An age of discontent.
Change is happening faster than human society can adjust. Discontent, disorder and alienation are the result.
That long-revered adage that money can’t buy happiness turns
out to be wrong. Actually, it can and does. Conversely, poverty buys
unhappiness.
There’s a clear correlation between a nation’s wealth and
the relative life satisfaction reported by its people. Right at the bottom is
Afghanistan: a desperately poor nation made much worse (and much poorer) by its
oppressive Taliban government. For India, the US and Australia, life
satisfaction closely follows the wealth scale: rich is better than poor after
all. But there are outliers too: Finland is not the richest but certainly the
happiest; but Singapore and Ireland, with very high per-capita GDP, fail to
translate that advantage into a correspondingly good lifestyle for their
peoples.
When we stand back a bit, we can see that, over time, many
people in rich countries are becoming less satisfied with their lives.
But those are average national figures. In reality, there’s
no such thing as an average person. We can get a somewhat better understanding
of what’s driving national mood by looking at how evenly – or unevenly – the
wealth of the nation is being distributed. The answer is not reassuring. The
most egregious example is the world’s richest person, Elon Musk. When his
Space-X company was at its peak, he was the first dollar trillionaire: one man
owned as much as the bottom 50% of the American population (175 million people).
He has slipped a bit since then and at the time of writing owns only $US911.2
billion. That’s equal to the bottom 47%.
The US is one of the most unequal nations of all, with the
bottom 50% owning less than 2% of total personal wealth. Globally, the bottom 50%
own 4%.
If wealth was still distributed as it was at the end of the
second world war, all Americans would be doing very well – and far better than
people in Britain. That’s even more true since the pandemic, when wealth sagged
in Britain but shot up in the US.
But that’s the average. As we have seen, the problem is – as
always – distribution. In the US, the top 0.1% own
two-and-a-half times as much as the bottom 50%. In the postwar welfare-state
era of Keynesian economic management, there was a strong decline in the wealth
share of the richest 1%. It became a fairer, more equal society. But then, with
the Reaganite neoliberal period began in around 1980, all that changed.
Britain, in contrast, has become somewhat more equal since
the war but, again, 1980 was a turning point. This was the Thatcher period. The
share going to the very top stopped its decline and the trend to greater
fairness ended and has never returned.
But that’s the past. The world that has existed for the past
80 years, generally fairly peaceful and increasingly prosperous, is over. The
next industrial revolution is already under way and the world – specifically,
the world of work – will change forever.
When the computers take over, how happy
will we be?
Artificial intelligence is not about to take all jobs and
end all work. The “job apocalypse” won’t happen that way. But it may still feel
like an apocalypse if you’re the meat in the AI grinder.
In economic revolutions of the past, technological
disruption has created as many jobs as it has destroyed. In the Industrial
Revolution which began in the late 18th century, machines replaced
muscles as the driving force of production. Farm workers were displaced and
moved to new industrial cities. Overall, that meant an increase in employment
and a vast increase in wealth, but at the cost of massive social disruption.
Artificial intelligence is already destroying jobs, and
although new areas of employment are opening up, those new jobs are unlikely to
be of much use to those being thrown out of work. That’s that pattern of the
past that’s on fast repeat right now.
Technology, he says, is likely to result in major job
losses, but the big crunch won’t happen for another five years or so. In the
meantime, routine white-collar tasks are under threat.
“These exposed occupations include customer service
representatives of back-office work. In the US, these workers number roughly 8
to 9 million, which is not a small number but accounts for only roughly 5% of
the workforce.”
Worse, he expects will come if employers continue to use AI
to replace jobs, rather than to augment them.
“The complementary path – whereby AI technology complements
rather than replaces human labour – could be quite productive. But such a path
requires different investments. And those investments are not happening on a
sufficient scale …
“Should things continue as they are, I would expect bigger
job losses within the next 10 to 15 years.”
In the US, a 5% decline in employment would, as Acemoglu
says, throw 8 to 9 million people out of work. In Britain the figure would be
around 2 million and, in Australia, around 750,000.
It would also throw the world into semi-permanent recession.
Unemployment in the US would rise from 4.1% to 9.1%, in Britain from 4.9% to
9.9% and in Australia from 4.5% to 9.5%. Those are levels of joblessness that
were last seen at the peak of the Great Recession in 2009.
When people lose their jobs, not only they are affected.
First, of course, are their families and those who rely directly on them. All
those people have much less money to spend, so if the numbers are big enough,
aggregate demand tanks throughout the economy. When that occurs, the other side
of the economic ledger – supply – must fall as well. It can quickly turn into a
vicious cycle in which a new equilibrium between demand and supply is only
reached at a much lower level. That’s what happened in the Great Depression of
the 1930s, and it’s largely why the world spent so long in recession during the
Global Financial Crisis.
It's already beginning
The world is still living with the economic fallout from the
GFC (2007-2012) and the pandemic (2019-2022). Each of those crises crushed
economic output and destroyed jobs. And each required huge financial stimulus:
bailouts for irresponsible banks that were too big to fail, rescue packages to
keep companies in business and welfare for people who could no longer earn a
living.
In attempting to reflate economies through interest rates
(rather than government spending) central banks initiated a new and unorthodox
monetary policy called
“quantitative easing”. They created huge amounts of new money which they used
to buy government debt from commercial banks and other financial institutions.
This money – Australia’s Reserve Bank alone increased the money supply by some
$450 billion – went into commercial banks’ accounts with the Reserve Bank. And
there much – too much – remained, unspent.
The idea had been that banks would be able to make
low-interest loans (ruling rates were then around zero) to businesses wanting
to invest and employ. The problem was that not enough businesses were in a
position to use that money and so there it sat. As Keynes said of a previous
episode, it was like pushing on a piece of string.
But that money was still out there and, as time went on,
boosted demand just as the economy was recovering under its own steam. The
inevitable result was inflation: too much money chasing too few goods.
Quantitative easing turned out to be one of the great
disappointments of our time. There is little evidence that it had any material
effect on economic output; rather, its effects were in the opposite direction:
boosting inflation, which led to central banks raising interest rates to reduce
demand and stop people buying so much stuff.
The record is not reassuring, though the evidence is as
usual cloudy. The British economist Robert Skidelsky (best known as Keynes’s
biographer) put it this way in his 2018 book Money and Government:
Against this background of official missteps was the impact
of successive wars (in the Middle East and eastern Europe) and their effect on
the oil price which, in turn, had a dismal consequence for inflation, economic
output and confidence. Soaring oil prices during Bush’s war-of-choice in Iraq
had no apparent beneficial effect even on the stubbornly-low inflation rate of
the time. That was not the case with Putin’s war-of-choice in Ukraine, though prices
fell again as traders throughout the globe found work-arounds. Trump’s current
adventure against Iran is again boosting oil price, though not yet to the peaks
of levels seen in previous conflicts.