Thoughts on the Future of the Economy

Recently I posted to Facebook the following link:

Viewing U.S. History Through the Prism of Capitalism

It is an interview with Bhu Srinivasan where he discusses his new book, Americana: A 400-Year History of American Capitalism. It’s an interesting read and in my post I quoted the following:

“I think that previously the next big things in American history always created a lot of jobs. When there was movement into the suburbs, you had home construction that would create a lot of jobs. The worker could also participate as a consumer because he’s getting high wages when he’s building those homes. The next big thing for the past 35 years has decoupled that equation. I don’t think that the American worker can significantly contribute to iPhones, for instance, or to the internet. I think that’s the unsettling factor that you’re seeing manifest itself in many different ways.”

A friend of mine commented asking what I thought the future holds. Here is what I wrote:

I think automation, AI, Internet of Things are the most likely big things but there may be others yet to emerge.

Off the top of my head, I can imagine optimist, status quo and pessimist scenarios, but probably the most likely outcome is one I cannot predict.

1. Pessimist: automation, AI, etc. increases drastically displacing more and more workers, including previously well-paying positions. Governments around the world are forced to address the issue and do so in differing ways that causes confusion and major economic disruptions and dislocations.
2. Status Quo: the world has a way of adjusting. Automation, etc. will still increase and cause dislocations for many jobs, but new fields, industries, etc. will arise to account for the lost jobs. Things will remain more or less the same as today as there will be winners and losers in the new scenario, though those winners and losers will not look the same as those we see in today’s economy.
3. Optimist: Similar to the pessimist or status quo scenarios but policies (e.g., universal basic income) that are instituted drastically change the nature of life around the world for the better.
   

I think that while some changes happen very rapidly in our lives, larger economic changes tend to be slower so that if we end up having a future drastically different from the present it will not happen for a while and the changes will be halting and gradual.

I then added:

One other interesting thing to consider is the dropping labor participation rate and whether the associated causes are long-term or will reverse. One of those factors that I think deserves further scrutiny is the opioid crisis, which is becoming an increasingly significant factor and one which hits the economy twice via the lost labor as well as via crime and medical costs. If that crisis increases and/or spreads to other countries, I wonder what impacts we will see.

And finally I commented on policies:

In terms of policies, I think we have to recognize that today’s economy doesn’t behave the way it did 50 years ago and consider policy impacts in that light. Specifically, there is increasingly a bifurcation of the “worker” economy and the “investor” economy and some policies that are good for one are not good for the other.

I am posting this here not because I think it is particular prescient or noteworthy but merely as a record of my thinking on the topic today. Hopefully I will revisit this some years in the future and see how both times and perhaps my thinking has changed.

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