Wednesday, December 26, 2012

Crystal Ball Gazing

A few weeks ago the National Intelligence Council released it's Global Trends report for 2030:
By the year 2030, for the first time in history, a majority of the world's population will be out of poverty. Middle classes will be the most important social and economic sector. Asia will enjoy the global power status it last had in the Middle Ages, while the 350-year rise of the West will be largely reversed. Global leadership may be shared, and the world is likely to be democratizing.

But the planet may also be racked by wars over food and water, with the environment threatened by climate change. Individuals, equipped with new lethal and disruptive technologies, will be capable of causing widespread harm. Global economic crises could well be recurring.

It all depends on how events develop over the next decade, according to a new report, Global Trends 2030, prepared by the National Intelligence Council, comprising the 17 U.S. government intelligence agencies.

"We are at a critical juncture in human history, which could lead to widely contrasting futures," writes Christopher Kojm, the NIC chairman, in his introduction to the report.
The World In 2030: Asia Rises, The West Declines (NPR)
U.S. intelligence sees Asia's global power rising by 2030 (Reuters)

Jeremy Grantham adds his two cents:
Grantham believes the world has undergone a permanent "paradigm shift" in which the number of people on Earth has finally and permanently outstripped the planet's ability to support us.

The phenomenon of ever-more humans using a finite supply of natural resources cannot continue forever, Grantham says--and the prices of metals, hydrocarbons (oil), and food are now beginning to reflect that.

Grantham believes that the planet can only sustainably support about 1.5 billion humans, versus the 7 billion on Earth right now (heading to 10-12 billion). For all of history except the last 200 years, the human population has been controlled via the limits of the food supply. Grantham thinks that, eventually, the same force will come into play again.
Grantham: We're Headed For A Disaster of Biblical Proportions (Business Insider) See also:

Is America on the road to zero growth? (Fabius Maximus)

And Robert Gordon, who we've covered before, points out that the great wave of innovation can only happen once:
The profound boost that these innovations gave to economic growth would be difficult to repeat. Only once could transport speed be increased from the horse (6 miles per hour) to the Boeing 707 (550 mph). Only once could outhouses be replaced by running water and indoor plumbing. Only once could indoor temperatures, thanks to central heating and air conditioning, be converted from cold in winter and hot in summer to a uniform year-round climate of 68 to 72 degrees Fahrenheit.

As the impact of the late-19th-century inventions faded away around 1970, the computer revolution took over and allowed the economy to remain on our historic path of 2% annual growth. Computers replaced human labor and thus contributed to productivity, but the bulk of these benefits came early in the Electronics Era. In the 1960s, mainframe computers churned out bank statements and telephone bills, reducing clerical labor. In the 1970s, memory typewriters replaced repetitive retyping by armies of legal clerks. In the 1980s, PCs with word-wrap were introduced, as were ATMs that replaced bank tellers and bar-code scanning that replaced retail workers.

The climax was the marriage of communications to the computer as the Internet arose in the 1990s. Amazon.com was founded in 1994, Google in 1998 and Wikipedia in 2001. Since 2002, though, most computer-related inventions have resulted not in fundamental transformation but in miniaturization, as with hand-held devices like the iPhone, which combines the pre-2002 functions of laptops and early cellphones.
After demolishing the so-called techno solutions (biotech, fracking, 3D printing, driverless cars),  he concludes:
In setting out the case for pessimism, I have been accused by some of a failure of imagination. New inventions always introduce new modes of growth, and history provides many examples of doubters who questioned future benefits. But I am not forecasting an end to innovation, just a decline in the usefulness of future inventions in comparison with the great inventions of the past.

Even if we assume that innovation produces a cornucopia of wonders beyond my expectations, the economy still faces formidable headwinds. The retirement of the baby boomers and the continuing exodus of prime-age males from the labor force, sometimes called the "missing fifth," are reducing hours worked per member of the population. American educational attainment continues to slide ever-downward in the international league tables, due to cost inflation at our universities, $1 trillion in student loans, abysmal test scores and large numbers of high-school dropouts.

And inequality in America will continue to grow, driven by poor educational outcomes at the bottom and the rewards of globalization at the top, as American CEOs reap the benefits of multinational sales to emerging markets. From 1993 to 2008, income growth among the bottom 99% of earners was 0.5 points slower than the economy's overall growth rate. If future output grows, as I expect, at a rate of just 1% a year, that means the overwhelming majority of Americans will see their incomes grow just 0.5% annually.

The future of American economic growth is dismal, and policy solutions are elusive. Skeptics need to come up with a better rebuttal. 
Why Innovation Won't Save Us (Wall Street Journal)

UPDATE: On the innovations front, Charles Hugh Smith is saying much the same thing as Robert Gordon:
"The usual suspects" for the next engine of growth include nanotechnology, biotechnology, unconventional energy and Digital Fabrication, i.e. 3-D printing and desktop foundries. But are any of these capable of not just replacing jobs and revenues in existing industries, but creating more jobs and expanding revenues and profits?

The Status Quo dares not even entertain this question because the only way to service the fast-rising mountain of debt that is sustaining the Status Quo is to "grow our way out of debt," i.e. expand the real economy faster than debt.

The past 250 years has been one long "proof" that we can indeed "grow our way out of debt" because the low-hanging fruit of industrialization and cheap, abundant energy enabled wealth to be created at a faster pace than debt.

Clueless Keynesians mock those questioning the possibility that the low-hanging fruit has been plucked by noting that doomsdayers were actively decrying the ballooning debt of the British Empire in the mid-1700s. We all know how that story ended: what looked like crushingly massive debt in 1780 was reduced to a trivial sum by the rapid expansion of industrialization.

But suppose the end of cheap, abundant energy (replaced by abundant, costly energy) and the Internet spells the end of centralized models of growth? What if all the innovation currently bubbling away only produces marginal returns?

Take biotechnology for example. Those with little actual knowledge of biotech are quick to latch onto the potential for genetic engineered medications, biofuels, etc. What they don't ask is if these technologies can scale up while costs decline, i.e. the computer technology model where everything progressively gets cheaper and more powerful.

Healthcare spending is clearly in terminal marginal return: our collective health continues to decline in key metrics even as spending doubles, triples and quadruples. The same can be said of defense, education and many other industries.

Sectors such as agriculture have already seen employment decline by 98% even as production rose; there are still improvements in agriculture (robotic milking machine, for example) but the low-hanging fruit in agriculture as well as in medicine, education, etc. have all been picked.

The next wave of innovation will destroy protected profit centers and employment; even the Armed Forces are not immune, as the "ships of the future" will have relatively small crews and robotic drones will replace high-cost, high-employment weapons systems.

The semi-magical belief that technological innovation will create wealth in such quantities that all other problems become solvable may well be false. We may have entered an era of marginal returns, where innovations destroy jobs, wealth, assets and debt--the very foundations of "growth."



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