Having experienced the dot-com boom and bust, and the housing crisis, you would think people who lived through them would be more sensitive to signs of a looming recession. But it’s a characteristic of bubbles that irrational exuberance rules the day. So I wanted to counterbalance some of that exuberance with musings—I wouldn’t call them predictions—of how the next recession may unfold:
If you thought subprime lending was done, think again: it’s just shifted from housing to cars. And delinquency rates are rising. This is worsened by declining used car prices. And with self-driving cars just a few years away, many people will give up owning cars, further driving down prices, making it harder for people to repay loans.
There are 170,000 fewer retail jobs in the US in 2017, in part due to ecommerce and automation. And it’s not just retail jobs affected, but retailers with physical stores, who are massively in debt. That debt starts coming due primarily between 2019 and 2025, likely meaning more bankruptcies and fewer retail jobs. If those retailers go bankrupt, people may not pay their retail credit cards, which exposes banks to the carnage.
If jobs shift from physical spaces to the brains of data centers, why have all those offices? Just as the retail debt comes due, the need for commercial real estate will decline, exacerbating declining demand for commercial real estate.
GM is shooting for a 2019 launch of a self-driving taxi service, and there’s lots of competition. Many companies are also working to automate truck driving.
The recently introduced US tax bill allows companies to write off the full value of automation equipment immediately, which makes it more economically attractive to replace people with machines.
But the stock market is at bubble levels. A lot of people are going to get burned. (I’ll leave aside the question of Bitcoin’s valuation as it’s a topic in and of itself.)
So, I don’t have the timeline exactly, but at some point soon the economy will go off a cliff: people are over-leveraged, possess assets of declining value, and could soon lose access to many employment opportunities. Meanwhile, tax cuts and existing low interest rates will minimize the government’s ability to soften the blow. Perhaps this will be the spark that ultimately ignites the movement to a basic income.
What do you think? Did I miss anything? Am I being too pessimistic? I’d like to expand on some of these ideas, so if you have suggestions, please post them in the comments.
Update: Updated formatting on December 9, 2017 and added Google Trends image.
