I find Paul’s concept to be true, for the most part. Manufacturing is dying all over the world, the same way that agriculture did in the early-20th century. Productivity outpaces demand (ie, robots build things) and thus, less jobs are needed. Think of Japan, SE Asia or northern Europe, as they desperately fight to hold on to their manufacturing-based economies, meanwhile exporting their current account surpluses to the US and southern Europe who are then forced to run the corresponding deficits (unfortunately for Europe, they are on a modern gold standard; within the EU, individual countries can’t adjust their currencies to deal with differences in productivity and instead are forced to rely on European bond managers and the ECB to finance their capital deficits). Poor Greeks.

The underlying issue, however, is that we live under an economic regime to which this phenomenon is inherently deflationary. Economists and central bankers aren't equipped to deal with technological advances and the resulting unemployment specifically because they use models that aim for price and asset inflation and population growth as a measure of economic stability. Lately, their solution has been to print money and increase the supply of debt. While this has indeed helped push up the value of stocks, bonds and real estate, wages have gone nowhere. Companies aren't investing (low returns) even after having repaired their balance sheets.

This cause and effect is an unnerving combination because we’re relying on the wrong set of tools to deal with a problem that can’t (shouldn't?) be fixed. The decline in the cost of goods and plant & equipment will occur naturally as “software eats the world,” and as Paul describes, returns should go down with it, especially as barriers to entry subside and competition from non-traditional firms increases. Yet, printing money and keeping rates low to entice investment and create growth may lead to bubbles. All this excess liquidity is pushing capital allocators into riskier assets in order to beat their hurdle rates. There is more money out there than there are assets to buy, eg London (zone 1) real estate, but global growth is going nowhere.

Perhaps growth should be measured in a new way, with qualitative inputs replacing quantitative ones. More free time should be a good thing. After all, we have HBO.