A few days ago I was in Chicago at an investment due-diligence meeting — a group of about 80 CEO’s of investment advisory firms got to kick the tires on various investment products. At the meeting we had a chance to visit with an economist friend and we had quite a discussion regarding the fears people may have relating to jobs being eventually replaced with robots. He sent me the following article in which he continues the discussion. Don’t think I could say it any better. I thought you would enjoy reading what he had to say:

Robots Create Jobs, Don’t Steal Them
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/13/2017

If robots are supposed to take all our jobs, they’re not very good at it. Nonfarm payrolls rose 235,000 in February, rising faster than even the computer models thought they would. This was the 84th month in a row of private sector job growth, the longest streak on record.

Maybe analysts should start reading Adam Smith, Friedrich Hayek, or Milton Friedman instead of watching sequels of The Terminator. Automation does not steal jobs; it boosts efficiency and wealth, which, in turn, creates more jobs.

In spite of the evidence, many (most prominently Mark Cuban) voice the same Luddite worldview that has confronted technological change since the Industrial Revolution, when followers of Ned Ludd burned looms to save jobs.

Remember how a few decades ago ATMs were supposed to destroy teller jobs at banks? Instead, what actually happened is that ATMs cut the cost of opening branches and commercial banks have more employees today and provide wider and less expensive services than they did 25 years ago.

Supply creates its own demand. Robots and automation increase supply. The tractor increased supply. And this drives down the price of some goods and services leaving consumers with more remaining income to spend on other items. If entrepreneurs had never invented the tractor, telephone, or automobile, they never would have invented the iPad, smartphone or the barista robot.

No one knows the future. But human nature takes two major forms when it comes to the future. We either fear it or embrace it. Those who fear it are much more willing to want to manage it, which means more government involvement to counteract the fear. These people have “faith” in government.

Those who embrace it are more willing to trust that ingenuity and creativity are permanent. These people have “faith” in their fellow man and markets.

Yes, robots and automation create winners and losers! But they may not be who many suspect. The next stage of automation may move up the income distribution, substituting for doctors (think reading an X-ray, CT scan, or MRI), lawyers, economists (!) and professors.

In other words, rather than widening the income distribution, new technology may increase the supply of tasks now performed by high-income workers, meaning their relative prices fall and the income distribution narrows. No, this doesn’t mean doctors, for example, find themselves poor. It just means they might find themselves a little less rich relative to the middle class, because all this new technology will boost living standards for everyone.

Consistent gales of creative destruction have swept through our economic system for hundreds of years. So far, every technological innovation has been met by fear in some quarters. We’re sure blacksmiths and buggy whip manufacturers were not happy about the automobile.

And yet these innovations continue to boost our standard of living. It’s NOT different this time. We should be welcoming the robots, not fretting about them.

(This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy. )


Market Minute 3/24/2017 – The Future of Retail? and the Future of Healthcare?

Something relatively important happened this past week. Sears was required by accounting rules to state that it may not survive this year. That is pretty amazing I think- both that the rules require such a statement, and that a retailer that I’ve used for my whole life may possibly be on the verge of extinction.  

A bit of history for those of you who may be on the younger side: The engine of Sears growth, right from the beginning, was catalog sales. In 1888 Richard Sears first used a printed mailer to advertise watches and jewelry. As America moved West the postal system aided the mail order business by allowing the classification of mail order publications as ‘aids in the dissemination of knowledge’ resulting in a cost of postage of one cent per pound. By 1894 Sears was known as the store with ‘A Book of Bargains: Money Saver for Everyone’ and the ‘Cheapest Supply House on Earth’. And the rest was history. Sears leapt into the forefront as every home had a Sears catalog, and Sears grew to be a giant of retail business in the US.  

As I look at it, Sears may have been the Amazon of its time.  Perhaps that is why I see the great irony in that the Amazon of our time is taking sales and profits from Sears today.  In the same way that one could avoid the trip to the store by using a catalog purchase in the early 1900’s, today one can order most products and services online, and have (sometimes) free delivery within a few days.  

I read somewhere that as a group the big-box retail stores sales are down about 30% since the first of this year. This may be a sign of things to come. Progress? Perhaps.  

And I can’t help but comment on the wrangling in Congress this week. The back-and-forth over the Healthcare bill has created some of the choppiest trading since the Trump election, with major indexes set to have their worst weekly decline so far, this year. Investors appear to be worried that a failure of the healthcare legislation might damage prospects for Trump’s pro-growth agenda (especially tax reform and stimulus). Some of that concern appears to be ebbing this morning early. Other analysts, however, see getting past the healthcare bill, one way or the other, as a chance to move on to tax-reform. Perhaps Trump et al. will lose the battle, and yet win the war. Guess we’ll see. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
10000 N. 31st Avenue, Suite C-262

Phoenix, AZ 85051

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