Capacity and despair

After Brexit the big money got it wrong again, and mispriced the odds of a Trump victory. The primary reason is that betting odds are ‘not democratic’, if one has ten times the money as the average it takes ten others to even up the odds. However, during the election/referendum the rich guy will still only worth one, he might be enough to give a false impression about chances and ‘public opinion’.

“How could this have happened?” millions asked around the world after the results came in on the 9th of November. My short answer: capacity constraints.

Since the dawn of time and economics the workers had to compete with technology. Don’t get the wrong idea, this has nothing to do with capitalist institutions, or free trade, nor modern economics. There is only one ultimate goal here: produce more with the least possible effort made. Wheel, plow, sails, spinning jenny, just a couple of capital instruments which made tens of thousands people’s labour redundant (and the individual more efficient), but, over time, this spare capacity can be used in other sectors of the economy. Unfortunately, this restucturing and retraining can not happen overnight.

That was the capacity part, now lets see the constraint. Because of certain compensating effects capacity gains have to be mean reverting over time. If there is a sudden change in technological progress and the structure of the economy the pool of workers contributing will shrink rapidly, compensating for the efficiency gains. Redistribution will become more problematic, and the redundant workforce will advocate the return to the old world order.

This helplessness and despair are surfacing on nowaday’s political stage, and it seems to be gathering momentum, even if the idea goes against centuries of economic progression.

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