When futurists ply their wares they usually make a lot of assumptions about the future. This is very much the case for those futurists who undertake single point forecasting of future events. The concept of the Singularity - a point in time where accelerating change is occurring so fast that we are unable to keep up with events - is of the single point forecast variety. At some single point in the future, it is argued, it will happen.

Once we start to unbundle some of the assumptions n that position, we come across some interesting and surprising futures that normally don't enter into the discussion about the Singularity. For example, there is often an assumption that we will continue to enjoy an abundance of cheap and readily available electricity. Much of the argument about accelerating change assumes this as a base assumption.

Some time ago, we wrote about how that assumption could be called into question, and pointed to the potential of an energy gap in the UK in this decade [1]. This piece, from 2008, talked about the lights going out and the vulnerability of our information networks. We put together potential brown outs with the operation of the Internet, and found that we had a problem looming in this decade. It now appears that the problem is closer than ever [2]. According to Ofgem, we are on the brink of an energy crisis.

Of course, those organisations that exercise a degree of foresight will not have the problems suggested by Ofgem. They will have an array of back-up generators. They will probably be able to tap into the electricity generation of renewable sources - particularly solar and wind. They will have a contingency plan for when the lights go out and the Internet goes down. They will also be part of a miniscule number of organisations that have exercised basic foresight. The truth is that this development will engulf many organisations, if it were to occur, as so few are ready for this possibility.

One of the consequences of the lights going out is that the pace of accelerating change will slow. Indeed, it may slow the the point where we have decelerating change. If that were to occur, then the single point estimate of when the Singularity will occur will have to be put back. In that respect, the Singularity will be postponed. This could have the beneficial effect of allowing our social infrastructure, such as the legal system or business models, to keep pace with technological changes.

The Singularity won't, however, be cancelled. The prospect of intense energy shortages is likely to stimulate all sorts of new technologies around the issue of energy storage and conservation. It will create a problem that human ingenuity will want to solve. This process has occurred since the onset of the Industrial Revolution, and there is no reason to suggest that it will not continue into the future [3].


Stephen Aguilar-Millan
© The European Futures Observatory 2013

References:

[1] http://eufo.blogspot.co.uk/2008/06/when-lights-went-out.html

[2] http://www.telegraph.co.uk/finance/newsbysector/energy/9879442/Britain-on-the-brink-of-energy-crisis-warns-regulator.html?fb

[3] http://www.eufo.org/uploads/1/4/4/4/14444650/surfing_the_sixth_wave.pdf

One of the main objections to modern capitalism that is levied by the Occupiers is that it generates a situation that is manifestly unfair. The unfairness of the situation are the large disparities in wealth that have come about during the years of the 'Washington Consensus' (free market economics combined with a minimalist approach to state intervention and regulation). The Washington Consensus has given rise to an unparalleled increase in prosperity across the planet, but one has to ask whether this is  sustainable in the longer term. If the increasing disparities in income and wealth were to lead to increasing levels of social unrest, then the gains to prosperity that have been achieved in recent decades could well be called into question.

An important point raised in Will Hutton's book 'Them and Us' [1] is that for a society to prosper, there needs to be a broad consensus within that society that the distribution of income has been reached through a fair process. Indeed, we have previously argued that the perceived unfairness of our current social arrangements is the result of many of our institutions that are no longer 'fit for purpose' [2]. It has always been argued that, for a harmonious society to occur, an appropriate balance has to be reached between economic efficiency - which normally involves the operation of unfettered markets - and social justice - which normally involves some form of re-distribution  of wealth and income. This point has recently been made by Jerry Muller [3], and is at the heart of the demands of the Occupy movement.

There is, however, more to the issue of inequality than fairness alone. Economists have a concept called the marginal propensity to consume. This is a simple device, which answers the question: if you were given an extra £1, how much of that would you spend? One of the answers that has been consistent over decades is that poorer people in the income distribution will spend more of that £1 than richer people in the income distribution. They have a higher marginal propensity to consume. If we find ourselves in a recession that is typified by a lack of demand in the economy - as we do now - then one of the more effective ways in which to get the economy moving again would be to re-distribute to the lower end of the income scale rather than providing benefits at the higher end. Which seems close to what is asked by the Occupy movement.

The Occupy movement does not speak with a single voice, so it is difficult to characterise exactly what their proposals are. Indeed, I had an interesting afternoon at the Tent City University at Occupy London discussing economic futures, listening to why I was wrong. However, there are those who argue that the present distribution of income is wrong and inefficient. In an interesting Special Report, The Economist reviews various aspects of what reform might look like and argues that institutional reform is more likely to generate more sustainable results than yet more tax, spend, and regulate [4]. This is an interesting idea and has some merit.

