Near the crystal-blue waters of the Aegean Sea, one of the most brilliant minds of his age railed against a dangerous new technology. He worried that it would weaken people's memories and give them the appearance of knowledge without genuine understanding.

That person was Socrates.

The dangerous new technology was writing.

History is full of similar warnings. New technologies have repeatedly been greeted with predictions that they would make us lazy, stupid, obsolete, or perhaps destroy society altogether. Steam power, the calculator, radio, television, computers, and the internet have all had their turn.

Today, it is artificial intelligence.

That is not to say we shouldn't be mindful of the dangers that accompany new technologies. Technological progress can have very real consequences for communities, industries, and especially the workers whose jobs are displaced along the way. Artificial intelligence will undoubtedly create winners and losers.

But given the hyper-agitated, clickbait nature of our current world, it is probably worth exercising a little caution before signing on to predictions of the end of humanity.

At least for now, from an economic perspective, AI appears to be more of a benefit than a threat. Investment in data centers, semiconductors, power generation, infrastructure, and software continues to provide an important source of economic activity at a time when there is considerable uncertainty elsewhere.

And there is plenty of uncertainty elsewhere.

Our world can seem unusually full of conflict. One significant difference today is that we experience these events in real time, and increasingly their economic consequences are leaking into the everyday lives of Americans.

Consider the wars involving Iran and Ukraine. Both have contributed to disruptions in global energy markets. Higher gasoline prices resulting from conflict in the Middle East are certainly nothing new.

What is somewhat different this time is the attention being paid to diesel.

I would bet that six months ago, many of us couldn't have told you the price of a gallon of diesel. Today, it is increasingly a topic of conversation, whether in boardrooms or at cocktail parties.

Why does diesel matter so much?

Diesel is, in many ways, the "gasoline of business." If you need to grow something, dig something out of the ground, build something, or move something weighing several tons from one side of the country to the other, chances are diesel is involved. And for many of those applications, there are still few practical substitutes at scale.

That means higher diesel prices don't stay at the gas station.

When the cost of running a tractor, excavator, locomotive, or semi-truck rises substantially, the businesses operating that equipment have to absorb the cost somewhere. Some will accept lower profits, some will become more efficient, but eventually at least some of those increased costs make their way to customers.

And that brings us back to a problem we had hoped was increasingly behind us: inflation.

Inflation is something we are all much more familiar with today. We know the pain it can cause families trying to make ends meet. Most of us have experienced sticker shock at the grocery store, a feeling that once seemed largely reserved for buying a car, a house, or some other big-ticket item.

The good news is that we have tools to fight inflation.

The bad news is that those tools can be painful.

One of the Federal Reserve's primary tools for combating inflation is raising short-term interest rates. We recently saw the "Fed" do just that. Higher interest rates make borrowing more expensive, discouraging spending and investment and ultimately slowing the economy.

In other words, the medicine works partly because it doesn't taste very good.

If inflation remains stubborn, including because of higher energy and transportation costs, the Federal Reserve may need to keep interest rates higher or raise them further.

But the Federal Reserve isn't the only force pushing interest rates higher. Investors themselves are increasingly demanding higher interest rates to lend money for longer periods of time.

And that is creating a problem in Washington, D.C., Paris, Tokyo, and capitals around the world.

It is becoming more expensive for governments to borrow money.

Why? We don't know for certain. The global government bond market consists of countless participants making independent decisions about what is best for themselves or their clients. But taken together, the message sounds something like this:

"Given what we see happening with inflation, the amount of money you are borrowing, and the uncertainty surrounding how those debts will be managed over time, we want to be paid more interest to lend you money."

It's a little like the market lowering the credit scores of several major countries at the same time.

That analogy isn't perfect. Governments aren't households, and countries such as the United States that borrow in their own currencies operate very differently from individual borrowers. But the basic principle still applies: when lenders perceive greater risk or uncertainty, they generally demand greater compensation.

This may prove to be a short-term movement. But if higher borrowing costs persist, governments may eventually face some uncomfortable choices. As existing debt matures and has to be refinanced at higher interest rates, a larger portion of government revenue goes toward paying interest rather than providing services. Governments can respond by borrowing even more, cutting spending, raising taxes, or finding some combination of the three.

None of those choices is particularly popular.

The long era of generally declining interest rates made it relatively easy for governments across much of the developed world to make promises today and worry about paying for them tomorrow. If the era of exceptionally cheap money is truly behind us, tomorrow may be getting considerably closer.

All of these pressures seem to be coming to a head just before the midterm elections, now less than a month away.

There is little doubt that Americans are feeling pressure from rapid technological change, energy prices, inflation, and higher interest rates. How those concerns ultimately translate at the ballot box is well beyond my knowledge or skill, and I will happily leave the political predictions to others.

Our job is to help guide you through the turbulence. We continue to closely review the economy and financial markets, looking for meaningful changes rather than reacting to every headline. Where changing conditions warrant adjustments, we will make them. We will also continue updating your financial plans as circumstances change.

If the headlines, markets, or economy have you concerned about your own situation, please reach out. That's what we're here for.

And one final thought.

Remember Socrates and his warnings about the dangers of writing?

Socrates never wrote them down.

We know about them because one of his most famous students, Plato, did.

As always, we appreciate and honor the trust you place in us. We look forward to working with you in the coming quarter and for many quarters to come.

Kevin P. Sullivan, CFA, CFP®, AIF

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