The Decade Ahead
Realities that will redefine our borders and economy
We have let the illusion outlive its utility. We are not observing this world from behind glass panes. Last quarter, I described the seismic shifts sweeping through our world. As we start a new decade, we are already witnessing the changing paradigms.
Money talks, no more
The fall of the “untouchable” also means that there is no more a single language for business. Money talks, no more. As the world witnessed the spectacle of printing fiat currency out of thin air for COVID-19 stimulus packages, it is about time that it realizes that true wealth does not come in monetary units. Being able to interact with fellow humans is a blessing.
Being able to contribute, and add value, to the society you live is as well. Governments would soon realize having a hard-working population in a healthy environment, amongst other matters, is a state interest. Politics, the “management” of interests, as per “Western” political schools of thought, would become the new currency. As such, money, and, thus, business, will become heavily politicized.
We are already seeing this as Big Tech censors the president of their motherland, and major outlets report their misunderstanding of Chinese politics as they claim the “Yuan” is weaponized.
The Chinese government understands that money’s value is subject to its use. That is the transactional value of money is reaffirmed, as interest have dropped to lower-than-inflation or even negative rates.
Value would continue to be well-rewarded
Let us start by considering the poster-child for currencies-turned-speculative assets, Bitcoin. Bitcoin is estimated to consume 77 Terra! Wh of energy annually, the CO2-equivalent of nearly 2 million transatlantic flights.
On top of that, this energy consumption is by design! It would only exacerbate as the Bitcoin becomes harder to mine. We need to stop this mockery. Sure, it might serve as a hedge against inflation.
After all, it hit an all-time high of $40,000, double that of its previous bull cycle in 2017, $20,000, all while the U.S. printed $3 trillion to support the fight against COVID-19. Consider this for a second, the new bull run reached double the previous peak, as the U.S. nearly doubled its printed currency from $4 to $7 trillion.
And what value did Bitcoin add? Speculation itself, is perhaps akin to a do-nothing scenario, yet another feat on the climate change scene.
Speculative investment inhibits growth. Consider how harder it is to mine Bitcoin, and help the platform achieve its true goal of decentralization, after it has been propelled by speculation. Similarly, the Lebanese real estate sector demonstrated the limits of speculation, or the “Greater Fool Theory”. This is not far from the subprime mortgage crisis of the late 2000s.
Such lines of thought promote rent-seeking, seeking wealth gains without productivity increase. Historically, with Germany, Japan, Singapore and others, we’ve seen that the road to economic recovery started with labour-intensive industries. Even though construction is itself labour-intensive, real-estate speculation is not.
It is important to identify the lines between the two, as a booming real estate sector penalizes growth. At the very least, the population would not be content growing with overpriced land and housing.
Let us look away from real estate to the industrial sector. As General Electric (GE), for example, restructured to meet its survival goals, it had cut down the revenue share of GE Capital arm from nearly 40% in 2008 to under 10% now.
Consider also the automotive sector which had its time in the limelight following the Great Recession. Companies in the sector cash in nearly 80% of their revenue from after-sales and “financial” services. However, Tesla’s valuation is more than the largest 9 automakers combined.
This is because regardless what we think of the company and its founder, its adding tremendous value to the industry, and on several fronts, electrification, self-driving development, and even industrial development and automation. Remember how it has been setting up factories in record times, as an example.
We must foresee an equitable world, despite ups and downs
Sure, the stock market has been doing great after its post-lockdown recovery. Compare this to Tesla’s nearly 1000% valuation surge, however.
A lot of articles going around these days speak about inflation, I will spare you the record tape. In short, the investments that are typically marketed, in an almost Soviet-style orchestrated propaganda nowadays, at best are a store of value, not wealth-minting machine.
The S&P 500 is projected to rise by 14% in 2021? Well, food prices have already soared 38% amidst the pandemic. The best way to build wealth remains to contribute your share of work to society. In short, as the world figures out fiat currency is no currency at all, investment stores value, while work creates it.
Think about it. I’m rather saddened by all those bright young men deluded that they will sell their lives and put it into some cryptocurrency, and live at the edge of life “until the time is right”. However, even Warren Buffet puts in hours learning and understanding the businesses he is going to invest in, only to serve on their boards and further guide the development of these businesses after he has already invested.
Apart from investment and work, let us consider the quality of life. The word is out that “Globalization is ending”. Technology which brought the world closer together has further developed to allow vernacular economies to flourish. I am not here to speak of decentralization, which effects I have already hinted at in Seismic Shifts and Mesoeconomics.
This is just to say that as our worlds become more vernacular, more localized, the borders in fact disappear faster. We would see the quality of life equilibrating around the globe. This would mean that some “developed” societies would deteriorate, while other “developing” nations improve.
Apart from the historical path to this point in time, and the future that is ahead of us, this is a reminder to live fully, working our hardest to contribute to these societies which call ours. We can no longer afford to observe our world from behind the looking glass.
I am an engineer based in Beirut. I write on multiscale, and I write with metaphors.