Bain: Collision Of Demographics, Automation, And Inequality Signals Societal Catastrophe

Earlier this month, John Mauldin hosted the Strategic Investment Conference 2018, a three-day investor conference with 20 financial experts discussing everything from the global economic outlook for the next 12-months, along with trading strategies to overcome significant geopolitical, economic, and technological risks.

One panel was hosted by Karen Harris, Managing Director of Bain & Company’s Macro Trends Group, who presented a fascinating  keynote tilted: “Labor 2030: The Collision of Demographics, Automation, and Inequality.”

According to Mauldin Economics, Harris addressed roughly 700 investors who eagerly waited for her speech. Harris started off by saying, “the combination of a demographically shrinking workforce plus increasingly cost-effective automation will aggravate inequality, constrain demand, and put a cap on economic growth.”

She also warned, “this will have all sorts of unpleasant effects in the next decade.”

Similar to  Chris Hamilton via the Econimica blog, Harris indicates there is a significant and ominous shift currently underway in the American economy — originating from the 1980s/1990s and forced upon by a  “supply-constrained world to a demand-constrained one.” The primary drivers of the shift are debt, demographics, and disruption (or automation).

“Automation’s impact will be highly unequal. At least initially, high-wage workers will reap most of the gains and low-wage workers pay most of the cost. This is not beneficial to social order, obviously, but in the end, it’s not helpful even to the businesses that automate. Someone has to buy the goods the robots build and wealthy people have a lower propensity to spend. The results will be “demand-constrained growth.” This isn’t necessarily a contraction, but it will likely cap future GDP growth potential”

About 13-minutes into the keynote, Harris elaborated on “technology’s impact on demographics, i.e. helping people live longer." She does not foresee lifespans dramatically increasing to reverse or cushion the deceleration in America’s lifespan growth.

Bain believes the collision of demographics, automation, and inequality has only just begun — and it will get much worse for the American worker. She dubbed the inflection point the “Wile E. Coyote” moment…

Harris says rising inequality has only just begun. It will get much worse and not just in the US. Many won’t notice initially because rising productivity will mask some of the job losses, but eventually, job losses will overwhelm productivity. She called this the “Wile E. Coyote” moment. Hard to pinpoint, but probably coming in the next decade.

Now is no time to follow market momentum, Harris says. It is a massive boom akin to tech and housing combined and the reversal will be tough.

Another implication is consumer spending. Baby Boomer spending growth will begin declining in the 2020s anyway. Add in the growing inequality with up to 25% of the workforce displaced by automation, and middle-class markets seem likely to erode. Investors and businesses should be asking, “Who will be my customers a decade from now?”

Here is the actual report from Harris and her team with excerpted highlights below: 

Figure 3: US companies could invest nearly $8 trillion in automation technologies by 2030.

Figure 4: US service sector automation could displace labor two to three times more rapidly than previous transformations.

The report paints a bearish long-term outlook for the United States: 

