Updated: Feb 10, 2021
You sometimes see these cliché headlines stating that the rich are getting richer. Well for the next decade anyway I believe this is true.
I happened to read an interesting article in Yahoo finance recently which is an interview with Robert Kiyosaki of Rich dad poor dad fame. By and large the article was a complete waste of time, full of grandiose statements by the author who claimed that those who invested in stocks to build wealth for the long time were idiots. Clearly the guy knows nothing about Warren Buffett or Peter Lynch or any other successful stock picker who milked significant wealth from buying and holding top-quality stocks.
However the one relevant statement that he continued to make was that the key to long-term wealth is the ownership of assets. Now while one could observe that not pursuing stock ownership as a path to long-term prosperity would appear in apparent contradiction to this claim of asset ownership (after all, what are stocks if not claims on ownership of a business), I kept reflecting on his claims of asset ownership being key to long-term wealth and why that was such an astute observation.
Kiyoskai's point is really that most of us have been ingrained to work for a living. We've been taught that the path to economic freedom is to go to college, graduate, put ourselves in debt, get a job for the next 30 is steadily save and then pursue the path of retirement. Rarely do we do anything ourselves to break free from this cycle where were essentially tied to wage income.
Of course there's a movement now towards accelerated financial independence that typically involves a path to freedom through stocks and real estate ownership or pursuit of one's own business ventures. While this is more the exception than the rule, I've increasingly come to believe that for future generations, the ownership of capital is going to be all the more instrumental to the path to independence.
Asset ownership typically results in significantly greater and faster returns on your productive assets than the provision of your services to somebody else. You only have to look at the returns on stocks over a long period of time and annual increases in corporate productivity to see that that's the case.
While your wages may go up slightly more than the cost of inflation (think of those annual 2-3% merit increases!), stock returns tend to average almost 10% over a long period of time while corporate profitability increases can also be double digits depending on the sector of the economy that you work in.
Of course, this trend is well established. However, its only going to accelerate going forward. Why is this? Well, to answer this question, I wanted to reference something very interesting that Uber is doing in Detroit and a couple of other trial markets. The ride sharing company is enabling you to hire a ride that is fully automated...you heard that right...your next Uber ride may not be manually driven.
From the time when you summon your ride, to being picked up and ultimately dropped off at your destination it's the vehicle that is fully in control of your journey. While Uber will have an individual sitting behind the wheel this is more for near-term regulatory purposes as regulations are worked out to follow what technology can actually do. This is just one example of the type of innovation and disruption is going to be enabled as a result of artificial intelligence and machine learning. The primary impact of this new technology is going to be felt on the average wage who will be automated out of a job.
While automation itself has been around for quite some time, its impact was primarily on those in the manufacturing sector. This latest round of artificial intelligence innovation is more profound. It will likely mean the replacement of a significant number of middle class jobs in high paying sectors like accounting, finance, IT, call center, insurance and medicine.
Artificial intelligence will enable the automation of tasks requiring human intelligence, deduction, reasoning, skill and execution. Its a scary new world for the average wage earner...packages will be delivered by drones flying in the sky, forget your delivery drivers. Cars will drive themselves to your house to pick you up, you can bid drivers goodbye.
Chatbots, not people, will tell you what deals are happening, what you should buy and when you should buy it. Your medical diagnosis and prescription will be given by some algorithm in the cloud. Sound too science fiction? Whoever thought we would have self cleaning robots that clean up and dock themselves once they are done!
The next decade will arguably bring a significant amount of change in terms of the automation of tasks. That will be an exciting time for all of us. But the impacts on the labor force will be quite profound. A drive to efficiency and scale will likely see many types of jobs wiped out or significantly scaled back.
Rewards will accrue to owners of capital as they enjoy ever increase rates of productivity, while wage earners bear the brunt of progress. If there's one thing that I feel with strong conviction, its that the owners of productive assets, generally the already rich and wealthy, will surely get richer.