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.”