Home > Uncategorized > Productivity and Employment — A Structural Change?

Productivity and Employment — A Structural Change?

Jared Bernstein has a post on long-term job growth with a graph showing the historical relationship between productivity and employment:

People sometimes worry that we’re getting too productive, able to satisfy the demands of our economy with “too few” workers.  That’s an age-old worry, and those who want to downplay it cite the fact that, as the graph shows, there is a positive, not a negative, correlation between productivity and job growth overtime.

But look at the end of the graph.  Productivity accelerates while employment growth decelerates.  And that ain’t no blip either…it suggests the possibility of a structural change in this relationship.

  

Now here is the section on the relationship between workers and machines from my book The Lights in the Tunnel. Compare the graph above to the one from my book below and notice that they both have diverging lines that seem to be saying something similar:

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The Average Worker and the Average Machine

Think of an average worker using an average machine somewhere in the economy. Obviously, in the real world there are millions of workers using millions of different machines. Over time, of course, those machines have gotten far more sophisticated. Imagine a typical machine that is generally representative of all machines in the economy. At one time, that machine might have been a water wheel driving a mill. Then it became something driven by a steam engine. Later, an industrial machine powered by electricity. Today, the machine is probably controlled by a computer or by embedded microprocessors.

As the average machine has gotten more sophisticated, the wages of the worker operating that machine have increased.*  As I pointed out in the previous section, more sophisticated machines also make production more efficient and that results in lower prices and, therefore, more money left in consumers’ pockets. Consumers then go out and spend that extra money, and that creates jobs for more workers who are likewise operating machines that keep getting better.

Again, the question we have to ask is: Can this process continue forever? I think the answer is no, and the very unpleasant graph below illustrates this.

Average Worker and Average Machine

The problem, of course, is that machines are going to get more autonomous. You can see this in the graph at the point where the dotted line (conventional wisdom) and the solid line diverge. As more machines begin to run themselves, the value that the average worker adds begins to decline. Remember that we are talking here about average workers. To get the graph above, you might take the distribution of incomes in the United States and then eliminate both the richest and the poorest people. Then graph the average income of the remaining “typical” people (the bulk of consumers) over time. If you were to instead graph Gross Domestic Product (GDP) per capita, you would end up with a similar graph, but the divergence between the dotted and the solid lines would occur somewhat later. This is because the wealthiest people (who own the machines or have high skill levels) would initially benefit from automation and would drag up the average. Recall that we saw this in our tunnel simulation in Chapter 1.

Once the lines diverge, things get very ugly. This is because the basic mechanism that gets purchasing power into the hands of consumers is breaking down. Eventually, unemployment, low wages—and perhaps most importantly—consumer psychology will cause a very severe downturn. As the graph shows, within the context of our current economic rules, the idea of machines being “fully autonomous” is just a theoretical point that could never actually be reached.

Some people might feel that I am being overly simplistic in equating “technological progress” with “machines getting better.” After all, technology is not just physical machines; it is also techniques, processes and distributed knowledge. The reality, however, is that the historical distinction between machines and intellectual capital is blurring. It is now very difficult to separate innovative processes from the advancing information technology that nearly always enables and underlies them. Improved inventory management systems and database marketing are examples of innovative techniques, but they rely heavily on computers. In fact, we can conceivably think of nearly any process or technique as “software”—and, therefore, part of a machine. 

If you still have trouble accepting this scenario, you might try asking yourself a couple of questions: (1) Is it possible for a machine to keep getting better forever without eventually becoming autonomous? (2) Even if it is possible, then wouldn’t the machine someday become so sophisticated that its operation would be beyond the ability of the vast majority of average people? And wouldn’t that lead right back to making the machine autonomous?

_______

* The idea that long-term economic growth is, to a large extent, the result of advancing technology was formalized by economist Robert Solow in 1956. Economists have lots of different theories about how long-term growth and prosperity come about, but nearly all of them agree that technological progress plays a significant role.

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Categories: Uncategorized
  1. June 7, 2011 at 1:10 pm | #1

    I think it’s a mistake to assume that “automated processes” (I like that instead of machines) will become too sophisticated for average people to use. I say this because you’re neglecting the role of tool development.

    With software engineering today, advanced computer-aided software design tools, and GUI-based tools for object-oriented design make it easier to actually build software. Web page development is similar — imagine the barriers to entering the web development arena if everyone had to build a website from HTML — no GUIs.