Does inequality matter? Yes it does. Inequality produces an feeling of unfairness within society which undermines the social cohesion that we all rely upon. It also prolongs a period of idleness in the economy, when productive resources - especially labour resources - remain under-utilised, which further erodes the social capital that has been built up. We live at a point in time where the root cause of this situation is structural, which means that the most effective remedies are likely to be structural in nature. We are likely to achieve more by attacking crony capitalism than by relying upon the traditional policies of income re-distribution, which is very close to what the Occupiers have been saying.


Stephen Aguilar-Millan
© The European Futures Observatory 2013

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References:

[1] http://www.guardian.co.uk/books/2010/sep/26/them-and-us-will-hutton

[2] http://www.eufo.org/uploads/1/4/4/4/14444650/the_new_enlightenment.pdf

[3] http://www.foreignaffairs.com/articles/138844/jerry-z-muller/capitalism-and-inequality

[4] http://www.economist.com/node/21564414

The period between now and Easter should be an interesting one. As the Eurozone settles down and no immediate crisis looms, attention is likely to turn to the United States. Just to recap, the US has public finances that are, in many respects, worse than those of the Eurozone. It also doesn't really have a credible deficit reduction plan. By virtue of its global reserve currency, America has been spared the need to resort to the types of austerity programme that are now common elsewhere in the OECD. That may start to change soon.

At the beginning of 2013, a compromise of sorts about the US Federal deficit was reached. Modest tax rises were agreed, accompanied by a postponement of spending cuts to the end of February. In addition to this, the debt ceiling - an overdraft limit, if you like, managed by Congress - is likely to be reached in February as well. Far from reaching a consensus about the shape of American public finances, the matter was simply kicked into the long grass. We will be in the long grass in a week or two, and no real progress seems to have been made in finding a solution to the longer term problem of American deficits.

Is there a problem? There is the question of how long a government can run a perpetual deficit before it encounters a major problem. Most public debt is simply rolled forward from one generation to another. The example of France in the Sixteenth and Seventeenth Centuries suggests that public debt could be rolled forward for over 150 years. But then, it did end rather unfortunately for the French monarchy during the French Revolution. In modern times, the ability to roll forward a perpetual deficit is rather questionable because the bond markets may test this ability somewhat sooner. This is what the Eurozone found to its cost in 2012.

On the assumption that the government wishes to address the issue of US Federal debt, what are its options? There are only really two - increase taxes or reduce spending - or a combination of both. There are a number of possible areas where taxes could be raised. For example, the US is one of the few developed nations that does not have a national sales tax. Other governments find it convenient to use the tax system to nudge behaviour away from goods they disapprove of, such as tobacco and alcohol. From an outsiders perspective, this might seem like a useful way to enforce gun control. Americans have the right to bear arms, but that right does not extend to making ammunition affordable. If each round were to carry a $100 sales tax, then firing off a clip of ammunition would become a very expensive hobby! The problem is that there is a very deep resistance to tax increases amongst a significant part of US society.

The other option would be to reduce spending. But spending on what? Once again, there are a number of alternatives that could be possible. One such possibility would be to reap a peace dividend. As US troops are withdrawn from the parts of the world in which they serve, the current force establishments could be reviewed. Are so many ships, tanks, and aeroplanes absolutely necessary? If so, to do what? Alternatively, as other OECD nations are doing, there could be a review of welfare spending. Could it be possible to increase the state retirement age to, say, 70? Such a move would lessen the fiscal impact of an ageing society. However, entitlement reduction is very unpopular with another part of American society.

And so we reach the impasse that we have today. American society, from the perspective of an outsider, seems very fragmented and divided. These divisions handicap the public debate about effective deficit reduction programmes. In those economies where the questions of austerity are being successfully handled, such as the UK, the issue is not one of austerity or not austerity, but of how much austerity. One side of the political divide (Labour) argues for a slower path, whilst the other side (the Coalition) argues for a quicker path. One side (Labour) argues for a mix of 66% spending cuts and 34% tax rises, whilst the other (the Coalition) argues for 80% spending cuts and 20% tax rises. The consensus is that there must be deficit reduction and it must be a blend of spending cuts and tax rises. In the US, that broad political consensus does not exist.

This is a shame because America faces a number of long term difficulties that will need some form of cross-party consensus to address. Two problems stand out above the others. The first is an ageing population. If things continue as they are, then the long term commitments to healthcare and retirement benefits are likely to bankrupt the public finances. A resolution to this problem will need a strong political consensus to find the right blend of reductions in entitlements and increases in taxes just to keep the system afloat. Equally, the US infrastructure is in desperate need of renewal. The US stands out as one of the few nations within the OECD to have a national high speed rail network on the drawing board. This will have an impact on the long term competitiveness of the US economy. To address this issue will take a long term perspective of public infrastructure that will not work without a strong political consensus.

