'They're changing the whole way that commerce works' - BlackRock's $1.8 trillion bond chief explains how millennials are spearheading an economic revolution
- Rick Rieder, the chief investment officer of fixed income at BlackRock who oversees $1.8 trillion, had his latest economic epiphany after he successfully avoided a traffic jam.
- His thesis revolves around the idea that millennials are conditioned to use technology for everything and seek the lowest possible price.
- Rieder says the growing dynamic of millennial technological adoption is alleviating one of the market's biggest fears, while also challenging traditional economic models.
When it comes to sources of inspiration, a traffic jam outside the Lincoln Tunnel has to be pretty low on the list.
Unless, of course, you're Rick Rieder, whose latest economic epiphany was set into motion by precisely that type of fume-streaked gridlock.
It all started on a seemingly normal drive, which saw Rieder - who's responsible for $1.8 trillion as BlackRock's chief investment officer of fixed income - fire up his trusty Waze app in an attempt to avoid the usual congestion. Designed to use real-time information to help drivers circumvent such logjams, Waze gave Rieder a new route that bypassed the tunnel traffic, saving him 40 minutes.
Immediately the gears started turning in his head.
"That got me thinking about what I could do with that extra 40 minutes," Rieder told Business Insider in a recent interview. "I thought about how powerful it is when you multiply that by millions of people everyday. It's creating this extraordinary productivity that you wouldn't have otherwise gotten."
And with that, Rieder suddenly had a compelling new analogy for his economic outlook. He now believes we're firmly in a so-called "Waze phase," characterized by fewer costs and inefficiencies. And that, in turn, should challenge everything we think we know about the economy.
It all starts with millennials
Millennials are frequently blamed for killing a wide range of industries, but Rieder says the much-maligned group is actually responsible for the economic sea change that's already underway.
At the root of their influence is a willingness to adopt cutting-edge technologies, whether that means mobile payments, cryptocurrencies, peer-to-peer lending, or mapping services like Waze. This open-mindedness has led to innovations that have enabled further advances, dragging costs of data storage and transmission lower, according to Rieder.
"It's millennials' receptivity to using this technology and being big consumers that's changing the fabric of economic consumption in such a big way," he said. "They're changing the whole way that commerce works."
The sheer number of millennials also adds to the group's influence. Rieder notes they're now the largest cohort in history, and are entering a phase where they're going to be the biggest-spending segment of the economy. And given how they're already conditioned to expect rock-bottom prices and peak efficiency, their influence will only be increasingly felt over time.
With this in mind, Rieder's Waze analogy is once again appropriate. Just as millennials are spearheading a reduction in economic inefficiencies - or "friction," as Rieder often refers to it - Waze is also helping users avoid obstacles. And that, in turn, leads to lower costs and travel times.
"Productivity is going up extraordinarily because you've just taken an amazing amount of time and cost - and a lot of friction - out of the system," said Rieder. "And you can consume more quantity, because you're taking all of that wasted friction out of the economy. I think economists are grossly underestimating how powerful that is today."
'Traditional economic models don't work'
Rieder's last comment above introduces another aspect of his "Waze phase" thesis - the idea that economists are failing to fully appreciate the impact of technological adoption, and the degree to which it relieves friction in the economy.
But it doesn't end there. He also argues that millennial-driven innovation is wringing inflation out of the economy, which is a big deal when you consider that many Wall Street experts have cited overheating inflation as their biggest market fear.
Put simply, Rieder thinks it's going to be difficult for inflation to rise because the most economy's influential demographic doesn't want to pay any more than it absolutely has to - and it knows how to discover the lowest possible price.
"This is historic, and it's part of why I think traditional economic models don't work," said Rieder. "With all the inefficiencies being eliminated and all the time being created, it allows for more consumption and quantity, and the cost of those goods and services is going to continue coming down. You create this self-calibrating loop of growth, rising costs, and then working to push that back down."
Given this new economic paradigm, Rieder also sees an enormous shift coming among corporations as they scramble to stay competitive. If they're hamstrung in terms of being able to raise prices, their future success may well hinder on their ability to lower their costs.
In the end, Rieder expects new technologies and their use by millennials to eventually shape the entire global landscape, leading to huge changes in the broader economy, industries, specific companies, and consumers.
"So much of how people think about monetary policy and economy comes from traditional ideas that don't work anymore," said Rieder. "This is a technology revolution that's going to challenge the entire way we think about things."