OromianEconomist

Mass Human Labor is No Longer Needed. Where Do We Go From Here? July 1, 2017

In an admittedly non-conventional manner, we view the global economy via two interconnected lenses. The first lens is a combination of two practical foundations of economics: (a) based on observations made by economists Colin Clark and Jean Fourastié in the 1940s that technology has persistently replaced the need for human labor throughout increasingly widening sectors of the economy (see chart below). We can now observe that the services sector, now comprising over 72% of the economy has reached a tipping point where technology is increasingly replacing the need for human labor to the extent that increasingly wider sections of the population no longer seem to possess assets to contribute to the production of economic activity.

And (b) In 1979, the world’s economic systems discontinued using gold as a method of creating and valuing currency, and thus, ended the process of what is called ‘fractional reserve banking’ (where banks are able to lend more than they have on deposit). Fractional reserve banking was replaced by fiat currency, where local commercial banks create new currency when real estate loans are created.

From the convergence of these two practical foundations of economics—technology replacing mass labor and fiat currency created from real estate lending—we can now observe that the conventional metrics used by political institutions and banking systems the world over in determining the relationship between commercial real estate and residential real estate are no longer viable. Banking systems have self-evolved to move away from market lending to creating financial instruments that are traded exclusively between the banks themselves (this is referred to as the ‘shadow banking system’).

Government institutions, however, have not evolved… and thus have essentially become irrelevant in terms of managing affairs of economics.

The second lens with which Wealth Beyond Nations views the global economy is a moral and philosophical view of how and why individuals and groups interact with each other. Prior to Adam Smith’s Wealth of Nations in 1776, the benefits of economic activity were in the main enjoyed by elites (the aristocracies, monarchs, and churches, which were all prone to violent upheavals). Smith’s blueprint provided a process by which the masses could both contribute and benefit from participating in what he referred to as ‘a commercial society’, and it was this commercial society which self-maintained social order.

But in modern circumstances where economic production no longer needs the masses to contribute to production, how can the masses expect to participate in such a commercial society?

But even deeper, we observe that societies across the world are constructed upon a foundation of consuming material things that merely contribute to their sense of self-aggrandizement (and most often, not to their overall well-being). John Kenneth Galbraith’s seminal work in 1958, The Affluent Society, already observed that this foundation was simply unsustainable.

Consequently, if it is true and accurate to restate the central problem underpinning the global economies as being: contributions to economic production by the human masses is no longer the glue that holds societies together, as well as the observation that almost everyone on the planet is operating from outdated knowledge of how economic markets operate… then, and only then, can we begin to grasp the severity of the real problem. Then, and only then, can we begin to grapple with exploring real solutions to the real problem. Click here to read more..