I’ve vacillated for weeks about whether I should write this post or not. After all, who am I to read the tea leaves and describe a future that few would want for their progeny. I don’t like being negative. It’s not who I was for most of my life. I always had dreams and took much joy in making them come true. I have truly had a good life. But, one reaches an age when they no longer dream for themselves; but become more focused on the dreams of those we will too soon leave behind. I know that I am but a humble observer of this asylum we all have to live in. I know that I have no special insight to the future. But, as much as I’ve tried, I can not shake myself free of the gloomy vision I have for those who will inherit the future.
Your humble observer of the asylum is not alone in seeing a bleak future fo mankind. There are plenty gloom and doomers out there. John Carney, at CNBC, wrote about Tyler Cowen’s new book, Average Is Over. I haven’t read Mr. Cowen’s book, but that’s OK because neither has John Carney. Carney references a review of the book by the Wall Street Journal. Here is a short excerpt of that review:
To sum up, Mr. Cowen believes that America is dividing itself in two. At the top will be 10% to 15% of high achievers, the “Tiger Mother” kids if you like, whose self-motivation and mastery of technology will allow them to roar away into the future. Then there will be everyone else, slouching into an underfunded future of lower economic expectations, shantytowns and an endless diet of beans.
John Carrney is not a gloom and doomer. He is, however, a big government statist. He opines:
Far more likely, long before we ever get to Cowen’s ugly world, people will decide that there are better ways of taking care of themselves than submitting to a economy that only has room to keep the top 10 percent comfortable. That could mean hugely redistributive taxes. It could mean some form of economic protectionism. Or perhaps some Very New Deal we haven’t yet conceived. Even if these are in fact economically destructive, I think many people would prefer to live in a society that is poorer overall but in which the middle-classes and lower-classes aren’t impoverished.
I won’t waste my time commenting on John Carmey’s opinion.
Because I haven’t read Mr. Cowen’s book, I don’t know what evidence he provides to support his view of the future. However, I do believe there is evidence that does suggest that the future will belong to relatively few. Let’s look at one example, the trend of the workforce participation rate in the United States. It has recently hit a 35 year low of 62.8%:
Many a pundit has been hammering Obama over this dismal number; but the trend started long before we ever heard of Barack Obama. Look at the 25 year period from about 1965 to 1990. The participation rate increased steadily from 59% to about 67%. That’s when yours truly was realizing his dreams. The falling trend from about 1998 until today is very telling and one could argue is supportive of Mr. Cowen’s view.
The trend in the velocity of money is also supportive of Mr. Cowen. The velocity of money is the rate at which the money in the economy circulates among the economy’s participants (that would be us). The higher the velocity of money the more vibrant is the economy among the people who make it up. Lower money velocity implies that fewer people are enjoying the benefits of whatever growth in GDP there is.
Note that the downward trend in the velocity of money started at about the same time as the downward trend in the workforce participation rate; 1998. Is this the result of the end of the industrial age and the beginning of the Information Technology (IT) age? Could be.
But one doesn’t have to study charts and graphs to know that something is amiss. An overwhelming majority of Americans have not seen a recovery from the Great Recession. Jobs are not being created as fast as the population growth. Most of the jobs that are being created are either part-time or lower paying jobs. As bad as we see things in America it is much worse for the people of the European Union. Spain, for example has 26% unemployment and their banks are not out of trouble by a long shot. Greece is still a basket case and Italy and France have serious problems as well. And, what about Japan?
Remember when Japan was the first Asian Tiger? I remember headlines bemoaning that the japanese were buying up America. (They did buy up a big part of Hawaii at one point.) Pundits couldn’t stop talkking about Japanese efficiency and their high savings rates compare to Americans and their work ethics were said to be a match or even better that the vaunted American work ethics. So, what happened to Japan? They have been wallowing in stagflation for decades and with the policies of their new Prime Minister, things are getting worse rapidly? What happened was the spread of technology and competition. First it was other Asian Tigers; most notably South Korea. In more recent years, it has been the BRICs, Brazil, Russia, India, and China. Especially China! But, for the last several months, all we hear is about the slow down in the BRIC countries. Pardon the pun, but it is as if the BRICs have hit a brick wall.
I hope I am wrong, but I believe that the above is another disturbing trend supporting Mr. Cowen’s outlook. It appears to me that when one country takes advantage of the spread of technology and makes a jump in economic growth, other countries see a slowdown in economic growth. In other words, when the next set of “brics” arrives on the scene, the last set of BRICs begins to crumble. We conservatives/libertarians often harp about too many takers and not enough makers (producers). But, what if the trend we are seeing; not just in America but in the world, is that it takes fewer and fewer makers (producers) are needed to produce all the goods and services for which there are consumers.? What if we not only have too many takers, but also too many potential makers (producers)? During the industrial age, innovation generated more and different kinds of jobs. During the IT age, innovation is generating fewer jobs.
In the final chapter of his book, Mr. Cowen wrote:
The top 10% will have it better than ever. The majority will suffer stagnant or falling wages but have more opportunities for cheap education and cheap fun. The rest will fall by the wayside, with government less and less able to take care of them. It will be dazzling at the top, and “meh” to miserable for the rest.
If that doesn’t propel you and your children out of bed, you deserve all the beans you get.
Is Mr. Cowen right? Am I miss-reading the trends I mentioned? If mankind is facing a world where only a small percentage can have a shot at the “good life”, what doe we tel our children and grandchildren? Go Galt? Where? Maybe people could learn something from the Amish.
Well, that’s what I’m thinking. What are your thoughts?