A Gloomy Welcome To The Future

Partly inspired by the book Rise of the Robots by Martin Ford and partly because of the recent discussion about a global basic income, I started to picture the future inside my head. The future of economies, money, businesses and employment. And they seem very dark, disturbing and mysterious for me.

Currently the technological development is extremely rapid. New technological innovations designed to make our lives easier and our economy more efficient are born almost every hour. The production of goods of services becomes more cheaper and efficient and we people have more spare time in our hands than ever before. Well, at least it should be. I know myself that staring my WhatsApp takes several hours from my day in total. But if I wouldn't do that, I would have lots of spare time in my hands even as I'm writing this.

Even though digitalization and robotization destroy some well-known jobs that we know, it also creates new jobs. Now when we don't need the guy in the production line to pull the handle 8 hours a day, he will be replaced with a repair man who takes care of the machine, cleans it and updates its software. Also more people are needed to invent, build and to design these machines. So in theory, technological development shouldn't increase unemployment significantly in our economy.

But consider this: With the current pace of technological development, we might end up in a situation where artificial intelligence, robotization and digitalization are in a point where jobs and employment aren't needed. The machines could be so advanced that they don't require any updates or maintenance and the machines themselves can create more machines without any human intervention. In a situation like this, no-one would have a job! Several science-fiction movies have already tackled this potential problem with different kinds of representations.

So where does the money go then? The wealth and revenue produced by the machines would go to the owners of the machines and investors. Other people would be unemployed and receive only unemployment benefits (if those). What would other people do? How would they get along? History suggests that probably without any intervention this would inevitably lead to a rebellion, war or a insurrection. This sounds very dangerous at least in my opinion. What if the machines go to war instead of the people who own them? The development of artificial intelligence should be considered partly because of this reason. The machines could seriously turn against us if things get too far. This is what also Elon Musk has been thinking in his latest tweets.

This is where the global basic income would introduce itself. Either governments or an independent fund could arrange a basic income of some sort that would create the flow of wealth from investors and owners of the machines to all the people in the world. This might sound something very idealistic, since usually those who have the wealth, aren't interested to share it with others who "haven't earned it". This could for example be done through transfer incomes and universal corporate taxation, but this would require agreement on global fiscal policies. Are nationalist countries ready for that? I don't think so.

So the establishment of this kind of arrangement would be highly difficult if not impossible. But what about if money itself would become useless because of the technological development? What about if absolutely no one would have a job or a source of income. What would happen then? Most likely individuals and groups would get together and start to either trade or would slowly create a subsistence economy. People wouldn't even need jobs or money and money would become useless.

It is an interesting concept. The big question just is that how we could end up in a situation like the this and to avoid the situation described earlier. Money is something to integrated in our society, that I hardly see a way out of it. It is THE method to use for trade, to measure value and to maintain value. In what circumstances we would be likely to get rid of it? That is something I just can't figure out yet.

But the point is that our technological development is so fast that we hardly take notice. The truth is that the employment and jobs as the way we know it now, will be history. The regular life with nine-to-five days will be over. Then we have to know what else we could do in our lives. Could we finally have more time for exercise and culture? Would people educate themselves more? Or would we just be locked to the screens of our smartphones for a whole day when we got nothing else to do? I fear that the answer could be the latter one and I hope that it won't happen for the sake of humanity.

Anything could happen. Twitter can be used to declare a war, at least according to North-Korea.

Now I'm off to read my WhatsApp-messages, check my Instagram, write a Tweet that a new blog is out and to share this post in Facebook and LinkedIn. And then off to read the Rise of the Robots before going to the bed and prepare myself for the mathematics lectures of tomorrow morning. Oh boy the time indeed flies then.

PS. If you feel like I'm wrong and you're always in a hurry, try to offline yourself. Log out from all of your social media and relax. You will be amazed how much spare time you have in your hands.

Text: SW
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SW Q&A

I decided in this blog to answer some questions from my readers. I couldn't decide on what to write next so I decided to ask some of my readers if any of them would have anything in their mind related to economics, money, investing or the markets that they would like to know a bit more.

These questions are gathered from my readers and I try to answer them the best of my knowledge, spiced with my personal opinions. So let us begin:

The value of household deposits in Finland is currently over 80 billion euros, which is almost half of the Gross Domestic Product of Finland. Even though the interest rates of the bank accounts are practically zero, still they are one of the most popular forms of savings and investments. Where does this come from and is there anything that could be done to change this? - Sonja

A difficult question to answer. I think that main reason behind this is the unwillingness of us Finns to take risks with savings. The bad depression in the 1990's, the burst of the IT-bubble in the start of the new millennium and the black year of 2008 might still sound scary for the most of the potential investors. The money is considered to be safe when it is in a bank account.

Two solutions could exist. First of all people should be educated somehow to really know about what investing really is. What are the benefits of investing, how large the risks really are and how inflation really affects the savings in the bank account. Seems to me that people aren't aware of these things. Another point that boosts the flow of savings from bank accounts to the stock market, for instance, are the extremely low interest rates. At least in my job I've noticed that this really creates increasing incentives to consider investing for many.

