The Great Stagnation

by Tyler Cowen (Dutton 2011 – ISBN 978-0-525-95271-8)

This is an interesting little book. It is tightly written and well argued, which serve to make it a very easy read. In fact, I managed the whole book on one return train ride to London.

There are a number of ideas that are worth exploring within the book, but the core message is that technology has driven economic growth since the late Eighteenth Century, and that the pace of innovation has fallen to the point where the pace of growth is slowing as well. What does that mean? Well, first and foremost, it means that the singularity is not near. This is a position that I have agreed with for a few years now.

In part, the author ascribes this to knowledge passing from being a public good to becoming a private good. This is fortunate for the few lucky owners who possess that knowledge - they do well in the 'winner takes all' economy that it creates. However, for the rest of us - for whom we call the 99% nowadays - it is not so fortunate. Our ability to consume at the levels to which we are accustomed has been maintained not by growth, but by debt in recent decades. However, the lack of productivity growth has undermined our ability to repay the debt we have taken out.

This is an important message for governments. Debt reduction and austerity plans presume that we shall be able to return to previously attained growth levels. What happens if we can't? I guess that means we are due for a very long period of stagnation. And this is the important message coming from the book. We are heading towards a new normal, and a return to business as usual is no longer an option. This is what policy makers are not yet getting.

I would strongly recommend this book. It is an antidote to the blind optimism we find in technology nowadays. It explains why a policy of austerity will only make things worse. And it serves as a warning that we are unable to continue as if the financial crisis did not happen. We have reached the point where the bills have to be paid.

© The European Futures Observatory 2012

The Caring Community

One aspect of sustainability that is often overlooked is the need to operate a fair and just society. The definition of what is fair varies between communities and changes over time. However, it is usually the case that an equitable solution should be reached as a pre-requisite for a well balanced society.

A key measure of equity in society is how its vulnerable members are treated. Traditionally, the focus has been upon the education of the young, the social care of the old, and the healthcare of society as a whole. We are living at a time when these definitions are blurring and the traditional compartments for social care no longer work as well.

For example, to serve the needs of a knowledge economy, there has to be provision for life-long learning well beyond the traditional school leaving age. Alternatively, as our society ages, the link between chronological age and dependency age is weakening. In the field of healthcare, we are all becoming more demanding of services as our expectations rise. As we move into the next two decades, technology has the promise of upsetting the traditional relationships even further.

The direction of technology is to allow our devices to become smaller, faster, more connected, and cheaper to run. This has the potential to revolutionise the way in which care is delivered in a very short timeframe. So far, it has given rise to more distributed forms of care delivery, a trend that has a great deal of momentum as we move out to 2030. By this time, it is entirely possible that a good part of education, eldercare, and healthcare are delivered in the home. If this comes to pass, then it raises questions about our current investment in centralised delivery services.

Another area in which technology could impact upon the caring community in the next two decades is through the advances in bio-technology and pharmaceuticals. The current direction of bio-tech is to retard the ageing process and to augment our natural abilities, both through the mechanical augmentation of our body organs and through the pharmaceutical enhancement of our mental capabilities. Both of these developments have the potential to significantly alter the care paradigm.

We are at a point where the boundaries of public and private provision are changing, where the private sector has a greater role to play in activities formerly undertaken by the public sector. It is uncertain as to how far will the pendulum move in that direction. It really depends upon what the future needs base looks like. Technology could assist or impede this process. What we can say with some certainty is that there is a very real chance that the caring community in 2030 will be radically different from how it is today.

© The European Futures Observatory 2012

So Far, So Good …

There was a palpable sigh of relief this weekend. We have managed to navigate the first quarter of the year without a globe stopping event occurring. There have been one or two hairy moments, but Greece has managed to secure a second bailout; large tranches of debt have been retired by Spain, Italy, and Greece; and we have managed to avoid hitting any of the speed-bumps that we feared at the start of the year.

Indeed, the prospect now looks, if not exactly rosy, then much better than it did in January. There are glimmers of recovery in the US. True, as yet it is a jobless recovery, as some of the higher levels of activity are soaked into output gap, but without a doubt economic activity is picking up in America. The Chinese property market does not look as volatile as it did at Christmas and the transition from the old guard to the new guard seems to be going reasonably well. Even in Europe things are not looking as bad as previously feared. Whilst still likely to be touched by recession, the expected recession in Europe is not thought to be as bad as previously forecast. In the UK, with inflation coming down, those people with work are finding that their living standards are gradually improving.

We are now moving into a phase where, as the threat of economic catastrophe recedes, we have time to worry about the more usual matters of geo-politics. Top of the list has to be Iran. It would appear that the US has no real appetite for military action against Iran, but is concerned about the prospect of military action undertaken by Israel. Underpinning this is a window of opportunity for military action that is starting to close. Israel is attempting to keep this window open by leasing airbases in Azerbaijan, which could prolong the period of uncertainty. Either way, the prospect of disruption to global energy markets caused by intervention in Iran has propelled the price of oil into the $125 a barrel region. This will have an effect on the world economy later in the year.

Although our focus is dominated by one geo-political hotspot – the Caspian Basin – another - the South China Sea - is quietly starting to come to the boil. The South China Sea is full of little rocky islets, whose ownership is disputed by a number of countries, including China. They occupy key sea lanes in the trade between East Asia and the Middle East, Europe, and Africa; they contain key oil and gas reserves; and they contain a number of important fisheries. China claims sovereignty to all of the South China Sea and is developing the naval capacity to back its claim. The US is pledged to guarantee the claims of a number of key nations – particularly Taiwan and the Philippines. With the change in stance of US security policy towards Asia (read: the containment of China), the stage is set for a number of de-stabilising showdowns in coming years.

What could bring things to a head is a change of government in both China and the US this year. It is by no means certain that the policy of ‘business as usual’ will apply in the second half of the year. However, before that there are two potentially difficult elections scheduled. Sometime in the next quarter the people of Greece will go to the polls. This will be the first opportunity they will have had to voice an opinion over the two bailouts that have been negotiated on their behalf. It is quite possible that a popular vote to reject the policy of austerity (and thus the terms of the two bailouts) will carry the day. If that happens, then a ‘risk on’ moment is likely to be triggered in financial markets.

The second difficult election is the presidential election in France. If Mr Sarkozy loses, as the polls currently suggests, the we all ought to be worried about the impact that a newly appointed Socialist President might have. The policy of soaking the rich, doling out borrowed money to client groups, along with reversing the limited reforms achieved in recent years is bound to spook the bond markets. A run on French banks, as depositors seek a safer haven such as German banks, is the likely and unwelcome crisis that could face the incoming President. If it does, then the global financial markets could face a period of turbulence.

Despite looking good at the moment, we haven’t quite come out of the woods yet. It could be that we are currently in a lull before a renewed storm. Equally, it could be that the worst is behind us and that a slow recovery takes hold this year. It is too early to determine which path we are currently following. All we can do is just watch and wait.

© The European Futures Observatory 2012