We live in a world of paradoxes, said Joseph Davis, Vanguard global chief economist, who opened the Morningstar ETF conference in Chicago with a sobering address outlining the future. Currently, he said, there are three main paradoxes:
- low inflation but full employment,
- low growth but high valuations, and
- low volatility but high uncertainty.
“Many of my colleagues view these as isolated events, but they aren’t,” he said. “They are touchstones of a much larger force that will fundamentally change the lives of millions of people on this planet.”
He noted we aren’t in a period of stagnation, but one of technology disruption, and “more is headed this way,” he said. This will cause new paradoxes in the next three years. Lucky for human beings, they are very adaptable.
He believes economists need to pivot from using GDP as sole factor to determine economic growth and instead focus on productivity, progress and prosperity. He said many experts judge trends through monetary policy, demographic factors and globalization forces, but all of these are dwarfed by two other forces: human capital and technology.
“Man and machine trump all others, are closely intertwined and their interaction is changing,” he said. “I believe right now we are at an inflection point. Today we are in the midst of a structural change in the nature of work that will grandly impact the labor market not only for the United States, but for the global economy. How work changes for us in the years ahead will define the trends of our lifetime.”
He noted that today 80% to 90% of the world economy is at full employment, but we can’t be complacent as technology is moving faster and being smarter — and learning. This smart technology growth expands across the globe, which is exciting, he said, it also can be scary, as studies done by Oxford University and MIT have found that 47% of jobs in the U.S. today will be “automated away” by 2022. For India 69% of jobs will be lost to technology and for China 77%. He added that economists are equally divided over whether there will be more or fewer jobs in 10 years.
“So if this is our future, who cares who’s buying ETFs?” he joked. “I’m usually an optimist, but when I read studies like this I became increasingly pessimistic. But then the economist in me switched on, and I thought, 47% of jobs disappear in five or 10 years? We need to dig deeper.”
Which is what his team did, using U.S. Department of Labor statistics, and what they found was “jobs don’t get automated away, tasks do.” And they found there were certain flaws of university studies: They assumed technology only replaces, never enhances; and they assumed one job is made up of one task, but most have 20 tasks or more — “That’s where the phrase multitasking comes from.” Davis said that they found that there are more tasks today per job than ever before, and tasks within a job change over time.
“Work has always been an arms race between skills and technology,” he said.
In studying tasks, they found that the 18,000 work activities could be boiled down to 41 tasks. Then they defined three levels of tasks: basic, repetitive and advanced. Think of basic as physical, like harvesting wheat, but they aren’t always manual. During the late 1860s, 80% of all tasks were basic. That changed into the 1940s when 80% of all tasks were repetitive, such as manufacturing, scheduling and processing information, and gave rise to the middle class. Technology has automated these, he says, and today 50% of tasks are advanced tasks, which include maintaining relationships, training, developing teams, coaching, strategizing … basically thinking creatively and inspiring.
Human beings are uniquely skilled at doing these tasks, so they can’t really be automated away. Today, 70% of occupations require creative thinking. But the rate of technology adaption is much faster today: Think that it took 75 years for the telephone to reach 50 million users, while it took the Angry Birds app 35 days to reach the name number. The question is: Can we keep pace with technology change to keep our jobs?
Apparently, yes, as Davis said the future is bright for the human race, and predicts that 80% of jobs will be made up of advanced tasks in future. The keys for keeping jobs will include three important skills: creative intelligence, technology acumen and emotional intelligence.
But he predicts the relationship between human capital and technology will bring four new paradoxes in the next five years:
- more automation but labor shortages, largely brought on by an aging population;
- labor shortages, yet low inflation, although he does see a rise in wages;
- low inflation yet possibly higher (real) interest rates, because productivity may start to rise; and
- higher real rates, which will be good news for investors across all asset classes and long-term investments. The catch: short-term rocky markets, with more risk in the equity markets than the bond markets.
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