  • Be wary of following market momentum—volatility will increase. The crosscurrents of multiple macroeconomic forces will ebb and flow at different times, making it dangerous to assume that signals indicate stable opportunities. Trends that had longer trajectories up until now, such as falling interest rates or even growth itself, may reverse course far more rapidly than in past decades. Companies can prepare for such shifts by making resiliency a high strategic priority and actively managing and monitoring macro risks.
  • Middle-class markets are likely to erode. Many consumer-facing businesses design and market goods based on a three-tier household model, including a small upper-income tier, a small lower-income tier and a broad middle-income tier. Pressure on the middle class may favor a primarily two-tier structure, with upper-income households representing roughly 20% and lower-income households making up the remaining 80%. This change would trigger a dramatic shift in the way that companies segment goods and services markets within and across these tiers.
  • Expect an interest rate speed bump. Interest rates are likely to rebound upward (potentially rapidly) in the next decade before dropping back toward historical lows, making capital management for businesses and capital preservation for investors more challenging. Since the 1950s, interest rates have tended to rise or fall gradually with patterns in one direction or the other, lasting decades. An environment of volatile interest rates would expose companies and investors to a greater risk of being caught with exposures pointing in the wrong direction.
  • Automation could fuel a 10- to 15-year boom followed by a bust. The next wave of automation investment will create many opportunities but will grow increasingly perilous as it builds momentum. Companies may feel competitive pressure to invest in automation technologies, similar to the way they felt compelled to create global supply chains in the 1990s and 2000s. But to avoid being caught on the wrong side of the investment cycle, businesses and investors will need to pay greater attention to monitoring their risk exposure as the investment cycle progresses.
  • Highly skilled, high-income labor will grow increasingly scarce. The pace at which displaced workers retrain and migrate toward higher-skilled jobs will likely be too slow to alleviate shortages. The challenge for companies will be attracting, growing and retaining highly skilled talent and maximizing worker’s productivity by rethinking how their businesses are structured.
  • Baby boomer spending growth will peak in the 2020s before tapering.Compared with previous generations, baby boomers will extend the period of high-income earning and spending by about 10 years. The sheer size of this generation means there are considerable market opportunities for most goods and services, including big-ticket items such as housing and transportation. But growth based on this demographic shift will become more concentrated among the top 20% of households.
  • More government in more places is likely. Faced with rising inequality, governments are likely to become more interventionist, using higher taxes and regulation to manage market imbalances. Governments may expand their role in the marketplace, similar to what was seen in the West between the end of World War II and the early 1980s, by shifting resources as well as becoming a direct buyer of goods and services.
  • Intergenerational conflicts will potentially rise, drawing in businesses. As retirees and the working-age population battle for resources, businesses may become indirectly involved. Businesses, management teams and even shareholders may add their voices to the conversation about government transfers as they grapple with existing pension obligations, the scarcity of highly skilled workers, social pressure to address job losses and declining incomes among mid- to low-skilled workers.

Figure 8: Baby boomers powered worldwide labor force growth in the 1970s and 1980s, but this is slowing…

Figure 9: Despite longer work spans, the relative size of the workforce will shrink to less than one worker per dependent by 2030.

Figure 10: US labor force growth will remain low for the foreseeable future. 

Figure 12: Workers delaying retirement will not fill labor force gap to maintain historical GDP growth.

Peak America: The report indicates the collision of demographics, automation, and inequality poses a serious threat to the financial system: 

For capital markets, the increased spending by an aging population could spell trouble. As people retire, they will be liquidating savings en masse. Financial savings are only backed by the real output potential of the economy, so the practical consequence for capital markets is likely to be too much capital drawdown chasing too little real capacity. Until now, the dramatic inflation of financial assets vs. the size of the real economy has masked the coming challenge posed by insufficient real growth to meet future obligations (see the Bain report A World Awash in Money).

But as baby boomers begin using assets and pensions, the large-scale liquidation of financial assets could lead to a drop in their value. One risk here is that guaranteed private or government pensions that similarly relied on financial asset inflation to meet future obligations will become highly strained or could break, especially at subnational levels of government.

Countries will have limited policy options to alter demographics at a national level and increase output: These may include increasing the supply of labor through increased immigration, incentives for more female workforce participation and improving workers’ skills to raise their productivity. But given the breadth and scale of the demographic imbalances, these levers are unlikely to meaningfully offset declining labor force growth at the global level.

Figure 18: Productivity gains from automation will vary broadly across industries by about 10% to 55%.

Figure 20: Advanced economies using automation to close the cost gap with developing economies.

Figure 21: Next-generation robots are becoming cost competitive against developing-economy workers.

Figure 22: Automation could eliminate 40 million jobs in the US and depress wage growth.

Figure 23: Many industries could use automation technology to reduce operating costs by 10% to 15%.

Figure 24: In retail distribution, automation will crease new job functions but fewer full-time jobs.

Figure 25: In healthcare, automation will eliminate full-time jobs and change job functions.

Figure 26: Automation will affect 80% of workers through wage suppression and job loss.

Figure 27: US service sector automation could displace labor two to three times more rapidly than previous transformations. 

Figure 35: Automation may create worse outcomes for lower-income workers.

Figure 36: Labor’s share of GDP is already declining; increased automation may accelerate this trend.