And there we reach, in our view, the most significant problem facing American society - an inability to conduct grown up politics. This child like nature of US politics has given rise to the problem of the US Federal deficit in the first place, and its resolution is a pre-condition to the solution of that problem. This places the responsibility squarely back at the feet of the American public. You get the politicians you vote for. Why don't Americans vote for adults for a change?


Stephen Aguilar-Millan
© The European Futures Observatory 2013

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There is a wonderful moment in the folklore of economics when the Queen, on a visit to the LSE, asked why it was that so many eminent and distinguished scholars of economics had not foreseen the length and severity of the economic downturn that we continue to suffer. Of course, some had seen the crisis in advance, forewarned of it, and were ignored. Such is the fate of Cassandra! However, it is a point well made, and one that hit home.

What the Queen touched upon was a more fundamental question: is economics fit for purpose? Up to 2007, we would have said 'yes'. The free-market neo-classical economics had delivered decades of rising prosperity and improved living standards. It was only when that particular strain of economics was tested that it was found wanting. It was found that the fundamental principles of the free-market neo-classical economics had a significant flaw - the theory was too divorced from reality. It represented a fiction of human behaviour that was overly influenced by one narrow political stripe. Under pressure, the fiction evaporated.

One response to this was to argue that the theory was right, but that it had not been followed properly. This view doesn't have many supporters now. Another view was that the theory was wrong, and that a new economics was needed, one that gave as much prominence to social contribution as was formerly given to personal enrichment. This is a theme that the Occupy movement has taken up, where social justice is seen as just as important as rising prosperity. Added to that is the growing agenda of sustainability - a world in which there is little economic growth - which helps to form the shape of the new economics.

This indicates two things. First, a growing belief that the days of relentless economic growth are numbered. If we are to see slow, or no, growth, then the issue of the distribution of income - the social justice agenda - is likely to rise in importance. Second, whereas the free-market neo-classical economics had a very restricted role for government, collective social action takes a more prominent role in defining and delivering an outcome that is more socially just. To that extend, the Occupiers are right. And they need a new economics to help them deliver that outcome.


Stephen Aguilar-Millan
© The European Futures Observatory 2013

Debate this issue further on the Deliberator site.

Occupy Wall Street may best be described as a meta-protest. The Occupy Movement, which spread from Wall Street to Occupy movements throughout the world all shared a common theme. People from different walks of life have come together to voice their displeasure at a wide range of things: bank bailouts, student loan debt, lack of healthcare, to name a few. The list is as diverse as the people involved in the Occupy movements. However, at the heart of it all, the Occupiers’ main critique is a protest against the rise of economic inequality, with much of their ire focused on the big banks, or “banksters” according to many in the Occupy movement. This is personified in their signature “we are the 99%”.

The banks have come to represent a system that has potentially failed. Bankers were given huge incentives to create complex financial products and extend cheap lines of credit, in many cases to people who normally would not qualify for loans. The bankers were making vast sums as of money when things were going well, but  when things began to unravel, these very same banks - who were engaged in a high risk / high reward game - suddenly became “too big too fail” and had to be bailed out with public funds. This incited the Occupiers’ sense of unfairness. Looking into the future, does the failure and bailout of the banks represent a turning point? Has Western style capitalism failed? If so, do the Occupiers give us any signals of what may replace it?

While the Occupy movement’s critique is accurate, they fall short in terms of any substantive solutions. The Occupiers have made a good start, but have seemingly reached the natural limits to where they could go. A solution for this could be that the Occupy movement widens its scope to help with constructing an alternative form of banking, one that can address the issues of economic equality. By joining with other groups, the Occupiers can move from being a loud voice that is too vague, to become a group working with the banks against which they protest. The purpose of this would be to create a banking system in the future that is socially useful for everyone. A banking system that contains regulatory and operational reforms, as well as dealing with the issues of equity that form the basis of the Occupy Movement. To devise a system of solidarity and reciprocity that meets the needs of our communities, not a system that divides the world into the ultra wealthy 1% and the other 99%.

Were the Occupiers right? They were. In highlighting the rise of inequality they helped to bring into light and popularize the problems of the global financial system. In coming up short in terms of solutions, the Occupiers may have reached their limits, and it may be necessary for them to reach out to other groups in order to craft a new financial system in the future, one that serves everyone, and not just the 1%.

Jason Swanson
© The European Futures Observatory 2013

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Resources:

A Leaf Being Turned: A speech given by Andrew Haldane (Bank of England) to Occupy Economics, 29 Oct 2012.

A Blueprint For Better Business?: A speech given by Archbishop Vincent Nichols at conference 18 Sept 2012.

www.blueprintforbusiness.org : Making the case for the need for change.