On Technology, Globalisation and Jobs; Inflammation and Plant-Based Diet

From: aditya rana
Date: Sat, Dec 13, 2014 at 2:03 PM
On Technology, Globalisation and Jobs; Inflammation and Plant-Based Diets!

Hi!,

With 2014 drawing to a close, and it being a good year for a wide variety of risk assets (ably aided by our friendly central bankers!), we can now turn our attention to other more pressing issues facing the global economy. One of the most important areas is the interplay of technology, globalization and labour. An interesting Vox note by Professor Marin from the University of Munich, sheds some light on this area and questions some prevailing views on the subject. To summarise:

-Two MIT economists recently published a well known book arguing that recent advances in artificial intelligence (i.e. driverless cars, computer programs to diagnose disease, intelligent pattern recognition software to replace lawyers, 3D printing etc) have changed our lives – the “second machine age”.

-Two hypotheses fundamental to this need to be examined further:

Hypothesis 1: Robots will bring manufacturing back to the developed world as they replace labour and make the cost of labour matter less.

Hypothesis 2: Intelligent machines will replace skilled labour rather than increase the demand for their skills,resulting in a decline in the relative price for such skills.

-Looking at the first hypothesis – anecdotal evidence of the relocation of manufacturing facilities back from low-wage countries to high-wage countries (“reshoring”) is increasing – ranging from Apple shifting some activity from Foxconn China to Silicon Valley to a PWC survey of 384 firms in the Eurozone showing that two-thirds of them have reshored some of their activities during the last 12 months and 50% plan to do so in the next 12 months.

-However, this is not backed by the data. While there was an initial drop-off in offshoring in the aftermath of the Great Recession of 2008, activity quickly rebounded and increased at a faster pace than prior to the crisis (see chart below).

-There has been a clear shift in the offshoring pattern, away from Eastern Europe to Asia, in particular to China.

-Looking at the second hypothesis, some academics have argued that the second machine age provides for skill-biased technology – and that they are complements and technology requires even more skills leading to higher demand for skills, and a rising wage gap between skilled and unskilled workers (the “college premium”). In addition, the rise in the skill premium will be even faster if education fails to keep up with technological change (as has been the case in the U.S. since 1980).

-However, looking at the data, besides the U.S. and Germany, the skill premium based on differences in higher and lower educational levels has been declining in all Western countries (see chart below).

-Why is this happening in most of Europe? Firstly, advances in education have been faster than technological change over the last two decades, with share of people with an academic degree rising rapidly in most of Europe (ranging from 2.5x to 60%), while the U.S. and Germany have only seen a modest rise of 25%.

-Secondly, the second machine age represents a capital-bias technology that requires increasingly less human capital, as physical capital replaces human capital. Technology and skills are substitutes and therefore intelligent machines are replacing lawyers, doctors, professors and journalists. There are three pieces of evidence to support this view:

The decline in the skill premium: In addition to the rapid expansion of education in Europe, the demand for skills seems to have slowed as physical capital replaces educated workers. The U.S. provides further evidence of this with the trend in the skill premium since 1999 having flattened out despite the slow rise in education which should have put upwards pressure on the skill premium (as it did in the 1980s and 1990s).

-Another possible reason put forth is that computers have increased the demand for both the highest-skilled jobs (professional and managerial)and the lowest-skilled jobs (personal services) driving out the middle-skilled routine jobs. However, the decline in the wage gap between the high-skilled and medium-skilled workers in all western countries besides the U.S. and Germany weakens this rationale.

The decline of the labour share of GDP: Prior to the 1980s, 70% of the national income went to labour and 30% to capital income. Since then, the share of income to labour has been declining in all rich countries to the current level of 58%, and research has shown that 50% of this is due to lower costs of technology allowing firms to replace workers with cheaper physical capital.

The rise in skilled unemployment: Skill unemployment in the U.S. and U.K. has doubled since 2000, while tripling in Spain and Italy though remaining steady in Germany and France. In the U.S. case, this factor combined with only a modest increase in the skill premium, in spite of a slow rise in education, suggests that capital bias technology is driving this outcome. Whereas in Germany, skill unemployment is low mainly because education has been expanding slowly there.

Conclusion: This raises an important question – are we fighting the wrong battle? The rapid rise of education in response to globalization is perhaps the wrong way to move forward as it might only lead to an excess supply of human capital earning low wages in the coming decade? The war for talent and scarcity of human capital maybe an issue of the past.

A highly though provoking and somewhat disturbing piece – particularly for parents with teenage children! Anecdotal evidence of the paucity of well paying for college graduates abound – and in a world facing the prospects of “secular stagnation” it may continue to be the case for a while? This type of scenario further strengthens the case for investing(seeking jobs) in emerging markets, which are starting from a low income, skill and capital base, which when combined with favourable demographics, provides the basis for superior job and income growth over the coming decades. Stay long EM (particularly China and India)!

Plant-Based Diet Improves Inflammation:

Came across an interesting research piece which demonstrates the importance of a plant-based diet to reduce inflammation in the body – which is increasingly considered to be one of the main root causes for a host of chronic diseases including, heart disease, diabetes and cancer.

http://www.nrjournal.com/article/S0271-5317(14)00267-X/abstract

PRCM: Dec 2, 2014.

-A plant-based diet may reduce inflammation, according to a study published online in Nutrition Research.

-Researchers examined the nutrient intake for 63 overweight or obese participants following vegan, vegetarian, pesco-vegetarian, or omnivorous diet. Those assigned to the vegan or vegetarian groups consumed more fiber and less cholesterol and saturated fat.

-They also experienced lower dietary inflammation scores compared to those on non-vegetarian or semi-vegetarian diets. A high-fiber, low-fat, plant-based diet may prevent and help treat chronic diseases linked with inflammation, including rheumatoid arthritis, cardiovascular disease, type 2 diabetes, and certain forms of cancer.

To close with an extended quote from David Katz, Yale University:

“See health like wealth. We respect wealth. We aspire to it. We hope to bequeath it to our children. We invest in it, and work for it. We care about it both for our own sake, and the sake of those we love. We recognize most get-rich-quick proposals as scams; we are sensible about money. We don’t spend everything we have today; we think about the future, and save for it. We get financial guidance from genuine experts, not just anybody who had a piggy bank once. If we simply committed to seeing, and treating, health more like wealth

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