    The same is true for today’s auto mechanic who use diagnostic tools on vehicles — diagnostic tools that they would never be able to build and understand themselves. If I were back in the early 1980s and accurately projected the development of automobiles over the next 30 years — but FAILED to account for tool development — you would have to assume that only a mechanical engineer could service a vehicle. Clearly, this is not the case.

    Now, the development of tools will continue to be extremely lucrative with high IQ barriers to entry. But this does not mean that average joe will not benefit from total factor productivity growth.

    Today, I think we’re in a transitory phase where a large chunk of the population lacks the engineering mindset to operate certain toolkits, and new tools have not yet trickled down to the average person.

    Another thing to consider is that more gains accrue to owners of capital than owners of labor. A simple fix is to allow capital to accumulate more evenly — a simply fix is to make capital gains taxes progressive…why not allow every American to put up to $10,000 tax free into an investment account that also accrues tax free? Since Roth IRAs are already means-tested, you could make contributions as well as accrual and withdrawal (also means-tested) tax-free. That would allow average joes to collect on returns on capital.

    Yet another ‘fix’ is to eliminate intellectual property — IP may not be compatible with intelligent machines. If IP is eliminated, profit margins on production will be arbitraged down and anybody can produce any product they want.

  2. Liberty
    June 7, 2011 at 1:34 pm | #2

    Yes its going to be ugly but not the way you think. More unemployment reduces incomes, that reduces demand, less demand cuts prices, lower prices means more automation, more unemployment, etc. A downward spiral leading to massive deflation and unemployment.

    However, automation increases production and cuts costs so the goods and wealth will still be produced but we won’t have to work so hard for it. If tax is reduced and policies adjusted to accommodate more part-time and casual work then we will not have to work so long or as hard for the same goods. But this will be temporary. Soon after that stage work will decline further creating even more unemployment for most leaving just a few jobs for the elite who will look after themselves and their own.

    The consequence of this will be a rift between the working and the non-working. The dependence of the rich on workers will be broken and so will trade which has such a civilising effect. A large proportion of the population will have no economic role.

    At about the same time we will have powerful interventions to enhance health, looks and intelligence and VR. The gulf between the elite and the rest will be wide and it may be tempting to keep the workless entertained with powerful VR whilst the elite keep enhancement to themselves. This would widen the gap that could then widen exponentially until the difference between the two groups would be unbridgeable, and eventually be as great as that between mice and us.

    • June 7, 2011 at 2:42 pm | #3

      None of those outcomes are necessary unless the state makes them so.

      First, if the state rescinds its intellectually property monopolies ANYONE who desires to produce can produce. The cost of capital equipment — intelligent machines in the future — will be very cheap without IP. And if anyone can acquire the capital tools to produce, than anyone can produce anything they want. Mutual aid societies for the “poor” would be self-sufficient.

      Second, technological advancement shifts the percentage of national income that comes from capital and interest. As a result, it is critical that the state changes its treatment of capital so that those at the bottom can accumulate capital and enter that income stream.

      Third, the development of tools puts the power of production into the hands of those without advanced skills. As a result, a mechanic can fix an advanced automobile — a mechanical engineer is not required. Education reform, so that average joes gain the engineering mindset (not necessarily the skills) needed to run these tools.

      • Liberty
        June 7, 2011 at 8:29 pm | #4

        If all have the opportunity to use goods then economics will still apply. That is, the goods resulting from the use of IP will be more or less good and some will prevail over others. I don’t see how technological advancement per se changes the relative return from interest and capital. Are you suggesting that the return from capital will be better? With more access to IP then more will use it using more savings reducing that available and increasing its price but for less of it. Variation in interest reflects money supply and overall interest paid should stay the same.

        Simpler and cheaper tools will increase usage but the more resourceful will always use them better. It is naive to believe that equality is possible. Organised society requires elites and elites use their position for personal gain. It is unavoidable. Even Stalin and Pol Pot couldn’t do it because someone has to be in charge and they look after themselves – because they are worth it!!

      • Dblade
        June 12, 2011 at 2:53 pm | #5

        Anyone can produce fan fiction. What is the economic value of fan fiction? Zero. Can you tell me one person who has made sizable money from it in itself? However copyright is IP and designed to promote scarcity, and allows people to profit off of their fiction.

