ARE WE HEADING TOWARDS ANOTHER RECESSION?

Technically, the indicator of a recession is two or more consecutive quarters of negative economic growth as measured by GDP. But, let us take a deeper look into what leads to a recession, in accordance with causes that ransacked the world economy, and basically US economy in 2008.

“Richest 1% own half of the world’s wealth”, goes a recent headline of The Guardian, in congruence to a report by Credit Suisse, a Swiss Financial Services Company. At the other end of the spectrum, people who account for 70% of the world’s working population, account for only 2.7% of global wealth. Going further into statistics, the world’s richest 500 saw their wealth increase by $1 trillion in the last year, while incomes of maximum of the lower class people remained stagnant(in compatibility with the rate of inflation). Global inequality today has hit a 100 year high and billions of poor people could not realize the growth that is taking place in the world economy since decades.

How will these disparities affect the economy in future? Most of the economists believe the fact that Income Inequality has a negative long term effect on economic growth. Broadly speaking, Income Inequality diminishes education opportunities for the poorer and this trend keeps on widening itself from one generation to the following. And these are the people who remain unskilled, and reduce an economy’s human capital, which is indeed a bad sign for the economy and the world as a whole. Adding fuel to the fire, it lowers specialization among workers and haunts even their health based productivity and growth.

In a more economic explanation, Income Inequality causes financial instability in the economy. It propels leverage (level of bank loans) , by encouraging costumers and firms to take excess risks and subsidizing mortgage markets. We will discuss about subprime and frenzied lending later in this article. For now, let us take it for granted that newer technologies propel more and more inequalities by eliminating the technically unskilled workers and empowering the sound ones.

I am not blaming the emergence of newer technologies, but the system that has always caused destruction in the economy whenever newer technologies came into their existence. I strongly condemn our social and academical structure, which does not give equal conditions to all its inhabitants and creates an adverse atmosphere non-conducive to new technologies.

Let us talk about jobs now. With the advent of Artificial Intelligence, it is no wonder that in the next 10 years, most of the jobs, that were restricted to humans, will be replaced by robots.

Self- driving vehicles eliminates bus, taxi and truck drivers. High resistance industrial robots eliminate assembly line and factory workers. Automated call receptions and computers have already started eliminating phone operators, telemarkets and receptionists. Right from stock traders, doctors, postal workers, soldiers and guards to chefs, cooks and even bartenders; human jobs will be quickly replaced by economic and efficient robots. I would suggest you to watch a video, showing the functioning of Amazon Go, a store with virtually no employees, where you just walk in, get what you want and walk out.

https://youtu.be/NrmMk1Myrxc

A very large section of CEO’s and businessmen believe that robots are no threat to jobs and nothing to be worried about. A report says, “AI will just displace workers, increasing productivity for some work and having no impact on the other. People will start using AI to improve their own productivity ,thereby creating a revolution in the way they work.”

But based on past experiences and a more realistic view of surveys and studies, each additional robot is determined to reduce employment by 5.6 workers. In the US itself , 14 million people working in restaurants, 8 million retail salesperson and cashiers , and one and a half million vehicle drivers are expected to be running out of jobs by 2030.

“What to do about mass unemployment? This is going to be a massive social challenge. There will be fewer and fewer jobs that a robot cannot do better. These are not things that I wish will happen. These are simply things that I think probably will happen.” ; says Elon Musk.

One of the most predictable outcomes of the aforesaid circumstances will be that most of the middle and lower class people will become unskilled and unemployable for a short term, or may be for an elongated short term this time, as compared to 2008. Clouds of dissatisfaction and misery will surround the world economy, paving the way for my next question.

How are politicians going to act in this scenario? And this is because economics can never function, staying aloof from politics. Let me tell you what happened before 2008. Due to short term havoc caused by discontentment among the people because of stagnant incomes, politicians tried to provide a short term relief by making them increase their consumption.

And this happened because of frenzied lending by the Federal Bank, trying to boost investment in the US economy. Rather than generating investment, the negligible interests attracted subprime borrowers, who took loans to buy cars, houses and had no worry about repaying the loans. Later, this became a main reason why banking system crashed and recession had occurred.

Let us hope that this does not happen again. Politicians and administration including the banking system must be prepared by now to cope with a similar situation. Rather than trying to stimulate the pressure of falling incomes and joblessness by trying to feed people with consumption; they should try to bring an equilibrium amidst falling real wages of people. I wish our systems do not get caught again in the vicious circle of inequality, joblessness and the AI juggernaut. Hope recession doesn’t hit us again.

Thank you for reading this guys! Clap to motivate and follow to get more of such stuff! ☺