The whirlpool economy
Stagnation has spread like damp, deep into our economies. Japan is still struggling to resuscitate an inert economy 20 years after the implosion of a disastrous bubble initiated a prolonged slump. Much of Europe is in the grip of deflation.
The German economy is running out of steam. The European Central Bank deems the situation so serious it is printing billions of euros to flood the markets with money. The US is doing better: the stock market, corporate profits and employment growth are all strong, at least for now. In 2014 the US economy added about 200,000 jobs a month. But the surge has been a long time coming: over the last five years growth has been less than two per cent. Few are completely confident this marks the start of a period of prolonged growth; it would take a remarkable US recovery to pull the world economy out of the doldrums the IMF has forecast for 2015.
"Many people are hanging on to what they have, learning to get by rather than get ahead."
Even if the US economy grows, most people are unlikely to feel much better off: the vast majority of middle-income workers have not seen their wages rise for years. They live on narrow margins without savings to fall back on and are now unable to borrow from banks. Many people are hanging on to what they have, learning to get by rather than get ahead. Wages are stagnant even if, in some places, the economy is not.
Yet this state of stagnation is a very strange one, for it comes at a time when our lives are in the midst of incessant change, much of it brought on by what claim to be radical innovations. Far from being stuck, modern life often seems highly fluid, provisional, uncertain and unpredictable. If the tech evangelists are to be believed, quite soon the skies of our cities will be buzzing with drones delivering packages, while down below computer-controlled electric cars will whisk us around as we catch up with crucial developments in our social media networks.
Technologies such as 3D printing are about to come of age, offering not just fast ways to build homes and make furniture but custom designed prosthetics and even replacement organs. Every household could become a high-tech Downton Abbey with clever little robots unloading the dishwasher and laying out our neatly ironed clothes before we go to sleep in freshly made beds. Machines capable of rapid learning and recognising complex shifting patterns will be able to take over tricky jobs, like driving. Far from being stuck in a lifeless mire, we stand on the edge of an unruly and energetic cornucopia as these technologies combine, gather momentum and open up countless new opportunities for us to live better lives.
"Could we now live in an era where the economy is stagnating in part because there is so much innovation?"
So which is it, a time of listless stagnation or disruptive innovation? The truth, of course, is that it is an odd mix of both.
In previous eras, from the middle ages through to the 1970s, stagnation went hand in hand with low innovation: the economy stagnated because there was little underlying dynamism, few new ideas and limited opportunities for entrepreneurship. Could we now live in an era where the economy is stagnating in part because there is so much innovation? Stagnation and innovation are combining to create a vicious whirlpool in which everything moves very fast and yet stays in the same place. Perhaps that helps to explain the dissonant feelings the always-on rush of modern life creates for so many people.
Technological tools that offer to make us more productive by undertaking tasks for us just end up helping us work longer hours, answering a torrent of emails, bleeps, updates and alerts. We feel busier than ever as digital diaries fill our days with meetings, yet oddly unproductive as achieving anything substantial requires extended periods of focus. One minute we’re over-stimulated by the screens that are our constant companions; the next we’re rendered powerless and listless by signal loss or the system going down.
All of these common feelings reflect a deeper disquiet: many feel richer and poorer at the same time. While wages stagnate, the squeezed middle classes hunt for bargains on moneysavingexpert.com; rent out their spare rooms on Airbnb; get driven around by someone earning a little extra by working for Uber on his day off; and entertain themselves for free on YouTube.
This would not be the first time our economies have suffered from a toxic mix thought impossible by orthodox economics. The 70s were a time of stagflation: slow growth combined with stubbornly high unemployment and high inflation. Now we live in a time of stagnovation: slow growth combined with incessant innovation and rising inequality. Are stagnation, innovation and inequality becoming locked together?