What is your opinion on the current fiscal policy here in Finland? - Heikki

I sincerely think that our current government takes the right actions to tackle the problems in our economy. The actions are highly unpopular but I think they are a must so that the future of our welfare-nation wouldn't be compromised and our economy would be competitive in the global markets.. It is too soon however to say if the actions have a real effect, but we will see it in a couple of years or so.

I still honestly think that something has to be done on the level of wages in our economy as well to increase international competitiveness. Finland is a relatively open country, which means that most of the wealth is created from competitive export-products.

How do the fiscal policies of the large countries in the Eurozone affect the economy of Finland? -Eelis

I think that the fiscal policies of large countries in the Eurozone such as Germany and France have no straight effect for the economy of Finland, but for example the change in the tax-rates in countries where we have operations or export might affect the competitiveness of certain industries and corporations. But the economy of Finland is more depended on the monetary policy than the fiscal policies in the Eurozone.

How could we reduce the inequality in the finance of modern football? Is it ok for foreign millionaires poor money to the clubs and is there an alternative system that could be developed? -Tatu

Interesting question! The money that goes around modern football are soon getting out of hand. Even more and more money are paid on certain players and hundreds of millions of euros are going from one club to another despite FIFA's efforts to prevent this. This will lead to the situation where the most wealthiest football clubs (with the richest owners) can have the best players and the best baselines to win the leagues and earn more money.

I would prefer an alternative system. But what it is, I don't know. Maybe a system where all the clubs have a common owner might decrease financial inequality in football leagues? But organizing this would be very difficult if not possible. This is a question that I need more time to think about.

Is it a good idea to support for example wind-power with tariffs? -Eemeli

Feed-in tariffs are commonly used in Germany, for instance to support investments in renewable energy sources such as wind-power. Personally I'm not sure if it is the best incentive to produce and to develop renewable energy sources. If the market-price of electricity is less than the guaranteed price for the producers of the renewable energy, the consumers have to pay a higher bill from their electricity that comes from renewable energy sources.

Generally the tariffs and the costs of production decrease over time when the technology develops. But when it comes to wind-power, it rises the question on which wind-power itself is efficient and how well can it produce the electricity for consumption.

If someone would be interested to start investing, is there any tips that you could give? Or do you know a book that could be helpful to get things going? -Saana

The most valuable tip is "Buy and hold, never sell". The wealth is created through holding and buying more of your investments, but never getting rid of them. I would advice first of all to get familiar with different financial instruments: Bonds, stocks, ETF's, funds etc and to decide which one of those would suit for you the best. You need to also ask yourself how much time and effort are you willing to put on your investments when you are deciding your road to prosperity.

The book that taught me everything about investing is the Miten sijoitan pörssiosakkeisiin by Seppo Saario, which is also known as the Finnish "Bourse-bible". I can warmly recommend that to everyone.

Is the current monetary policy of European Central Bank just a great con game, because the expectations on inflation are still extremely low and the pace of current economic growth is very slow? -Tuomas

ECB is pretty much screwed right now. The quantitative easing will soon face an end, since the available bonds to buy are soon going to run out. The ECB has no option than to continue QE and to maintain low interest rates now when the Euro is currently strengthening against other currencies. Seems that the interest rates can't go any more lower and the possible rise of the interest rates would feed the strengthening of the Euro even more, which would harm the competitiveness of EU's export products significantly. ECB has to rely on FED and the value of the US Dollar on its monetary policy. If the interest rates in the US start to rise even more, ECB would have more space to breath with its monetary policy.

It is commonly stated that the growth of economic inequality is bad because it is but could it be justified in economic terms? In addition in what circumstances the "tricke-down"-effect could exist or is it just populism? -Anna

Economic inequality generally harms economic growth. A good example is the role of consumption in economic growth. When more individuals have more wealth to dispose on goods and services, this stimulates the economy when more goods and services are being sold and bought. According to some research, the middle-class does most of the consumption in the United States, for instance. They are the people who are paying on their food, housing and hobbies the most. The richest 1 % don't eat any more food than the people in the other income-classes, or in some cases they buy food even less if their family is small. Bill Gates still needs only 1 pillow for sleeping, even though his earnings are a bit more than the consumers in the middle-class. Their extra money can be however considered to form investments in the economy, which also stimulates the economic growth.

What about the trickle-down effect? The answer is more political than scientific. My personal opinion is that trickle-down effect could exist and I don't consider it as populism. By tax-cuts to corporations the costs of production and the costs of doing business would decrease. This CAN but necessary DOESN'T stimulate economy and create more jobs or investments. What if the businesses don't have any use for the extra money? In that case, the corporations wouldn't build new factories or hire new people; they could just pay the extra money as dividends to investors. Trickle-down effect thus exists in my opinion but not in all circumstances.



So here we are. Thank you so much for your questions! They weren't easy one and I hope that my answers are adequate and most of all, clear. If any of you have any additional questions or think that I didn't answer these questions well enough or have mistakes or I misunderstood something, you can also ask me additional questions. I'm happy to answer them.

Text: SW