I want to start out with some reassurance that there will not be any extensive math in this piece. Rather, I will attempt to use general macro economics to describe how I believe that the world has definitely reached a point of massive change from an industrial economy to a technology and post industrial economy.
This will have tremendous implications for commodities and industry, and technology.
The change is chaotic, in that the governments of the world know what is happening but they cannot stop the change. They also are having trouble controlling any aspect of it.
If the world is changing from an industrial economy to a post industrial economy, you can expect massive population shifts and job losses as machines take on more production. The entire economy changes from the inside out.
For example. The US entered the 20th century (1900s) to become the dominant world manufacturing empire. It reigned there until roughly 1970/80 when the US started losing manufacturing jobs. The entire world economy mimicked the industrial economy in one way or another.
China is not the US and this is not 1900
Now I bring up China. China is a hybrid economy combining socialism/communism with capitalism. I view China as out of control. China’s experiment with capitalism, the way they handled it, is either going to work or its going to lead to a world war over resources.
I submit that the Chinese economy is growing out of control and in a huge bubble. I submit that the nature of the Chinese economy, with intergovernmental corruption and the massive amounts of money at moral hazard and already wasted on Ghost Cities (look at Google) is out of control and is a chaotic economic and sociopolitical disaster waiting to happen. China is too big not to fail. Too chaotic. Too unregulated. Too un modernized still with 800 million Chinese living on $100=200 a month.
I also submit that the world economy, and the world monetary system is in a chaotic phase and is going to collapse when some final last straw crisis appears. It could be Europe, it could be another war that goes badly. In any case, merely shaking this creaky world economy is enough to cause chaotic collapse.
China has two key problems with their implementation of capitalism.
One is that they have a huge population. They graduate 3 million engineers a year! Tell me, who can use 3 million new engineers a year? I saw a story about tens of thousands of college graduates in slums around Beijing who cannot find work. Yet this year, and next year, another 3 million engineers will be graduated in China, many to have their hopes of working in engineering dashed…
What is wrong with this picture? There is not enough demand in China nor the world for another 3 million engineers from China alone, let alone in the US, Japan and so on…
Let me explain. Because of automation, and the use of machines, China will NEVER be able to raise the standard of living of the majority of Chinese to the level of a Western standard of living. There will simply be millions of bottom feeders who make $200 a month. Those people won’t be buying anything other than ramen noodles. Good paying manufacturing jobs are a thing of the past century. That is not good news for the world’s middle class.
Now, taking this China college degree situation a little further, I find other stories in the US about millions of US college graduates of recent vintage living with their parents after graduating because there are no jobs. I don’t only mean no engineering jobs, but no ‘fill in the blank ‘ jobs of any type. Um, I heard its 40%!
Now, follow along, (its either this approach or lots of pages of equations!) since the world is having to face austerity, and China WILL face a period of austerity from their massive overbuilding, and so, there is no way all these engineers in this case will find work even remotely related to their degree.
Throw away engineers. Huh?
This is a world phenomenon. These are the modern throw away college graduates, and there are tens of millions of them in every country of any size. Today, having a college degree does not by any means guarantee a decent job.
Anywhere in the world. This point proves the world cannot provide a Western standard of living to billions more people. Maybe in 50 years…
Now, as China attempts to modernize and bring the rest of their 1.2 billion people up to economic par, they find out that things like their college graduates have no jobs. Or, rather, too many of them don’t.
What about India? Same problem. What about Europe? Well, Spain has something like 40% unemployment for age 18 to 30. That includes college graduates…
Same problems everywhere. Lots of willing workers and engineers, and fewer jobs each year. Something has to give…
Chaos in geopolitics and economics
As the world enters a period of evolution from an industrial society to a post industrial information/technology society, the following will happen and in fact is already well underway:
- Labor arbitrage : Internet and fast communications enable outsourcing of all kinds of back office work like phone banks, accounting, law practice, doctors even. Not to mention the obvious factories leaving the US for China for example. Net effect is millions of permanently lost jobs to cheap foreign labor. Yes, the factory workers make only $1 to $2 an hour. Try a European or a US citizen living on that.
- Instability: As nations lose jobs, they become unstable economically and politically.
- Automation: increases efficiency inside factories and causes permanent job losses.
- Wealth disparity: vastly increases with two distinct groups emerging: the ‘plugged in’ who have work in the new efficient economy, and this includes the super rich who probably deserve their own category, and the masses of unemployed and slave employed and under employed.
The wealth disparity problem is one of China’s major concerns. In the US, a nation of roughly 120 million around 1900 took over manufacturing around the world by the time of 1950. IE even with old technology, one major advanced nation was capable of supplying goods to the entire world.
Supposedly China intends to do this with their economy. But if they cannot physically get their own wealth disparity problem under control, all they will get is a revolution.
Chaotic events
Now, with a world in very painful transition from industrial to post industrial/technical civilization, enter the chaotic trip wires.
These might be called shocks. The Lehman situation was a chaotic shock in that, even though it was expected months before, when it unraveled the Fed and other banks lost control of the situation and were hours away from a world bank shutdown. Most people are not aware of how serious that week was in Fall 2008.
But, the Lehman shock shook an already stressed out financial system, and the world entered a horrendous period of economic decline. We are only now limping. We have not exited that situation. But, the weakened state of the world economy allowed a chaotic shock to implode the financial system.
Transition state is a weak period
As the world evolves from an industrial to post industrial model, the winners and losers start to emerge. The winners will have a huge head start entering the new post industrial information economy. The losers will suffer terrible economic hardship and be at the mercy of foreigners. One of the first things the winners will do, and the first war of this transition will be to grab all the world’s resources they can get their hands on.
The world is right now in the early stage of transition.
Vast financial opportunities coming
Now, I am professionally trained in Oracle Databases, which are used by the internet and just about any application you can pick. I also have a math degree.
The internet and the vast implications it has for the economy and the social fabric of the world has rapidly escalated the changes in everything. There will be huge opportunities in future internet startups, as well as existing companies. We have only seen the beginning of what is possible here with Facebook for example, or the incomparable Google.
PCs are now a couple of hundred dollars. Internet bandwidth is still exploding, meaning more and more people can view online videos or you name it.
But, in the meantime, the changes are scary. What the world is going to do with perhaps 20 pct of the world working population being either unemployed or underemployed is a scary question. Insurrections and wars usually result.
