Author: ag2806

Fourth industrial revolution

I believe technology serves us best when it gives us more time to do things that are uniquely human. This includes activities that are enjoyable, creative, and productive.

For nations and societies, the “good” or benefit of technology is often expressed in economic terms, in measures such as workplace productivity and business growth.

As we move into the Fourth Industrial Revolution and the digital transformation of life as we know it, the potential benefits and risks of this new era are in ongoing discussion, in Davos and elsewhere.

Will the Fourth Industrial Revolution deliver on its promises? Is it simply hype, or will it be a massive engine driving productivity gains, economic growth, and business success?

Forecast for growth

By calculating when these digital technologies could reach their tipping points and by applying historical formulas, Nokia Bell Labs has projected a significant productivity jump, as much as 30% to 35% in the U.S., starting at some point between 2028 and 2033. This is a similar leap to the 1950s and could add approximately $2.8 trillion to the U.S. economy. Similar gains are anticipated in India, China, and other nations.

Exchange rates

If you travel internationally, you most likely will need to exchange your own currency for that of the country you are visiting. The amount of money you’ll get for a given amount of your country’s currency is based on internationally determined exchange rates. Exchange rates can be either fixed or floating. Fixed exchange rates use a standard, such as gold or another precious metal, and each unit of currency corresponds to a fixed quantity of that standard that should (theoretically) exist. For example, in 1968 the U.S. Treasury determined that it would buy and sell one ounce of gold at a cost of $35. Other countries would establish their own cost for the equivalent ounce. A floating exchange rate means that each currency isn’t necessarily backed by a resource. Current international exchange rates are determined by a managed floating exchange rate. A managed floating exchange rate means that each currency’s value is affected by the economic actions of its government or central bank.

The managed floating exchange rate hasn’t always been used. The gold standard controlled international exchange rates until the 1910s. Another very similar system called the gold-exchange standard became prominent in the 1930s. This system allowed countries to back their currency not in gold but with other currencies on the gold standard, such as U.S. dollars and British pounds. The International Monetary Fund (IMF) was responsible for stabilizing the currency exchange rates until the 1970s, when the U.S. ended its use of fixed exchange rates.

The dwindling amount of gold resources forced the U.S. to give up any gold-controlled standard, and the international monetary system began to be based on the dollar and other paper currencies. Governments can stabilize their exchange rates by importing a smaller amount of goods and exporting a larger amount. Similarly, they can devalue other currencies to boost the status of their own by selling them to other countries. The gold-standard exchange and the IMF added stability to the world market, but it didn’t come without its own problems. Linking a currency to a finite material would make the markets inflexible and could potentially lead to one country’s being able to economically isolate itself from trade. With a managed floating exchange rate, countries are encouraged to trade.

Where economy starts

Defining an Economy

Most economies are distinguished from one another by regional boundaries (the U.S. economy, the Chinese economy, the economy of Colorado), although that distinction has become less accurate with the rise of globalization. It doesn’t take a planned government effort to create an economy, but it does take one to restrict and artificially mold it.

The fundamental nature of economic activity only differs from place to place based on the restrictions placed on economic actors. All human beings are faced with resource scarcity and imperfect information. The economy of North Korea is very different from South Korea, despite a similar heritage, people and set of resources. It’s public policy that makes their economies so distinct.

Economic Formation

An economy forms when groups of people leverage their unique skills, interests and desires to trade with each other voluntarily. People trade because they believe it makes them better off. Historically, a form of intermediation (money) is introduced to make trade easier.

People are financially rewarded based on the value others place on their productive outputs. They tend to specialize in those things in which they are most valuable. Then they trade the portable representation of their productive value – money – for other goods and services. The total sum of these productive efforts is referred to as an economy.

Growing an Economy

An individual laborer is more productive (and worth more) when he or she can more efficiently turn resources into valuable goods and services. This could be everything from a farmer improving crop yields to a hockey player selling more tickets and jerseys. When a whole group of economic actors can produce goods and services more efficiently, it’s known as economic growth.

Growing economies turn less into more, faster. This surplus of goods and services makes it easier to achieve a certain standard of living. This is why economists are so concerned about productivity and efficiency. It’s also why markets reward those who produce the most value in the eyes of consumers.

There are only a handful of ways to increase real (marginal) productivity. The most obvious is to have better tools and equipment, which economists call capital goods – the farmer with a tractor is more productive than the farmer with just a small shovel.

It takes time to develop and build capital goods, which requires savings and investment. Savings and investment increase when present consumption is delayed for future consumption. The financial sector (banking and interest) provides this function in modern economies.

The other way to improve productivity is through specialization. Laborers improve the productivity of their skills and capital goods through education, training, practice and new techniques. When the human mind better understands how to use human tools, more goods and services are produced and the economy grows. This raises the standard of living.