Today is Election Day in America.
Americans will go to the poll and select more than just a new president. There are more than 30,000 other elections today, and all of them, in some way, have some influence on the direction that the United States will take.
For savvy and smart investors, it is worth reflecting on the challenges of the next four years.
The global economy is on the cusp of a momentous shift. Technological change means capital for labor substitution, robotics and artificial intelligence (AI), along with the established virtual economy are powerful forces.
This has been labeled the 4th Industrial Revolution. While all the media noise targets the technology, it’s really the way society changes that matters.
Where we work, how we work, where we consume and how we live .... all these change.
I think there are four serious political economic challenges ahead.
Prejudice is on the rise. This is partly a result of economic developments, but it is an unambiguous economic negative. Whether it is demonizing migrants, ordering lists of foreigners to be drawn up, restricting the rights of women or denying the LGBT (stands for lesbian, gay, bisexual, and transgender) community the same rights as anyone else, telling people that they are second-class citizens is economically destructive.
It is even more economically destructive in the future than it has been in the past, because maximizing the potential of human capital is increasingly important in the 4th Industrial Revolution.
The easy political option is to pander the prejudice. The right political option, morally and economically, is to tackle prejudice head-on.
Global trade is shifting. For the past quarter century, the world has seen longer and longer supply chains and outsourcing of production. This seems to be over.
- Capital for labor substitution means localization of production.
- Technology means we trade services rather than goods.
The way in which global trade has developed in the past is no longer how it develops in the future.
Politicians should not live in the past. Trade politics based on the idea that we pack barrels on the wooden sailing ship is out of date, and the brave new world needs to be recognized.
Jobs don’t disappear, jobs become different. The idea that there is only so much work to go around is the lump of labor fallacy. It’s been wrong for the past millennium; it will be wrong in the next 20 years.
But the jobs of the future will not be the jobs of the past. Workers need to be flexible. Trying to save obsolete jobs is a waste of time and ultimately it does more harm than good.
Politicians need to have the courage to tell workers that if a robot takes their job, they need to find something else to do and they should help them in that search process.
Finally, the advances of technology do not mean that we are about to embark on a deflationary spiral. Every industrial revolution, every single one, has been accompanied by high inflation and hyper-inflation somewhere.
Relative prices change with technology. Other factors drive general price changes.
This matters because the political criticism of central bank is mounting at a time of extreme quantitative policy. This is dangerous. Quantitative policy operated by central banks that are run by independent economists is generally safe. Quantitative policy run by politicians, always leads to disaster without fail.
Perhaps, long-term investors could do well taking all, or at least some of the above, into account when making investment decisions over the next years.
Now, if you haven't already - go vote.
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.
© 2023 Newsmax Finance. All rights reserved.