A WEEK IN ECONOMICS (28/01/14 – 03/02/14) A BRAVE NEW WORLD

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Week-in-Economics

The industrial revolution commenced a radical overhaul of how man has worked since it realised that the only way to survive was to gorge off nature. Artisans worked with primitive tools that evolved incrementally. Work was usually undertaken individually, and the profits of any endeavour would go to one person or shared between very few. Cometh the 18th century, and things changed dramatically.  Machines were invented that could undertake the work of multiple labourers; energy sources such as coal were found that could power the machines to undertake the work of multiple labourers. Combustible engines allowed man to travel distances that used to take months in a single day; electricity gave us light to work, and energy to power; telecommunications enabled us to speak to uncle bob living in Australia while living in the UK.

In human history, the 18th century onwards represents the dynamism of human achievement. Over three centuries, up to the present day, technological invention and innovation has grown at an exponential rate. When once upon a time the world was unknown and inexplicable, man began to understand the mechanics of nature and manipulated it for their own benefits.

The result has been increased growth and economic progress. According to Brad DeLong, Global World Product has shot up from $99 billion at the beginning of the 18thCentury to $45,730 billion as of 2012, with exponential growth occurring in the 20thcentury.  Human society and culture has had to adapt to this change quickly. Traditional societies began to be overrun by capitalist enterprise, steamrolling old methods of working, replacing it with new, more efficient, more productive ways of exploiting the world’s resources to produce goods. Not only this, there are a variety of goods available from the rudimentary to the complex catering to the needs of the individual.

High GDP growth is the goal for every nation state. To achieve GDP growth, the key is to be efficient and productive. Humans have limitations but machines can be programmed in a manner that allows quick and productive output. Machines are constantly evolving. In fact, machines are making machines. Cars are created by the bionic hands of clunks of metal. Cars themselves could one day be driverless, which could mean that one day machines making those cars would be operated without the worker. One could probably programme a computer to start a process of building a car, have the algorithms in place to ensure each bionic hand work according to the manner needed to build a car. In the movie Minority Report, the actors fight in a factory where the building of cars is automated. It might be a movie but it is not out of the realms of possibility.

In the replacement of human labour for machines, a few concerns arise. For one thing, as raised in the recent Davos conference, unemployment could increase. Previously, human adaptability has meant that when innovation derogated responsibility away from them, humans have found new ways of finding employment, typically in the services industry. However, it is predicted that even sectors in the services industry, such as law and accountancy, will be mechanised. In which case, where does the human turn?

Perhaps this is a good thing. Economists felt that there will be a time when man will work only a few hours a day, and the rest of the time will be dedicated to leisure. But this assumes that profits will be effectively distributed. A completely mechanised economy could mean that money is channelled to the individual at top (you will still need management) and not distributed.

However, more unemployment would mean less disposable income meaning that people would not be able to pay for goods in the first place. What is more likely is that a higher tax will be placed on the company, and the money distributed amongst citizens. This creates a larger welfare state, but then with no work, and the need to constantly increase GDP, it is better to ensure that citizens can buy and sell goods through distributing tax funds. In this regard, ‘free’ money would allow the machine to run itself.

A mechanical world, however, has a second consequence, the effects of which are not easily foreseeable. Technological advancements means that health problems can be cured, no work means more time for leisure. But what we are seeing in the world today is a gradual sense of isolation and loneliness.  Opportunities to socialise have improved with social media and the internet allowing people to explore, but an esoteric lacuna is growing. Increasing rates of depression and suicide suggest things are not as bright as we would like to think. Certainly, this is a minority and we should not paint a broad brush. Yet the seeds of concern are very present. With increased mechanisation, the result is likely to be feelings of dissonance and separation because individuals will no longer be valued by their work..

What this means for the economy is uncertain.  But if we produce machines to be like us, the likelihood is that we will become like machines. In that sense, while we will be able to resolve the productivity conundrum, the spiritual conundrum may become a greater concern. This might be fear-mongering, but it is not out of the realms of possibility.

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