According to Bain Capital and Karen Harris’s eye-opening report, a historic shift for America has begun. The trend is driven by debt, demographics, and automation, which will only accelerate into the 2020s. The magnitude of the workforce shift is expected to match that of the automation of agriculture from 1900 to 1940. The automation of farming transformed America’s economy and severely disrupted labor markets, ultimately climaxing into the Great Depression and subsequent world war.

From the gloomy future laid out by Bain Capital and Harris, one can expect a similar outcome this time as well.

Comments

DownWithYogaPants cheka Mon, 03/26/2018 - 21:05 Permalink

Bain?  Isn't that the same people who brought us Mittens Romney?

If so I suggest the flush knob on the article.  Flushit. Flushit.

If the Private Central Bankers are not allowed to design our future in their retarded imaginations we'll do just fine. People and social capital will reconfigure.  The real danger occurs if we continue to allow the PCB's to control the agenda.  They'll have everyone being on Universal Basic Income and being paid in poker chips like the inmates in the asylum.

PCB's want to squeeze all the proles into nasty ring fenced cities with coffin apartments eating soylent orange and they'll be out on their green estates with their private jets asking each other what we are complaining about.

In reply to by cheka

NoDebt DownWithYogaPants Mon, 03/26/2018 - 21:20 Permalink

"She dubbed the inflection point the “Wile E. Coyote” moment"

I dub it the "hey, let's all try socialism!" moment.  Because when the shit hits the fan people will turn, in desperation, to utter reliance on Government at the exact moment they won't be able to help anyone or fix anything (nor would they be willing to even if they could).

Could this be considered 'irony'?

I sit here, watch this stupidity unfold before me year after year and it's like a fucking slow-motion train wreck.  It's horrible, but I just can't fucking look away.  

In a very real sense (at least one that feels real to me) this has already happened.  Like looking at the Chess pieces on the board and realizing "checkmate in 7 moves".  You can pretend it won't happen, you can pretend like there are meaningful choices left to make but from where I'm sitting, it's damned near locked in already.

 

In reply to by DownWithYogaPants

Oldwood NoDebt Mon, 03/26/2018 - 22:49 Permalink

The problem with automation is inequality in OWNERSHIP.

People have chosen to be technology consumers and NOT the owners using technology to produce.

Entitlement bolstered by debt and a massive trade deficit fueled by cheap imports effectively eliminates any motivation to produce. 

Those who still strive to produce will have no choice but to automate as no truly motivated productive individuals will choose work over entitlement or increasing debt. Manufacturers will leave those unproductive behind until the overhead weight of the entitlement estate combined with falling demand crush them.

The one alternative not spoken of is the possibility that technology will sufficiently advance to the point that it's OWNERS will find it satisfies all of their needs without human intervention, finally rendering "consumers" that can only consume through the wealth redistribution derived from the OWNERS, completely redundant.

These redundancies we be left to their own devices, and if found threatening to the OWNERS or even possibly the planet, or possibly "climate", eliminated.

For all of these progressives so blindly parroting their "humans are a virus on the planet" theme, they will find that they truly ARE the virus to be cleansed from the planet.

Of course the alternative to this scenario is socialism/communism that will insist that the OWNERSHIP of the means of production (TECHNOLOGY) belongs to the STATE. Of course this ends largely the same as the prior scenario, only rather than business owning everything, it will be political tyrants, who again upon discovery that they no.longer NEED the masses, will even more quickly "dispatch" them.

In reply to by NoDebt

D503 Oldwood Mon, 03/26/2018 - 23:26 Permalink

So the ones that are wealthiest control the means of production? Great job Sherlock. 

Education has the greatest potential for automation. Most edu majors don't even work in the field and localized education block by block with two teachers aides and an internet connection to Khan Academy can remove nearly all of the bloated oversight. 

The AVERAGE income of a school superintendent is $153,000. There are 14,000 of them, and they all get ~50% pension.

End expensive bussing contracts. End heating/cooling/maintaining those run down school buildings. 

Eliminate massive quantities of paper shuffler jobs. 

Reduce property taxes.

Did I mention ending bullying and school shootings and leftist bullshit?

In reply to by Oldwood

Adolph.H. D503 Tue, 03/27/2018 - 00:19 Permalink

There will always be a need for a political police to protect the interests of the elite. 

