America’s Economic Storm: Are We Ready?

⏱️ 13 min read             

The storm is coming, but no one sees it. Inflation seems under control, unemployment is very low, and wage increases are climbing. On the surface, everything looks great. But what if this calm is just the eye of a storm? 

The U.S. economy may be sleepwalking into a disaster—and the warning signs are being ignored. Are we prepared for what’s coming next? It’s time for uncomfortable realities hiding behind the fantastic economic headlines. 

Welcome to That's Life, I Swear. This podcast is about life's happenings in this world that conjure up such words as intriguing, frightening, life-changing, inspiring, and more. I'm Rick Barron your host. 

That said, here's the rest of this story 

A major storm is looming on the horizon, and Americans are unprepared for its potential impact. What could be brewing within it? Three monumental shifts are advancing toward us, each set to redefine the U.S. economy in the years ahead: 

·       an aging population

·       the rise of artificial intelligence

·       and the reconfiguration of the global economy

These trends should not be a shock, as they have gradually unfolded in plain view. However, what hasn't been fully grasped is how these forces' intersection could transform American workers' lives in ways not seen since the late 1970s, when wage inequality spiked and low-end wages stagnated or even declined.

Now, there are two sides to this coin.

If navigated effectively, these challenges could revolutionize work, driving significant gains in productivity, wages, and opportunity—outcomes that the computer age once promised but never truly delivered. 

On the other hand, if we falter in managing this transition, it could lead to fewer well-paying jobs and a less vibrant economy. Our choices in the next five to 10 years will decide our course.

Our increasingly shortsighted political system is ill-equipped to prepare us for the challenges ahead. Neither political party is giving these issues the serious attention they deserve, nor have they presented any comprehensive strategies to invest in the American workforce for the coming shifts.

The U.S. workforce is facing an unprecedented aging trend. 

Work by age range. Courtesy of Harver

·       In 2000, there were about 27 Americans over 65 for every 100 people in their prime working years (ages 20 to 49). 

·       By 2020, that number grew to 39; and by 2040, it’s expected to reach 54. 

This aging is primarily due to declining fertility rates, so the U.S. workforce will soon begin to grow at a slower pace. If immigration decreases, as seems likely regardless of election outcomes, it will only intensify the aging problem.

Many sectors, like manufacturing and construction, rely on physical strength and stamina—qualities that naturally diminish with age, even as health improvements are made. Workers tend to reach their highest productivity in their 40s. Additionally, younger individuals tend to be more entrepreneurial and willing to take risks, qualities that America and many other economies desperately need.

Over the past 30 years, countries like Japan, Germany, and South Korea have aged at nearly twice the rate the U.S. is experiencing now, providing valuable examples to learn from. The encouraging part is that despite their rapid aging, these nations' economies have not lagged behind other industrialized countries, and key labor-intensive industries, such as automotive manufacturing, machine tools, and chemicals, have remained strong.

The explanation is straightforward: they turned to automation, including industrial robots and advanced machinery, to handle tasks that younger workers once performed. In parallel, these countries invested in retraining their workforce to adapt to new roles that complement automation. For instance, German car manufacturers upskilled their blue-collar workers to handle more technical jobs like repair, quality control, and operating digital machinery while robots were integrated into production lines. This approach led to significant productivity gains and continued wage growth.

There is a possibility that a labor shortage could benefit the U.S. economy. From 1980 to the mid-2010s, wages for less-educated workers stagnated or fell. A tighter labor market can increase wages, especially when paired with smart investments in technology and workforce development.

Unfortunately, this isn’t the reality in the United States today. While investment in robotics has surged, it hasn’t been matched by sufficient investment in human capital. The workforce is still largely unprepared for roles requiring technical expertise and precision skills. This lack of skilled labor was one of the key reasons behind the delay in opening Taiwan Semiconductor Manufacturing's first U.S.-based chip plant. If the U.S. fails to integrate advanced machinery with a more highly trained, adaptable workforce, it could face further setbacks in manufacturing. This very sector has traditionally provided stable, well-paying jobs.

Similar opportunities exist, though they are likely to be squandered regarding artificial intelligence. Despite the claims of its biggest advocates, who hail A.I. as the ultimate technological disruption and the pinnacle of the digital age, the challenge of adapting to A.I. closely mirrors that of adjusting to an aging workforce.

At its core, A.I. is simply an information technology. It won’t bake your cake or mow your lawn, nor will it take over running companies or conducting scientific research. What A.I. can do is automate various cognitive tasks typically handled in office settings or on computers, while providing enhanced data to aid human decision-making—potentially improving these processes dramatically over time.