        The mechanic is not fixing the car. If he is diagnosing the computer systems, he is using the mechanical engineer’s knowledge, transmitted in tool form. The new tools are diagnostic and transmmit knowledge of others without understanding. It is reproducing it into an algorithim. And computers love algorithims.

  3. June 7, 2011 at 9:02 pm | #6

    @Liberty

    Let me parse this out:

    “I don’t see how technological advancement per se changes the relative return from interest and capital. Are you suggesting that the return from capital will be better?”

    - In the aggregate, yes. For decades now, wages and labor compensation as a percentage of total income has been going down. dividend and interest income grow at an annualized rate of 1.5 – 2% every year. I expect this trend to continue and accelerate.

    “With more access to IP then more will use it using more savings reducing that available and increasing its price but for less of it. Variation in interest reflects money supply and overall interest paid should stay the same.”

    - Not sure what you’re trying to say here, but since production and productivity would increase, interest rates and inflation would go down. This is because the change in the growth in productivity would be greater than the change in the growth in the money supply. Real interest rates are independent of this, but I would expect them to go down since they’ve done so historically.

    “Simpler and cheaper tools will increase usage but the more resourceful will always use them better. It is naive to believe that equality is possible.”

    - I agree; my point is that current increases in inequality are driven by intellectual property and fractional reserve banking…it’s rent collected from the state. You eliminate IP, and anyone can produce — that redistributes income in the market and pushes prices down.

    “Organised society requires elites and elites use their position for personal gain. It is unavoidable. Even Stalin and Pol Pot couldn’t do it because someone has to be in charge and they look after themselves – because they are worth it!!”

    - All I’m saying is that the state causes inequality through political privilege. In the absence of such privilege, we would have more equality. And in the future privilege will be a greater factor driving inequality. Assuming intellectual property (IP) does not go away, owners of IP on intelligent machines will capture most of the surplus value. You eliminate that privilege, and that surplus value is distributed amongst middle-class producers (copiers/reproducers) and consumers.

  4. Liberty
    June 8, 2011 at 10:39 am | #7

    Nick:

    OK, I understand. Less IP would increase the distribution of technology, increase competition and lower prices although this would be offset somewhat by the loss of economies of scale. I agree that political elites gather power and that it is mostly through money printing via fractional reserve banking and interest rates.

    However, during the accelerating technological revolution new money would go into capital not employment. That would increase the size and frequency of bubbles and cut employment further accelerating deflation. This will put governments off overspending because it would not result in ‘growth’ but debt and unemployment and that loses elections. Austerity, employment law liberalisation and lower personal taxes is the only way out. Technology eliminates the advantage of labour costs and there’s the rub. Technology is portable and anyone with it can compete with anyone else. If, as you propose IP were cut substantially then the distribution of technology would increase and would see goods and services nearer the user than we have seen for some time.

    • June 8, 2011 at 12:52 pm | #8

      @Liberty:

      “However, during the accelerating technological revolution new money would go into capital not employment.”

      - probably. But if everyone has access to capital and the return on new technology discovery can be arbitraged away quite quickly, wealth can’t really be concentrated. Also keep in mind that investment in capital equipment/labor-saving devices is currently favored in part due to restrictions on global labor mobility: we have global mobility in capital, goods, and services — but not labor.

      “That would increase the size and frequency of bubbles and cut employment further accelerating deflation.”

      - I don’t think so. My understanding of bubbles is based on Austrian Business Cycle Theory, which is sparked by an artificial lowering of interest rates by a central bank (usually). That lowering of rates cheap rates encourages the increased production of both consumer goods and capital goods at the same time — this is not sustainable and collapses.

      “This will put governments off overspending because it would not result in ‘growth’ but debt and unemployment and that loses elections. Austerity, employment law liberalisation and lower personal taxes is the only way out.”

      - Agree. Free labor mobility is key here too. If anybody could move anywhere on the globe to work (outside of security concerns), capital investment in labor-saving devices would fail to be cost-effective.

      “Technology eliminates the advantage of labour costs and there’s the rub.”

      - Only because labor is artificially scarce. Imagine if capital could not leave national borders, or if new technologies or inventions did not proliferate across borders.

      “Technology is portable and anyone with it can compete with anyone else.”

      - Yep. As long as the State gets out of the way.

      “If, as you propose IP were cut substantially then the distribution of technology would increase and would see goods and services nearer the user than we have seen for some time.”