In the past they were the clergy, now they are referred to as the middle class, and tomorrow they'll strive again. 

Weep not for middle class, they will be hired for pennies by farcebook to do the dirty job with their data and send the non-believers and other resisting minds to the gulags by the cattle truck load. 

In reply to by D503

HRH of Aquitaine 2.0 D503 Tue, 03/27/2018 - 00:42 Permalink

I agree. We can't afford schools as they are made, today. Too expensive. I say turn them into homeless shelters and Voc-rehab shops where people can learn real skills. Long time fan of Khan Academy. Cheaper to give each kid a laptop or IPad and let them learn online. In person teachers will be a thing of the past. Only for the wealthy.

In reply to by D503

itstippy rccalhoun Mon, 03/26/2018 - 21:09 Permalink

"The pay and benefit disparity between a .gov job and the common worker is a fucking joke."

Why don't you go get yourself one of those high paying government jobs then?  The are millions and millions of Federal, State, and Local jobs.  Everything from rocket scientist to grass mower.  Get off your ass and go get one. 

In reply to by rccalhoun

Miggy itstippy Mon, 03/26/2018 - 21:52 Permalink

That's not the point, nothing personal. Government workers are generally democrat voters so now all of the sudden the socialists (democrats) have an incentive to hire more and pay more to attract more. This effects all of us with higher taxes and a skewed political base.

This is why Pelosi can't stand the Trump tax cut. She could care less if more money was in our pockets. Less people flock to these higher paying governemnt jobs if the private sector can compete with the wages.

Our taxes are exceptionally high, especially small business, because the socialists are using our money to bankroll their voter base with huge salaries (which they use in turn to bankroll the democrats in elections). Private sector can't afford to pay better wages because of taxes.

In reply to by itstippy

AGuy HRH of Aquitaine 2.0 Mon, 03/26/2018 - 21:38 Permalink

"Cholera, bubonic plague, typhoid. That sort of thing. In a worst case scenario they will unleash smallpox. No one is vaccinated. It would burn through our cities like wildfire."

Cholera, Plague & Typhoid can larged by avoided with hygene and using clean water. Smallpox is likely no longer in the environment, and all older people are vaccinated for smallpox.

In reply to by HRH of Aquitaine 2.0

HRH of Aquitaine 2.0 AGuy Mon, 03/26/2018 - 22:04 Permalink

Older people are vaccinated for smallpox but those vaccinations have worn off. What should terrify everyone is that no one under the age of 40 has been given the smallpox vaccination. The old smallpox vaccination stores have eithe been destroyed or are unusable.

Oh, there are tons and tons of smallpox. Russia fermented tons of the stuff. Apparently it was also given to China and NK. If you think smallpox is a disease you, and your offspring, don't have to worry about, think again.

In reply to by AGuy

AGuy HRH of Aquitaine 2.0 Wed, 03/28/2018 - 14:10 Permalink

"Oh, there are tons and tons of smallpox. Russia fermented tons of the stuff. Apparently it was also given to China and NK. If you think smallpox is a disease you, and your offspring, don't have to worry about, think again."

Nada, if there is a biological warfare, they will unleash more dangerous stuff. Smallpox doesn't campare to bio-weapons developed. The original Thread was about non weaponized and wild infectious diseases not, weaponized ones. If Weaponized are release it will be WW3 and 99% or more of the population will die.

In reply to by HRH of Aquitaine 2.0

BrownCoat HRH of Aquitaine 2.0 Mon, 03/26/2018 - 23:04 Permalink

I don't blame you for not reading the article. (Fear porn and gibberish.)

Harris said a problem was "demand-constrained growth” which means there are not enough peons to buy crap.

Elites already know how to exploit the poor for profit. For instance, tax the rich to give welfare gibs which employs govt workers to manage the program. The prison industrial complex that likes it when poor people victimize others so they can make money by capturing, caging, and providing legal services to criminals. Let's not forget foreign aid and all those programs "for the children." 

They don't want to reduce the population. In fact a good plague would create profits by supplying "health" services to all those in need (at taxpayer expense).

Illinois is an example of "demand-constrained growth”, because the taxpayers are already tapped out. 