But this transformation won’t happen overnight. As of early 2024, only around 5 percent of U.S. businesses reported using A.I. The technology is far from flawless (as demonstrated when Google’s A.I. initially struggled with basic logic, like determining whether eating rocks was advisable). Adopting A.I. across industries will be gradual, with its full effects not likely to be realized until the mid-2030s. How deeply it reshapes the economy will depend largely on how well corporations and workers prepare for its arrival.

What we do need is a comprehensive national strategy to ensure that A.I. doesn’t merely replace jobs and displace workers but creates new roles and skill sets for them. This isn’t just about addressing the inequality that rapid automation could cause or the concern among tech elites that mass unemployment might trigger public outrage. The evidence shows that technology boosts productivity more effectively by enhancing workers’ abilities, enabling them to perform tasks better and tackle more complex challenges.

Again, what’s happening is unfolding right in front of us. It’s like a speeding train coming down the tracks and we’re not paying attention to the warning bell.

Henry Ford’s groundbreaking success with automobile production wasn’t only due to advanced machinery but also because workers were trained for various technical tasks, such as repairs and maintenance, that made the whole system work more efficiently.

Today, most of us are engaged in problem-solving in some capacity. Whether it’s an office worker making decisions on loans or hiring, a scientist or journalist seeking answers, or a tradesperson handling repairs and overcoming real-world challenges, we all can be more productive and broaden our skill sets when equipped with better information.

However, we seem poised to mismanage this technological wave even more than the aging crisis. The tech industry remains fixated on developing “artificial general intelligence”—the lofty and distant goal of creating machines that mimic human intelligence and can take over all tasks. Meanwhile, much of the current focus is on using A.I. for automating tasks or generating digital ad revenue, rather than empowering workers with the tools to grow alongside it.

The true potential of A.I. will not be realized on its own. For that to happen, A.I. models must become more specialized, fueled by higher-quality data, and more reliable in integrating workers' knowledge and information-processing skills. Unfortunately, these priorities aren’t high on Big Tech’s current agenda.

A clear policy solution to address the challenges of an aging workforce and the rise of AI would be to invest in worker training, perhaps through tax incentives or subsidies that encourage reskilling for new tasks and industries. 

It’s not just the workers who need to be prepared—our technological infrastructure also does. Here, the federal government could play a pivotal role, potentially by establishing a new agency responsible for identifying and funding A.I. technologies that enhance worker productivity and help address the looming labor shortages.

Globalization might seem separate, but there are important similarities. The period of rapid, largely unrestricted globalization that followed the Soviet Union's collapse has ended. While this era benefited Western consumers and multinational corporations through access to cheap labor abroad, workers didn’t fare as well.

What comes next in the global economy is still uncertain. 

·       We may see a more fragmented system where countries focus on trading with allies and partners, leading to similar trade flows as today, though possibly with less reliance on China and more on nations like Vietnam. 

·       Alternatively, we could enter a period of higher tariffs and reduced international trade. 

·       Another possibility is a mix of trade barriers and industrial policies, such as what the Biden administration did with the Inflation Reduction Act and CHIPS Act, aimed at fostering domestic investment and manufacturing in key sectors like advanced electronics, electric vehicles, and renewable energy.

This shift is gradual but carries major consequences for workers. While the promise of reshoring manufacturing could create new job opportunities and potentially higher wages, building up new industrial capacities takes time. 

And as we know, Americans are an impatient breed of people. A shortage of skilled labor could stall this progress. Unfortunately, as with other challenges, the U.S. workforce is once again unprepared for what lies ahead.

The silver lining is that we still have time, and by seizing the opportunities brought about by aging, A.I., and the evolving landscape of globalization, we can create a collaborative improvement across these areas. The skills employers and educational institutions require to address these significant changes are quite similar. Additionally, the right applications of A.I. can significantly aid us in tackling the challenges related to an aging population and the transformation of global trade.

What can we learn from this story? What's the takeaway?

On the downside, the storm coming is not receiving the attention it warrants, despite being far more significant for our future than debates over price gouging, tipping taxes, or minor fluctuations in inflation rates. If we don’t prioritize these matters and take decisive action, we risk not only mismanaging them but also facing a more challenging future of work.

Well, there you go, my friends; that's life, I swear

For further information regarding the material covered in this episode, I invite you to visit my website, which you can find on Apple Podcasts for show notes and the episode transcript.

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