Q&A: Famed economist Henry Kaufman says robots are 'greatest challenge' to workers

Adam Shell | USA TODAY

Show Caption Hide Caption Trump may have helped stocks, but other presidents have done more The S&P 500 is up 21% since Election Day.

Henry Kaufman, 90, the renowned economist, former managing director at Wall Street firm Salomon Brothers and author of Tectonic Shifts In Financial Markets, shared his views with USA TODAY on the future of the American worker, tax cuts and the middle class, the retirement savings crisis and the risks facing computer-driven markets.

Kaufman is president of Henry Kaufman & Company, an economic and financial consulting firm established in 1988.

USA TODAY: Robots are invading the workplace. Is technology a threat to middle-class workers?

KAUFMAN: The greatest challenge that workers face and we as a society face is that labor over a longer period of time will become more and more obsolete. Labor will be replaced by machinery, automation, innovation, robotics and artificial intelligence (AI).

USA TODAY: Won't fewer jobs mean more problems for politicians?

KAUFMAN: This would be a great challenge to the nation's social fabric and how we maintain living standards for the average citizen — how we put people to work and how we retire them. How do we handle this? We cannot all be computer specialists, and even if you are computer literate, the obsolescence in that area will increase very significantly as AI begins to make inroads.

USA TODAY: Worker wages and raises have been lagging despite record corporate profits. Will tax cuts from federal lawmakers help the middle class as much as promised?

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KAUFMAN: A cut in the taxes of the middle class will ease their financial burden somewhat. It will moderate the rate of increase in their borrowing. But the tax cut will have to be significant. I have not seen anything, so far at least, that will really ease borrowing that households have to do to maintain their standard of living over the next three to five years.

USA TODAY: The stock market is booming and at record highs nine years into the bull run. Should investors embrace the rally or fear it?

KAUFMAN: There are some statistics that are a little bit disturbing. Stock prices are very high. Price-to-earnings ratios are very high. Interest rates are by historic standards quite low. We also know that there has been a huge amount of borrowing by corporations in this recovery. These are all warning signs.

USA TODAY: Do those yellow flags point to a big drop in the market anytime soon?

KAUFMAN: We don’t yet have the conditions that would suggest a misfiring. Profits are still rising for corporations. Dividends are still growing. Corporations are still buying back shares in the open market. Interest rates are not yet competitive with stocks. And monetary policy continues to be easy.

USA TODAY: So what could cause the market to misfire, or sell off?

KAUFMAN: A misfiring could come from computer problems in the financial system that cause trading glitches. A short-circuiting of major computers, where prices change rapidly and it is difficult to stop. Problems could occur if there was an international military event. But none of that is predictable or immediately on the horizon. Other possible causes are if the Federal Reserve tightened monetary policy significantly or if the U.S. dollar came under attack.

USA TODAY: Is there another financial crisis looming?

KAUFMAN: There will be another crisis. But it isn’t imminent.

USA TODAY: Could the market suffer a 1987-style crash?

KAUFMAN: With all of the hookups and tie-ins with computers and markets, that can happen. It poses risks. But no one can project when it will happen and how it will happen.

USA TODAY: Is the economic optimism surrounding President Trump and his proposed economic policies warranted?

KAUFMAN: There are a few things to recognize here. No president of the United States, no secretary of the Treasury, no chairman of the Federal Reserve, no chairman of the Council of Economic Advisers, has ever forecasted or projected an economic downturn. So you cannot really depend on the projections of those government officials.

USA TODAY: With workers making less money, fewer companies paying out traditional retirement pensions and technology stealing jobs, won't saving for retirement continue to be a challenge for most Americans?

KAUFMAN: When you have this kind of shift, it means households and individuals will not have the pension benefits that will allow them to maintain their living standards. They will have inadequate savings. Ultimately the government will be faced with having to increase social security payments to help maintain the standard of living of the elderly.

USA TODAY: So the retirement savings crisis is real and will get worse?

KAUFMAN: Yes. It will get worse.

USA TODAY: Any advice for middle-class savers and investors as the bull market ages?

KAUFMAN: I would suggest some increase in savings. Save somewhat more for a rainy day. Conditions in the financial markets can get somewhat better, but they are already quite good. At this stage of the cycle you don't want to be an aggressive risk-taker. If you go into the markets you ought to have high-quality investments. You want to have marketable investments that you can buy and sell readily.