One of the new, and more amusing, fears about the modern economy is that productivity gains in robotics and other technological marvels will make humans obsolete and the structural level of unemployment is headed higher. My fine friends at MarketMinder recently put out a nice piece on the subject:
By Fisher Investments Editorial Staff, 02/01/2012
As unemployment numbers have remained (predictably, as we’ve said) elevated in the recession’s wake, some have sought scapegoats. Seemingly popular is some version of “it’s technology’s fault,” which goes something like: Because of improved technology in [fill-in-the-blank] field, fewer workers are necessary to produce the same output, thereby displacing workers and actually contributing to an unemployment dilemma.” The other common strain is to blame cheap, foreign labor that can perform similar tasks to US laborers for significantly lower wages.
Both views, though, express a similar basic fear of societal progress and ignore the widespread benefits such progress redounds on all Americans regardless of income or profession. After all, consider just a few short years ago, only the very wealthy could afford computers at all, let alone tablets, smart phones, etc. with Internet connections. Now, they’re ubiquitous. Over time, productivity is a powerful force pushing prices down.
In our view, there’s little to fear from American manufacturing (and other industries) becoming increasingly productive over time. Making technology more broadly available at cheaper prices benefits not only Americans but the world. Hardly seems something to bemoan—rather, something to cheer amid continuing efforts to fight the scourge of global poverty.
Many of the most potent economic ideas, particularly the ones that last, have morphed into a kind of disposition, a way of seeing the world, almost a style of economic consciousness. Keynesianism is a way of seeing the world, as is the Austrian way, the Adam Smith way, Malthus, Marx, the Friedman Monetarist way, and so on. They’re not fads; they constellate in and out of favor, and in and out of the public discourse and consciousness, over time. It’s almost as if economic ideas have morphed to the level of archetype—natural dispositions of the economic psyche. Understanding economic ideas in this way can help investors become less ideological and set on one set of ideas, but rather realize they are all part of a continuum of thinking on the subject.
This story is a microcosm of a growing chorus of boos and hisses about this rule globally. Whatever you think of the morality or potential buttressing of the financial system the Volker Rule would provide, the simple reality is that we live in a global world and a rule like this needs near universal uptake. Without it, all you do is create a competitive disadvantage for the country with the new, onerous, rules.
As this blog has maintained for some time, the eurozone has been engaged in a long, steady process of kicking the can down the road. Why’s that good and appropriate? One, it gives institutions like the ECB time to come up with stuff like the Long Term Refinancing Option (LTRO), which was a powerfully positive mechanism for the feared insolvent European banks, and for sovereign debt markets by extension. Also, this process is almost wholly political, which means it takes a lot of time to work out solutions between so many nations; so, more time is a significant factor—you’re not going to get a new treaty in 30 days. Very importantly, it allows capital markets to adjust and price in expected outcomes without inciting panic—the importance of this can scarcely be overstated. Lastly, to the extent some of these sovereign and banking ills are simply not solvable long-term without true restructuring (fairly likely in some form or another), it’s good to kick the can down the road to a day the Eurozone is stronger than it is now and can sustain the impact.
My boss Ken Fisher has been a pioneer in a lot of things: behavioral finance, the investment advisory business, to name a few of the biggies. To me, his newest book is especially important: Markets Never Forget (But People Do): How Your Memory Is Costing You Money-and Why This Time Isn’t Different (Wiley, November 2011).
So much of the work in psychology and economics/investing talk about the mistakes people commonly make in abstract terms or with lab experiments. But Ken Fisher’s book does something different: it takes many important lessons about how our minds fail (particularly our memories), and puts them in the context of market history. In particular Ken Fisher focuses on how short our memories are, collectively—how so many things we think are unprecedented actually have ample and clear precedence in our past, we just fail to remember. Psychologists call it “myopia”, “biases”, “aversions”, and many sorts of other official-sounding technical definitions.
Forget the technical terms and focus on the reality. This is a key reason to study market history carefully—it prevents you from forming false idols and notions about things that didn’t really happen the way we (you, me) remember them. Ken Fisher’s book reminds us it’s not that we simply forget (we do), it’s that we misremember routinely—brains tend to remember details based on emotion, not rationality.
Here’s a bit from a recent interview with Ken Fisher on history and market forecasting:
Ken Fisher: History doesn’t repeat, not exactly. And the past cannot predict the future, but it is one good tool in determining if something is reasonable to expect. Investing is a probabilities game, not a certainties game. Nothing is certain in investing—all you can do is determine what a range of reasonable probabilities are.
In the same way, it’s not a possibilities game. It’s possible the world gets hit by an asteroid and destroys life as we know it, but the far greater probability is no such terrible thing happens.
You can’t develop a portfolio strategy around endless possibilities. You wouldn’t even get out of bed if you considered everything that could possibly happen. Instead, as I show in the book, you can use history as one tool for shaping reasonable probabilities. Then, you look at the world of economic, sentiment and political drivers to determine what’s most likely to happen—while always knowing you can be and will be wrong a lot.
For more information on Ken Fisher’s latest book, visit Wiley’s website.
Below is a chart most folks will probably find unfathomable in today’s “China will one day own us all…if it doesn’t already” climate.
Source: US Census Bureau.
Mark Mills and Julio Ottino’s Op-Ed in the WSJ on Monday, Jan 30, “The Coming Tech-led Boom,” is a must-read for anyone needing a good dose of optimism to combat persistent media hypochondri-nomics.
A couple teaser paragraphs:
First, demographics. By 2020, America will be younger than both China and the euro zone, if the latter still exists. Youth brings more than a base of workers and taxpayers; it brings the ineluctable energy that propels everything. Amplified and leavened by the experience of their elders, youth and economic scale (the U.S. is still the world’s largest economy) are not to be underestimated, especially in the context of the other two great forces: our culture and educational system.
The American culture is particularly suited to times of tumult and challenge. Culture cannot be changed or copied overnight; it is a feature of a people that has, to use a physics term, high inertia. Ours is distinguished by incontrovertibly powerful features, namely open-mindedness, risk-taking, hard work, playfulness, and, critical for nascent new ideas, a healthy dose of anti-establishment thinking. Where else could an Apple or a Steve Jobs have emerged?