Technology and finance are creating a huge social whirlwind

Imagine two large hurricanes approaching each other at sea. When they finally collide, something unusual happens: they merge and become larger and more powerful. This phenomenon is called the Fujiwara effect.

Hurricanes represent two giant forces at play in society: technology and finance. This is what Victor Schwetz argues in his book Three Empires, Four Turning Points, and the Future of Mankind.

First, let's talk about the technology. This is a fast moving cyclone. The age of technology means that human performance is diminishing. A McKinsey study confirms that the pace of current technological change is 10 times faster and 300 times larger, i.e., 3,000 times larger, compared to the industrial revolution.

While the Industrial Revolution perfected humans, the technological age transformed them.

Why is it moving so fast? Because money to fund new technology ideas is cheaper and more plentiful than ever. financing, That means the second hurricane.

Funding is like pouring gasoline on a technology fire. This makes it easier to get funding for new ideas and projects and thus spread at a faster pace. So, when these two forces of technology and financialization meet, they reinforce each other and create an even greater impact on society.

But here's the dilemma: As technology advances and becomes more accessible, it begins to replace jobs and drive down the prices of products and services. This may sound good at first, but it will cause problems for many economies that are not prepared for a world where prices fall towards zero.

For example, when prices keep falling, people wait without spending their money. This leads to deflation. In other words, when prices continue to fall and the economy stagnates.

To avoid this, governments bring consumption from the future to the present. They engage in debt with the intention of encouraging consumption today at the expense of future consumption.

Debt has the potential to go into the future and back into the present, and is not limited by time or space. I can take purchasing power from my future self and vice versa. Money in the form of debt flows into financial assets like stocks, houses or cryptos, and prices rise.

It is the holders of such assets who benefit by seeing wealth increase. Others see how it is becoming increasingly difficult to buy property as it becomes increasingly expensive. Low-income households have to go into debt, which costs more assets that higher-income households already own.

As a result, we see a growing gap between those who have more and those who have less, and this is how social and political tensions arise, often manifesting in protests and the rise of populist leaders.

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The author is a financier, director for Latin America at Frontclear and co-host of the economic-finance program on YouTube.