Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Today’s Technological, Monetary, and Political Forces Are Raising a Perfect Economic Storm

Politics / Social Issues Dec 19, 2017 - 03:05 AM GMT

By: John_Mauldin

Politics

Identifying incentives is key to analyzing trends and forecasting what different players will do next.

Those who control the tech are intent on bringing the era of superautomation forward as fast as possible. That’s obvious. But between dicey Federal Reserve policies and possible tax reforms, all kinds of businesses seem to get new incentives to automate sooner rather than later.


Let's take a look at the key forces that are speeding up automation adoption and what that means for employment.

First, the Fed.

I’ve made the case (read it here) before that I think they waited too long to end quantitative easing and begin normalizing interest rates.

Their delay created our present weird situation where we have little or no inflation according to the indexes. But the cost of living for people at the median income level and below is outpacing wage growth and leaving the average household struggling to stay even.Real wages, that is wages after CPI growth, have advanced only 0.2% a year since 1973. And as I noted above, real wage growth is now decelerating.

Diminished earning power has, in turn, robbed businesses of pricing power and forced them to cut costs ruthlessly. And one way you slash costs is by automating.

In this week’s Outside the Box (subscribe here), I shared a story about how Amazon is now hiring robots faster than it is human employees. Amazon is in the lead, but other companies aren’t far behind.

This trend limits wage gains even more, and the situation is getting worse as the technology gets better and cheaper.

Of course, there’s absolutely nothing wrong with making your business more efficient. You have to survive against the competition. But in this case the competition is not happening naturally or according to market forces.

The Fed has kept market forces from working and has created an environment that would never have occurred otherwise. You can argue whether a laissez faire market would have worked better or worse, but it’s pretty clear we haven’t had one.

Now Add in Tax Policy

I explained early this year in my open letters to the new US president (you can read the series here) that we would all be better off with a consumption tax like a VAT rather than we are currently with the income tax.

Alas, I did not get my wish. Congress is right now “improving” the tax code in ways that may actually accelerate the automation trend.

For instance, one proposal is to allow equipment purchases to be expensed immediately instead of amortized over time. That’s not a bad idea on its own. However, it effectively subsidizes companies to upgrade their equipment and technology to the latest state of the art.

And, as we saw above, the state of the art is automated devices that need little human help.

The accelerated shift to automation may help explain a Business Roundtable survey that showed some odd results.

As reported by the Wall Street Journal last week, CEOs say their plans for capital investment have risen to the highest level since the second quarter of 2011. That’s good news: Businesses see growth opportunities and want to add production capacity to meet them.

But the same survey shows CEO hiring expectations going in the opposite direction. Hiring is not plummeting by any means, and many do plan to increase hiring over the next six months; but the majority say they will keep their headcount where it is or lower it.

General Electric will cut 12,000 jobs from its power business, roughly 18% of that division’s total employment, in order to cut costs and reduce overcapacity.

How do we explain a situation in which capital spending rises but employment stay the same or falls? Automation is one answer. It lets you increase capacity without increasing headcount and expenses – you may even reduce them.

Not coincidentally, the new tax bill may remove the Obamacare individual mandate, but the employer mandate is staying in place—and healthcare costs are still rising. That too incentivizes businesses to use machines instead of people wherever possible.

So where do all these factors leave human workers?

A Perfect Storm Is Coming at Us

The McKinsey forecasts fall more or less at the midpoint of those in other reports I am reading. We’re facing a perfect storm: Technological, monetary, and political entities are joining forces to stir up a maelstrom of change that is going to bombard all of us. I’m not an exception, and neither are you.

We can’t control these giant forces, but we can control our responses.

Whatever your job is now, you need to think about how vulnerable it may be and what else you might do. If you need to acquire new skills, start doing it now. If you have young adult or teen children, help them with their education and career choices.

That art history degree may not be much in demand in 2030. Or even in 2020.

Join hundreds of thousands of other readers of Thoughts from the Frontline

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in