Monday, November 14, 2011

The really big problem...  

I have become more convinced than ever our global economy is confronting a growing obstacle in the form of human-obsolescence on the producer side. Sure we need consumers to buy goods and services, but our demand for workers to supply them languishes without signs of a turnaround. (Which also explains the lack of consumers, duh.)

It is hard to look at technology and not see the the reason. The recession has had the odd consequence of promoting technical upgrades to lower production costs, lowering even further the need for people.

The question for me is not when where will the consumers come from, but what will they do to earn a living?
FEAR of displacement from one's job by a superefficient machine is as old as modern economic growth (which is to say, about two centuries old). It is somewhat surprising that there has not been more made of the possibility of technological unemployment during the recent recession and lacklustre recovery. Technological unemployment was widely cited as a problem in the 1920s and 1930s, a time during which productivity was soaring, inequality and unemployment were high, and instability was the norm.
The argument that rapid technological change may be generating labour market problems is given a lift in an interesting new ebook by Erik Brynjolfsson and Andrew McAfee, entitled Race against the machine. The opening chapter attempts to cast the book as a means to understand present high unemployment, which is a little unfortunate; most of current labour market weakness can be explained by weak growth, and weak growth is well explained by weak demand. It is, however, a useful contribution to the discussion of what has gone wrong in the American economy in recent decades.
The stylised facts of that poor performance are increasingly well known. Real median income has stagnated, especially over the last decade. Inequality has risen dramatically, driven by huge increases in top incomes. Employment growth has disappointed. At least some of the blame for all of this, the authors argue, can be laid at the foot of new technology. It's an interesting twist on the themes developed by Tyler Cowen in his ebook The great stagnation. Mr Cowen argues that a major slowdown in innovation is constraining potential growth, while new progress in information technology isn't providing benefits to most workers. Mssrs Brynjolfsson and McAfee tweak the argument, writing that innovation has been gathering pace and having an increasing impact on labour markets. In a nutshell, new technologies are displacing workers faster than the economy can find new uses for them. [More worth reading]
The standard answer is education, but there are signs that solution isn't working like it used to as well. Demand for college graduates is slow, salaries are dropping, and meanwhile education costs spiral upwards.

Adding more graduates to this scenario seems like pouring fuel on the fire to me. What is often ignored is technology is replacing all kinds of workers - not just those on assembly lines. In fact, the very lowest level jobs may be the most secure: hotel maids, garbage collectors, nurses aides, janitorial workers, etc.

Stanley Aronowitz and William DiFazio wrote a pretty gloomy book in 1994 with the striking title, The Jobless Future. Here is a Harvard Educational Review discussion of the book (link). What is most discomforting in reading the book today is the degree to which the factors they identify seem to be today's headlines. What does jobless mean here? In a word, it means that the US and other OECD countries will never recover the number and quality of jobs they need in order to regain the middle class affluence they had in the 1950s and 1960s. The future will involve work -- but not enough jobs to ensure a low unemployment rate. Here is their assessment in 1994:
For there is no doubt that we have yet to feel the long-term effects on American living standards that will result from the elimination of well-paid professional, technical, and production jobs. At the same time, nearly everyone admits that many of these jobs are gone forever. (xi)
The central structural factors they identified in 1994 are still key parts of our economic environment today: technology innovation replacing labor, rising productivity producing persistently flat labor demand, shifts in the structure of the economy towards finance and service sectors, and internationalization of production. [More gloomy pondering]
I cannot see why our profession will be exempt. In fact, only land ownership seems to be a guarantee against displacement: when your buy a farm, you buy the right to name the farmer.

We are currently in the process of attracting many young and youngish farmer aspirants back to rural America. More than a few I suspect are doing so because of lack of alternatives such as mentioned above. Like professions such as law, medicine, administration, management, etc. demand for workers in our industry - regardless of how highly trained - will be limited.

We know what happens when labor demand falters. It can be seen in history books in examples as diverse as Middle Age economies (guilds) to the USSR (an economy based on who you knew). Jobs will be THE commodity of the future, I'm afraid. And the social and economic gaps between those who do and do not have one will widen and worsen.


Anonymous said...

It seems that unbridled capitalism ultimately leads to the need for socialism.

acomfort said...

And we all know the tax code is rigged against individuals and in favor of Wall Street. I've never believed that we should be taxing labor at nearly twice the rate that we tax winnings from gambling ...oops, I mean "investment".

There is a problem with taxing labor and maybe I can tickle your imagination a little about other possibilities.

With the current extreme loss of jobs in the US as a backdrop maybe we can increase jobs and possibly move the type of work we do to a little closer to what will be needed as Fossil Fuel Energy Slaves (FFESs) become less available.

Currently we do not tax things that we consider good for our society such as churches, non-profits, prescription drugs etc. We tax heavily some things that are bad for society such as cigarettes and booze.

What is better for our society than Jobs and they have several taxes on them. Maybe we should stop taxing jobs. Can you imagine that? It isn't easy, as it seems to be just a natural part of working for a living. But . . . just imagine what that would do for the incentive of the employers to hire more. Less paperwork, less expense (no taxes to withhold, no social security tax for the employer to pay. The pay (employer cost) could decrease and the employee would still take home just as much (no deductions).

Include universal health care and that would be one less thing the employer would not have to pay for or bother with. But this is another topic.

(1) If you can imagine eliminating taxes on jobs, then the obvious question is, how to recoup all of that lost tax revenue. Others have better answers than I, but we could start or raise taxes on all gambling errr I mean financial transactions.

(2) Another possibility is taxing jobs, yes I said jobs, and what I mean is, tax the job done by man, woman or machine. It just seems fair that a machine doing the jobs of 10 people should pay the same tax as 10 people doing those same jobs. This gives people a better chance to compete with machines. Farmers aren’t going to like having to pay the taxes equal to the thousands of workers he replaced with one combine, but the tax rate could be extremely low per worker as there would now be so many more workers or machines paying taxes.

With this system, I believe that we could/would use more manual labor many more places and would ease the shift back to manual labor and away from FFESs. This tax change would make it easier/cheaper to create human jobs.

The benefits now earned by people at jobs through Social Security and Medicare could be accumulated through credits as they are now. (Add back some paper work for the employer)

Note: This is a rough draft of some ideas; I just needed to get them out there. What do you think?

Maybe it's not feasible to do this, maybe it is too hard to figure out how many jobs are replaced by a machine. I think that, if we wanted to, we could do it as we tax all kinds and shapes of property and someone or group has to figure the tax on it. So the same could be done with how many people are replaced by a FFES.

Anonymous said...

glad to see the posting again--
i think you forgot to mention health care as a growing field in rural America--some one will need ot take care of Phyllis and me as we age!

Anon1 said...

Income tax is a relatively new concept to our country, beginning with the need to fund WW1. Before this, much of the national budget was funded by tariffs on imports. I know this idea infuriates the FB freetraders, but our country sure had alot healthier budget back then. The book John links to in this very post talks about how free trade is what has caused the utter destruction of the middle class in this country. Some good ol' protectionism is what we need to promote production and bring jobs back to our country. As far as our exports, countries will still buy our food if they are hungry and the currency exchange rate is favorable. It seems they only buy it now as a last resort anyway.