In reply to by HRH of Aquitaine 2.0

Clock Crasher Mon, 03/26/2018 - 20:48 Permalink

Yo, ain't nuttin new about the world order
It's been planned since they put George Washington on the quarter
Government funded, approved by US officials
Republicans, Democrats, so many issues
Congress, they make the laws that affect us
No matter what we say/what we do, they disrespect us
Chemical warfare, poison is in the food
Contaminated water, diseases stored in test tubes
Nuclear bombs are set to drop any second
10% got you blind-folded, butt-naked
Oxygen is polluted with toxic fumes
Corporate America got our brothas singin the blues
Democracy don't exist, it's a total diss
That's why it got the police on my shit list
Nova Disorder Seclorum on the dollar bill
Royal Fam strapped, aimin for Capital Hill

 

Timbo King -Sunz of Man

LyLo Mon, 03/26/2018 - 20:50 Permalink

I couldn't take this article seriously; it opened with the supposition that the middle class died in 2017.  That's hilarious.  I'm barely 30 and the middle class is a distant childhood memory, so I don't know what the author is on about.

HRH of Aquitaine 2.0 Mon, 03/26/2018 - 20:57 Permalink

I got news, today, that my father's GF passed away in January. She was 56. He will be 85 in a few weeks. Where is he? Homeless. Insanity is upon us. Did anyone else catch Tucker Carlson's report about the amount of homeless in LA? Coming to a town near you.

HRH of Aquitaine 2.0 Lost in translation Mon, 03/26/2018 - 21:12 Permalink

Dude, get the hell out! Why are staying there?

What an education. I had no idea that people could be allowed to live, and die, like an animal.

Free while the taxpayer pays for their poor choices. Do people know they still have pauper's graves? Counties collect the homeless and pay to have the bodies cremated and have a mass burial ceremony, once a month (in San Berndardino and LA.) Observing my father's downward spiral has been nothing less than shocking. All of those fucking government employees, in Kommiefornia, didn't do jack fucking shit to protect my father. Nothing. They even prevented me from helping him. No consent? No POA? No living will? Even as a family member you have absolutely no power to save someone from their own bad decisions. The mental health system in the US is terribly broken. There have to be better options that letting people live like animals. As less than animals.

Adult Protective Services, the AG, the Realtor Board, the fucking VA? Nothing. They stood back and watched while he was allowed to make bad decision after bad decision.

Waiting to hear news of his death, if he isn't dead already. Un-fricking-believable how mentally ill people are allowed to freely roam the streets and do as they will.

In reply to by Lost in translation

Eric Masters Mon, 03/26/2018 - 20:57 Permalink

we need a universal job guarantee for everyone, citizen and noncitizen alike (eliminating competition that benefits owners), not a universal basic income so people can fuck off, thats an elite peddled illusion, and we already have that anyway with people on SS and disabillity and what have you, what we need is to revalue work and fuck elon muck and have a minimum floor of income for anyone that wants to work, gets a job and therefore a minimum income which will feed into the vistuous cycle...also the blockchain can process this

Oldwood Eric Masters Mon, 03/26/2018 - 23:18 Permalink

Keep on denying reality.

Survival requires production. I assume a guaranteed ​job is accompanied by a guaranteed wage, neither of which imply value. The thing that has always driven survival is production. People on this planet have until recently always been agrarian largely responsible for feeding themselves. 

This notion that ANYONE can guarantee ANYTHING they they do not have to TAKE from another, is BULLSHIT.

Get on your knees and beg for socialism, as it is good practice for your future, as you will begging for a lot.

In reply to by Eric Masters

Cloud9.5 Mon, 03/26/2018 - 21:02 Permalink

I am now drunk enough to make a prediction. Future energy production will not fuel the robotic utopia imagined by these technocrats.   By midcentury, the medians of the overgrown highways will be mowed by goat herders. Buckle up and prepare for a more labor intensive future.

Oldwood joego1 Mon, 03/26/2018 - 23:23 Permalink

The destruction of existing technology will only accelerate technology growth. You would have to destroy knowledge to kill the future.

This is not to say emp would not devastate millions, but they are done for regardless because they refuse to compete, instead embracing death in the belief in entitlement.

In reply to by joego1