Nick O’Connor – Capital and Conflict (Great Britain) –
Can you boil economic prosperity down to a simple formula?
It’s the ultimate question. The economic version of, “what is the meaning of life?”. Perhaps I’m setting myself up to fail in asking it. In fact, almost certainly so. But let’s not shy away from a challenge!
According to Charles Hugh Smith, writing for mises.org last week, there is a formula for prosperity. It’s simple, too. Far, far simpler than most economic formulae. According to Smith, it comes down to this:
Prosperity = Abundant Work Low Cost of Living
He elaborated further in his analysis. (Full piece here if you’re interested.) The argument comes down to this, though:
When you boil it down, this is just another way of saying – of “formalising” – the guiding principles behind everything we write to you about at Capital & Conflict. A free market, economic liberty and sound money lead to prosperity. Why?
Sound money can’t be debased or used as a tool for inflating away debts. It keeps a lid on runaway inflation and the cost of living. A free market encourages competition, which leads to falling prices and the birth of new industries. And economic liberty means people are free to take advantage of those opportunities (abundant work).
Perhaps it is a formula for prosperity. But when you apply that formula to an idea we were talking about last week, increased automation, I think it’s even more illuminating. And it explains why some people see AI and robotics as huge benefits to society, while others fear them.
That’s because automation will affect both the work element and the cost of living side element. But it’ll affect them differently. And depending on your viewpoint, that explains why some people see automation as the answer to everything or the virtual antichrist.
Increased automation will lead to a lower cost of living. That’s the whole point. By automating processes companies can provide goods and services cheaper, faster and more efficiently.
For instance, last week Japanese insurance firm Fukoku Mutual announced it is beginning a drive to automate parts of its business. These are “white collar” jobs that’re being automated. But the economics certainly work. The firm will spend $1.7 million to install the system. It’ll save $1.1 million per year in salaries. And it’ll improve productivity by 30%.
(By the way, our tech expert Eoin Treacy has recommended the firm behind the AI software as a buy for 2017. Want to know more? Take a trial of Frontier Tech Investor by following this link.)
Productivity gains lead to lower prices for consumers. Multiply that across the economy and you get a much lower cost of living. That’s a tick for one part of our formula.
And it shows that if you have a decent expectation of work in your field (for instance, if you work in software or other fast growing tech industries), then you’d associate automation with prosperity. But what if your industry is ripe for disruption? What if you don’t have the expectation of abundant work?
Well, then you’d see automation differently. Probably as something that would make the world less prosperous. Those two competing perspectives are what make the debate about automation both interesting and often heated.
It is worth remembering, though, that we aren’t the first society to have to grapple with these questions. There are countless examples of worries of “technological unemployment” becoming an issue. It’s worth pointing out that at no point did the world end in any of these situations.
For instance, in 1927 the US secretary of labor, James J Davis, gave a speech that – were you to change the odd word here and there – would resonate today. He had this, among other things, to say (my emphasis):
Are we living through a similar “period of adjustment” today? I’d say we absolutely are. But it’s worth remembering the history of technological advances: this isn’t as unique a problem as we like to think it is. That’s not to downplay it but to contextualise it.
It’s also worth keeping in mind that there’s a vital difference between trying to slow the pace of innovation down and helping the technologically dislocated out. The former is impossible, while the latter is achievable. It starts with education and reforming people’s expectations. And it leads all the way to what our own publications seek to do: help you understand, anticipate and act to profit from large scale change. Again, if that’s something you want to do, sign up for a trial of Frontier Tech Investor now.
A formula that explains more than prosperity
What if I told you there was a simple but profound equation that links property prices, the stockmarket and the commodity cycle together? And that by understanding it, you could accurately forecast large changes in the markets ahead of time?
It’s 18 = 14 4, if you’re interested. Although that won’t make much sense unless you understand the key insight behind it. It’s an idea that Akhil Patel has been researching and developing for years. And it’s based on more than 200 years of data.
What is it?