The biggest, and most ignored, trend in the U.S. economy is the ongoing divide between the wealthiest members of society and the average American worker.
Real wages are falling, while unemployment is stagnant. Politicians blame greed, but that's because class warfare is a valuable tool to gain power.
I argue instead that disruptive technologies have accelerated this divide.
Just recently, I noted that the U.S. wage-productivity gap has been driven heavily by the use of automation and technology in the U.S. economy, which is displacing workers at a faster pace than new jobs and job categories have been created.
Put a different way, robots are taking our jobs.
And the trend toward workplace automation is accelerating, with more and more jobs giving way to cheaper, more efficient technologies.
How bad will it get?
A recent Oxford University study estimates that up to 47% of all existing U.S. jobs could be automated within the next 20 years.
As troubling as this trend is for working Americans, they will be better served by preparing for it than complaining about it. Savvy investors will recognize that this trend opens the door for new ways to profit.
The fact is, if you invest in a handful of tech sectors that continue to grow and increase worker productivity, you can start building wealth now in case the inevitable happens to your job or to your chosen field at some point in the future.
Disruptive Technologies and the Rise of the 1%
Evidence of the impact of technology on jobs and wages can be traced back three decades, in which we have seen a massive distribution of income to the 1% compared to the median worker.
Many have argued it is simply the financialization of the U.S. economy that has contributed to this phenomenon. But that ignores the dramatic impact of disruptive technologies.
It's no coincidence that wage inequality accelerated in the 1990s during the dot-com boom as companies accelerated their global reach and incorporated new technologies to help them grow operations. The owners and the creators of technologies designed to increase and optimize commerce, communication, and scale have reaped the rewards - and how.
Just take a look at the chart to see how much more the top 1% and top 0.1% make in comparison to the bottom 90% of American households.
What This Trend Means for the U.S. Economy - And You
The idea of permanent unemployment due to technological advances died off in economic textbooks before World War II. But while economists acknowledge the opportunities disruptive technologies create, most have failed to recognize the temporary displacement of workers such technologies cause.
For example, the cell phone, despite its convenience and popularity, has been responsible for the displacement of hundreds of industries that are in the process of adapting their business model -and finding in many cases that workers are nonessential in this digital world.
Many leading economists have failed to address this ongoing trend. The only conclusion I have been able to make over the last few years is that it is typically ignored because:
1) It is impossible for them to put into models; and,
2) It sounds Marxist in nature, and no one wants to be tied to the bearded fellow.
The reality, however, is that this problem predated Marxist theory and was written about extensively by David Ricardo, the father of comparative advantage.
Technology makes things faster, cheaper, and more productive and creates new opportunities. But it also enables creative destruction, destroying the old to create something new.
It is that transition from old to new that we need to better manage in the U.S. economy. Lifelong training for workers will be essential as we attempt to develop new skills in workers whose specialization has been displaced by machines.
At the same time, disruptive technologies inevitably prove to be major profit opportunities. Whether your job falls victim to such a disruption or not, it's just plain smart strategy to capitalize on it.
I've covered how to do this in detail. Quite frankly, this strategy can make the difference between being rich and poor. To maximize returns from disruptive technologies, there are six questions every investor should ask.
- Money Morning:
The Best Way to Ignite the Economy
- Money Morning:
Four Reasons the Next Fed Chairman Will Fail
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.