When a central bank prints money under traditional Quantitative Easing (QE), the money is put into circulation by the bank buying bonds from bondholders. The central bank holds the bonds (and the associated interest income), and the former bondholder (typically a person who is rich enough to save and to keep part of their wealth in the form of bonds) ends up with more cash in the bank.
The former bondholder then looks for investment opportunities, for ways to get a higher return on their money. If there is unmet demand in the economy, they may choose to invest in new productive capacity—in new factories or retail stores, for example—which is what governments hope will happen. But if there is no unmet demand, but lots of overcapacity, as existed after 2008 in the rich world, they will typically look for another store of value: real estate, stocks and shares, art, metals, and so on—none of which create many new jobs.
In this situation, the more money a government prints, the more demand there is for assets. The price of those assets then increases endlessly, as the amount of cash in circulation rises.
The result is asset inflation—well known from the post-2008 period—with booming stock markets, art markets, and property values.
That this process continued—that the money was not given to the poor instead, to stimulate demand—illustrates the strong influence of the wealthy (and free-market thinking) on current economic policy.
Since the early 1980s, then, many of the cherished assumptions that underpin free-market economics have been wrong. The belief that economic growth is always good is no longer true, unless you are rich. Economic growth in the rich world has not improved living standards for the majority. It has not created jobs, or at least it has not created enough of them. And it has not reduced inequality.
Printing money and ultra-low interest rates have not achieved what they promised either. They have not led to an economic rebound, full employment, or reduced inequality.
Before we look at how societies can actually fix these problems, there is another issue that needs to be addressed.
Over the next twenty years, unless there is a change in direction, unemployment is going to rise sharply in the rich world because of new technology. Increased computerization will boost business profits, improve productivity, and create lots of new opportunities for entrepreneurs. It will also bring economic growth. But it will increase joblessness and widen the gap between rich and poor further still.
This challenge is the subject of our next chapter.
– CHAPTER 4 –
ADVANCING ROBOTIZATION
Without change, the problems of unemployment and inequality will worsen in the next twenty years. There will also be an unstoppable decline in the rate of conventional economic growth and a wave of robotization in manufacturing and repetitive services.
This new medical app on my phone is amazing! It synchs with the RFID tag in my jacket and all of my telemetry data is uploaded to a centralized database that auto-adjusts my meds mix to control my glucose. Need an adjustment? The drone from Walmart delivers what I need to my drone-dock overnight—anywhere in the world! It is amazing. . .! On the other hand, I want to sell my house—why isn’t anyone bidding on it? There used to be a lot of doctors in this neighborhood didn’t there? Also, there used to be a ton of delivery-drivers who came into my restaurant for breakfast every morning. . . wonder where they are . . .? If I don’t start to generate some revenue soon, how am I going to pay my mortgage until I find a buyer? Maybe I should get one of those robot cooks that I keep hearing about to lower my operating costs . . . 1
THE SUBSTITUTION of humans by machines is something economists call “technological unemployment,” and it is as old as humankind itself. Even the caveman’s humble wheel made people redundant, because one person with a cart was able to push the same weight that several people had previously carried on their backs.
Today, the technologies used to replace people are rather different. It is now robots, computers, and other high-tech gadgets that are making people redundant, not wheels or sharpened flints.
At the beginning of the economic development process, as more capital is added, the agricultural sector gradually becomes more mechanized, and fewer people are needed to feed the population, so they move into manufacturing, the secondary economic sector. Then, as the manufacturing factories are equipped with machines, energy, and computers, fewer workers are needed there, so people focus on the next level of demand in society: services—the tertiary sector. Yet again, technological advances—this time in the form of computerization and robotization—gradually reduce the need for labor in repetitive service jobs. This frees people to do what machines cannot easily do—provide care, culture, and creativity. This is the fourth, and now emerging, economic sector.
Thanks to all sorts of remarkable developments in computing and robotics, many commentators and analysts believe that society is in the early stages of a new industrial revolution, one with the capacity to transform the way people live and work, just as the steam engine did two hundred years ago.
Computerization has already given lots of people the chance to develop exciting new careers and found new businesses. These new technologies could further transform societies and offer everyone the chance of more leisure time—depending, of course, on how they are introduced and how the rewards are divided.
The worry is what the new technologies could mean for jobs.
Technological unemployment is one of the main reasons joblessness has risen throughout the OECD during the last thirty years.2 Although some of this is down to demographics and the changing economic structure of the rich world, the development of computers, as well as other sorts of automation and the Internet, has played a very large part, particularly since 2000. This explains why productivity in the United States rose by 2.5% a year in the first decade of the twenty-first century, while the number of available jobs fell by more than 1% a year.3
With the anticipated growth in computing power, the rate of technological unemployment is expected to rise in the coming decades, and most people are unprepared for what this might mean. As The Economist magazine put it, “the effect of today’s technology on tomorrow’s jobs will be immense—and no country is ready.”4
A well-known, though perhaps slightly alarmist, study published in 2014 by Oxford University’s Martin School5 suggested that as many as 47% of all U.S. jobs are at risk in the next two decades of being mechanized or partly mechanized and so largely eradicated by the next generation of smart machines. In economic terms, this means that fewer people will be needed to produce the same output. Costs will be lower and average earnings, for those left with a job, could be higher. But there will be fewer people with jobs.
The vulnerable jobs are not only those of factory machinists, retail workers, airport check-in staff, and burger flippers. Those employed doing packaging, logistics, and deliveries are at risk of redundancy, too. Thanks to clever computer algorithms, much of the work currently done by lawyers and bankers is also threatened. The research that armies of junior financiers do could be automated as well, with big data taking on the role of today’s market and business sector analysts.
Computers will even be able to replace many in the medical profession. Machines can already diagnose many diseases better than doctors and track the progress of many treatments more effectively, and image processors can analyze biopsies more accurately than lab technicians.
Thanks greatly to work done by Google, it may be possible to replace many bus, taxi, and van drivers, too (once the issue of liability insurance has been resolved). Train drivers and pilots can also be replaced, as can many university lecturers. Students may not like learning