Sunday, May 20, 2012

The Next President Will Be the Worst in a Century

It doesn't matter whether it is President Obama or Mitt Romney. It wouldn't have helped if it had been Ron Paul, Newt Gingrich, Rick Santorum, or anyone else that did run or might have run or could have run. The next four years will be the beginning of the dissolution of the Industrial Age civilization and no matter what the next President does, no matter if he has a friendly, unfriendly or split Congress, the next four years will not go well.

The problem is all that uninstalled productivity enhancing technology that I keep talking about. Over the next four years, a lot of it is going to get installed. It will stimulate the economy, create deflationary pressure and induce substantial technological unemployment. Because the initial result of productivity enhancing technology is to decrease jobs and increase profits, it will exacerbate the already significant tension between the classes. The '1%' will continue to get all the goodies.

The leadership, even with the cooperation of the Fed, will find itself in a no-win situation. If they do nothing, the rich get richer and the rest get unemployed. If they try to stimulate the economy they may decrease unemployment for a short time, but as soon as the enhanced profits seep into the Capex decision making process, unemployment and profits, will go up even faster than it was before the stimulus.

As I have discussed before, automation is deflationary. The Fed needs to do quantitative easing to counteract it. It leads to lower deficits, since the Treasury benefits from QE. However, it will appear that the Federal Debt will continue to rise, even though, after taking out 'interagency holdings' it may actually decrease. There will likely be increased rancor generated over this issue as well.

When I explain this to people they often ask, 'So what is the solution?' We are not accustomed to the answer,'There isn't one.' However, that is the answer this time. If we stimulate Information Age enterprise formation, we can ameliorate it. Essentially, people will quit their jobs before they are laid off. However, once the implementation of robotics and A.I. really get going, it is unrealistic to think that we can keep up in this manner. Also, there is an increasing lag between the time people are laid off from an Industrial Age job and the point at which they have been sufficiently trained to take on an Information Age career.

Of course, any amelioration through the stimulation of Information Age enterprise formation will first require that a proper diagnosis of the problem is made by our decision makers. It is very unlikely that even if the problem is properly diagnosed that it will, or even can, be communicated to the electorate in such a manner as to keep it from being tantamount to political suicide. It will seem that the government is creating rich people at the expense of the 'regular guy.'

The more likely outcome is that scapegoats will be found. They are likely to be 'the 1%', the Chinese, the Arabs, the Liberals or the Conservatives, Wall Street or anyone else that the media can fob off on a barely attentive electorate.

Of course, none of this will help the situation which will get worse and will get worse faster when and if they try to fix it. The next President will be perceived as incompetent, ineffectual and captive to whatever scapegoat that people are buying into.

Is there any way this doesn't happen? Only if we put such a strong penalty on productivity enhancing capital expenditures that corporations are only willing to make them outside the U.S. In that case, GDP will fall, the trade deficit will increase and unemployment, due to falling demand, will increase anyway. As I said, we can ameliorate the ill effects by enlightened monetary, fiscal, tax and economic policy, but we cannot make it go away.

This is just one of the four horsemen of the Industrial Age apocalypse. Continued cultural polarization and fragmentation along with the continued disintegration of Industrial Age corporatism and the infrastructures that served it will be emerging as problems that the next President can't handle. Over the next four years, the fourth horseman, the death of the Industrial Age metropolis, will emerge just enough so that the housing crisis will not improve. This will add to the sense that the next President is ineffectual.

Of course, Presidents are equally judged based upon their performance in International Affairs. While the 'war on terror' will continue to become less significant, China, while not exactly friendly, will not challenge the U.S. overtly and Russia and the U.S. will move toward more cordial relations. The Four Horsemen will make themselves felt on the global stage and thwart any efforts of the next President to craft foreign relations triumphs.

The Future 101, in its prediction of rising unemployment through 2016, is definitely forwarding a minority opinion. However, there are those who concur. Marshall Brain, for example, until recently, has been predicting more or less permanent 50% unemployment. Pundits here, here, and here generally concur. They do not predict it by 2016 and it will actually be into the next presidency when the peak of between 20% to 25% unemployment will become apparent and fears over 50% or higher unemployment will be quelled.

Still, during this four years, leaders and pundits sympathetic to the President's party will begin to properly diagnose the problem and begin to formulate an argument that the President is not at fault and the opposing party, through its truculence and unwillingness to compromise, are the real culprits. This rarely works and in the end, the President lives or dies upon the performance of the Economy. While the economy will grow nicely during the next presidency, like in the Carter years, it will not be perceived as positive to the majority of voters.

Is there a preferred outcome to the election? Historically, assuming a one year lag in cause and effect, the best results come from a Democratic President and a Republican Congress. That, however, is the result of the 1994 to 2000 Clinton years and may not have had anything to do with the political situation. To put it prosaically and succinctly, it is my conclusion that no matter what we do, we're screwed and the next President will almost surely get the blame.


  1. Great article! I've actually got a draft post dealing with some of the same subject matter (poorly titled: the second economy, military robotisation and the end of democracy).

    In addition to what you are saying, have you thought about what happens when robotisation of the military ramps up and the working class losses its monopoly on state violence while also losing their importance to the economy? I would think a reduction in human rights & democracy would follow, along with more Orwellian controls on the individual.

    Given political rights have a strong correlation to military power (all Greek men who manned the phalanx could vote, feudal times all who owned land and could afford to support a mounted knight had rights). Extrapolating military robotisation in combination with the growth of the second economy should lead to the reduction of democratic rights (which really only came to fruition following the mass-conscript armies of WWI).

  2. The seeds of a dystopian future are always present and there are always those who believe that they will overwhelm the more virtuous human impulses. H.G. Wells wrote a couple of utopian novels in the early 20th Century, "A Modern Utopia" (1905)and "Men Like Gods" (1923). Alduous Huxley (1931) countered with "A Brave New World" and George Orwell(1934) with "1984". In hindsight, we see that the utopian was too optimistic and the dsytopian was too pessimistic. That is not surprising since both represent the tails of a Gaussian like probability distribution.

    The volunteer Army of the U.S. is built primarily on Reserve forces supported by a relatively small professional army. Because of the liberal educational benefits, both during and after service, the Reserves has been an opportunity for people of any socio-economic background to receive the middle class enabling University education.

    The net result, however, is that the professional army is far from 'working class' and the Reservists are just passing through on their way to upward social mobility. The robotization of the armed forces, and I do agree with the 'your sons and daughters versus our machines' scenario, will have a primary effect of taking away one of the most important routes to upward mobility. We need to consider what will replace it.

    Since The Enlightenment, the genearl trend has been toward more democratic social institutions and greater freedoms and rights. I would agree that the mature societies of Western Europe and North America have reached a point where increasing controls are abridging freedoms. It is a millennial long history of entrenched governments adding regulations and proscriptions faster than they remove them. However, governments come and go; Western civilization continues. The Transformation will hit the reset button and freedoms and rights will again ascend.

    Thank you for your comment. I look forward to your continued contributions.

  3. Thanks for your reply, I guess I do 'feel' there will be more Orwellian controls on individuals (even if they are no where near as noticeable as in 1984), however the last few centuries data does support your argument for a continued increased in individual rights and freedoms.