciation. They become optional, like a car after a few years—no longer handled with the care it got when new. It is not a nice thing to say, but the feeling is close.
Another angle: a customer has value, and part of that value comes from what it costs to maintain them. Strictly speaking, what I mean here is closer to customer price, which also sounds harsh. The costs are varied: time spent developing the account, money spent on samples and trials, time and money on routine visits, emotional cost of day-to-day maintenance. These can mostly be quantified. Only when expected return exceeds cost does the customer have value. When expected return is high, the customer is very valuable. When expected return approaches zero, the customer has essentially lost value. That process is depreciation.
When you run a business, whether you put in fixed assets or working capital, quitting means depreciation. Even current assets. Even cash sitting in the account: under current policy, when a company is deregistered, withdrawing the remaining funds can incur a 10% personal income tax.
Once you invest in a business, potential depreciation is part of the deal. Would it have been better to stay an employee? To resign, you only need to tell the company, 'I leave as quietly as I came, taking no cloud with me.' But after turning it over, I think even as an employee at my age, I could not leave lightly. I would fear that my current employer, my next employer, and I myself would discover that my labor has depreciated.
I saw data from a recruitment platform: this year's college graduates are being offered salaries 8% lower than in 2023. College students have clearly depreciated. As new labor, they are no different from a newly bought phone or laptop. If new products depreciate, old goods have no reason to appreciate. However valuable the data inside your old device may be, there are ways to migrate it.
Everyone is invested in from primary school onward—time, energy, money—to build labor value. By college graduation, you are supposed to be a qualified worker, ready to realize your use value. The sad part is that before you are even used, you have already depreciated.
As with a small business, investment in labor should be judged by input and output. If the discounted lifetime price of a person's labor is less than the discounted cost of their education, does that mean the investment in producing that labor is a loss? Does the input have no value?
Look around, and everything seems to be depreciating. It is hard to find anything you can be sure will keep rising in value. This is completely different from when I first started working. Then, you didn't need to think: everything in sight would appreciate. All thinking ran on the logic of appreciation.
Appreciation and depreciation are both uncertain, but people prefer appreciation and dislike depreciation. I think that is because everyone assumes tomorrow will bring more than today. Appreciation is favorable. With expected appreciation, people are willing to keep investing in pursuit of larger gains. That held from the 1990s until the eve of COVID. Now expectations have changed. Many people suspect tomorrow will bring less than today. Investment turns conservative; people fear losing their principal.
Economic and social progress has been driven by investment—in things and in people. When investment stalls, growth comes under pressure. If many people also want to cash out their investments, the economy may be in trouble. Depreciation begins as an individual expectation. How that expectation becomes a social consensus, and how consensus changes social behavior, are questions economists, sociologists, and politicians have been thinking about. The answers are far from settled.
Under depreciation expectations, people unconsciously choose preservation: saving, civil-service exams, cutting back on features or consumption. State economic management tries to change behavior by changing expectations. In the current situation, how do you change expectations? Many efforts have been made, but the effects seem limited.
In this expectation of depreciation, most people look first at assets, especially property. That view has a flaw. Most people don't have many assets. Their most valuable asset is their labor. Paying attention to income expectations is more meaningful than fixating on property prices.
Based on income expectations, I think we face an unprecedented shift, and the reason is AI. Earlier technological change mainly amplified mechanical force, replacing human muscle. AI means replacing human intelligence. From the Industrial Revolution to now, technological progress has moved many jobs from pure physical labor toward work with more intellectual involvement. If AI surpasses ordinary human intelligence, where can that part of the workforce move next? Many economists, relying on past experience and habits of thought, argue that new technology must create new jobs and must benefit everyone. I find that hard to accept. From ancient times to now, almost every technology has required learning and application, and the learning cost has kept rising. In the AI era, if some people are limited by cognitive ability and their learning cost exceeds their output, how do they learn AI and use it to produce? There is another problem. Suppose everyone can learn to use AI in production. AI technology will inevitably iterate faster and faster, like other technologies. That means everyone must keep learning. Does a 40-year-old still have the learning capacity and mindset of a 20-year-old? Will people collapse under the constant pressure to learn? And in that state, what is the meaning of life—to keep adapting to technology until one loses the capacity to work? That does not seem to fit the basic purpose of human existence.
I woke at dawn and couldn't sleep. My thoughts bumped around in a haze—many things, all disordered. My small business will probably lose money this year, but it can still hold on. If next year's expectation is still a loss, should I keep holding on?
In my irritation I slowly fell back asleep. When the alarm woke me, I felt exhausted. I had done nothing—only slept. The expectation of depreciation is more tormenting than actual loss. A loss happens at one moment; it hurts and then passes. Expectation rises whenever it wants and is not controlled by reason, especially when reason is weak—like during sleep.