Political Man vs. Technological Man

We hazard the future hinges upon a monumental race.

It is a contest between two mighty men — political man — and technological man.

At stake is the destiny of everyman, presently in the siege of political man.

Under political man the nation has taken aboard $34 trillion of debt.

Under political man the nation’s debt-to-GDP ratio well excels 120%.

Heavily because of it… under political man… the nation’s economy lags.

Each economic “recovery” this century has underexcelled the previous recovery — as previously assumed debt exerts its sinister drag.

Has political man borrowed to invest in a productive American future? No he has not.

He has borrowed largely to gratify the consumptive demands of the moment.

That, we hazard, is because in the American example political man is democratic man.

And democratic man is a very needful fellow. He is, at the very least, a very wantful fellow.

And he will plunge himself into debt to scratch his itches. Thus his nation wallows $34 trillion in debt.

Productive vs. Nonproductive Debt

Here we reprise the insights of Mr. Michael Lebowitz — he of Real Investment Advice:

When debt is used productively, the interest and principal are covered with higher profits and sustained economic activity. Even better, income beyond the cost of the debt makes the nation more prosperous.

Conversely, unproductive debt may provide a one-time spark of economic activity, but it yields little to no residual income to service it going forward. Ultimately it creates an economic headwind as servicing the debt in the future replaces productive investment and/or consumption…

The U.S. economy is overly dependent on unproductive debt. Not surprisingly, secular growth rates have been trending lower for three decades.

Political man is an improvident squirrel. He devours each acorn he chances upon in summer — and must therefore starve in winter.

He is, in brief, a wastrel and a cadger.

The Triumph of Political Man

Turn your attention to the guns-and-butter 1960s…

Merely 15 cents of each government-spent dollar went channeling toward “transfer payments”

— that is, channeling from producing hands to nonproductive, consuming hands.

Today the figure approaches a productivity-sapping 50 cents of each dollar.

Some 50% of Americans haul in at least one federal benefit.

Some 63 million receive Social Security payments. Sixty million receive Medicare. Medicaid, 75 million. Five million American households exist at their neighbors’ expense — in part or in full.

Some 40 million Americans take “supplemental nutrition assistance.” In English: food stamps.

And the economic reservoir from which they guzzle lacks replenishing rains. Comes a point when the thing runs dry.

Is it any wonder then that the nation sags and groans under $34 trillion of debt? We hazard it is no wonder whatsoever.

It is the triumph of political man, of democratic man.

He can no more resist debt than the drunkard can resist the bottle.

Is there a way up? Is there a way out?

The Answer

If there is a way up — if there is a way out — we hazard it is this:

Productivity. We have argued it before. Today we argue it again.

Only a vastly enhanced productivity can raise the nation from its economic wallows.

Only a vastly enhanced productivity can break debt’s terrible gravity.

“Productivity growth over the last 350-plus years,” says the abovesaid Michael Lebowitz, “is what allowed America to grow from a colonial outpost into the world’s largest and most prosperous economic power.”

It is true. American productivity growth averaged 4–6% in the 30 years post-WWII.

But average productivity has languished between 0–2% since 1980.

Meantime, labor productivity averaged 3.2% annual growth from World War II to 2000.

And since 2000? Labor productivity has languished under 1%.

“Given the finite ability to service debt outstanding,” concludes Mr. Lebovitz … “future economic growth, if we are to have it, will need to be based largely on gains in productivity.”

Just so. Yet whence will they springeth?

Technological Man

Who can potentially reintroduce American productivity? Who can rescue everyman from political man?

The answer is technological man.

Galloping strides in robotics, artificial intelligence, biotechnology and related wizardries may yield productivity truly stupendous.

Consider “generative AI,” says the crackerjacks at McKinsey & Co.:

Generative AI’s impact on productivity could add trillions of dollars in value to the global economy. Our latest research estimates that generative AI could add the equivalent of $2.6–4.4 trillion annually across the 63 use cases we analyzed — by comparison, the United Kingdom’s entire GDP in 2021 was $3.1 trillion. This would increase the impact of all artificial intelligence by 15–40%. This estimate would roughly double if we include the impact of embedding generative AI into software that is currently used for other tasks beyond those use cases.

Goldman Sachs believes this generative AI merlin may elevate global growth by 7%.

The Brookings Institute — meantime — says we must consider AI’s compounding productivity:

If cognitive workers are more efficient, they will accelerate technological progress and thereby boost the rate of productivity growth — in perpetuity. For example, if productivity growth was 2% and the cognitive labor that underpins productivity growth is 20% more productive, this would raise the growth rate of productivity by 20% to 2.4%.

In a given year, such a change is barely noticeable and is usually swamped by cyclical fluctuations.

But productivity growth compounds. After a decade, the described tiny increase in productivity growth would leave the economy 5% larger, and the growth would compound further every year thereafter.

What’s more, if the acceleration applied to the growth rate of the growth rate (for instance if one of the applications of AI was to improving AI itself), then of course, growth would accelerate even more over time.

The Silver Lining May Really Be Gray

Is this the future? We do not know. We battle yet to know the past.

How then are we to understand the future?

Yet we hazard the solution to today’s stagnation is the technological solution.

That is, the triumph of technological man over political man.

Will technological man himself become a terrible fe-fi-fo-fum? Will he come to menace everyman as political man presently menaces him?

It is possible he will. Many believe it is certain he will.

Political man is an angel of heaven next to him.

Yet we hazard that day is distant. It is a concern of the long run.

And in the long run — as noted Lord Keynes — we are all deceased regardless…

The Daily Reckoning