      - Correct. You have to go back to the late 18th Century/early 19th Century to find a time when IP was not really enforceable and we saw rapid development of new technologies — like the steam engine.
      http://levine.sscnet.ucla.edu/general/intellectual/against.htm

      • Matt
        June 8, 2011 at 6:40 pm | #9

        “Technology eliminates the advantage of labour costs … Only because labor is artificially scarce.”

        This is true to some extent but saying “Only” is putting it too strongly. There are many tasks that are better done by machines than by humans even if the human labor has no direct costs.

        Consider digging the Chunnel with hand tools and an army of laborers instead of tunnel boring machines. It would have taken decades longer, if it could be completed at all. The greater delay before payback would more than eliminate any capital savings from avoiding the tunnel machines.

        Consider replacing computer memories made by photolithography with those assembled by hand. This is actually how computer core memory was assembled before the 1970s — low-wage women trained in garment manufacture threaded ferrite cores and fine wires together to make core memories. But modern memory cells are far too small for even the steadiest hands and sharpest eyes to handle, and if the human assembled one storage element per second it would take centuries to assemble memory for a single phone. Human labor cannot compete with photolithography even at zero wages.

        Consider replacing automatic control systems in chemical plants with human operators adjusting valves and watching gages. This is how petroleum refineries and other large chemical plants ran until automation became common in the early 1960s. One effect of automatic control was lower labor needs — tens of thousands of refinery workers were displaced by automatic controls. But even if human workers worked for free, they get tired, bored, and distracted. Even at their most alert they cannot react to changes in less than a few hundred milliseconds. Machines can adjust rapidly and tirelessly, improving plant efficiency and throughput beyond what even the best human operators could achieve.

  5. June 8, 2011 at 7:17 pm | #10

    @Matt:

    “This is true to some extent but saying “Only” is putting it too strongly. There are many tasks that are better done by machines than by humans even if the human labor has no direct costs. Consider digging the Channel with hand tools and an army of laborers instead of tunnel boring machines. It would have taken decades longer, if it could be completed at all. The greater delay before payback would more than eliminate any capital savings from avoiding the tunnel machines.”

    - That’s a lot of capital investment…what’s the time discount? Assuming labor is free as you have, is getting the job done decades earlier worth the extra cost? Also, labor scarcity encourages R&D into labor-saving devices. If the US Government never ended the Bracero program, research and investment in mechanized fruit-picking never would have occurred. Tomatoes would cost the same, but the capital would have been allocated elsewhere. I’m too young, but its my understanding that home deliveries of groceries were a lot more common in the 1950s and 1960s when labor was more plentiful as well.

    “Consider replacing computer memories made by photolithography with those assembled by hand. This is actually how computer core memory was assembled before the 1970s — low-wage women trained in garment manufacture threaded ferrite cores and fine wires together to make core memories. But modern memory cells are far too small for even the steadiest hands and sharpest eyes to handle, and if the human assembled one storage element per second it would take centuries to assemble memory for a single phone. Human labor cannot compete with photolithography even at zero wages.”

    - Yes, there are exceptions to the rule, but why even mechanize unless labor is scarce?

    “Consider replacing automatic control systems in chemical plants with human operators adjusting valves and watching gages. This is how petroleum refineries and other large chemical plants ran until automation became common in the early 1960s. One effect of automatic control was lower labor needs — tens of thousands of refinery workers were displaced by automatic controls. But even if human workers worked for free, they get tired, bored, and distracted. Even at their most alert they cannot react to changes in less than a few hundred milliseconds.”

    - is the improved performance worth the cost, assuming labor is free? No.

    “Machines can adjust rapidly and tirelessly, improving plant efficiency and throughput beyond what even the best human operators could achieve.”

    - I’m not anti-machines, anti-capital, or anything like that. What I’m pointing out is that the current factors-of-production mix (land, labor, capital) is too skewed towards capital and away from labor due to restrictions on international labor mobility.

    - If you were to create a Bizarro World (opposite-land) where we had total, unlimited global labor mobility — but it was illegal to move capital across borders — we would see an over-utilization of labor and an underutilization of capital. You may even see rickshaws in New York City instead of cabs and trains. Remember, rickshaws came into use under the Meiji in Japan because human labor was cheaper than horse-drawn labor. And in India today you get a free Indian driver when you rent a car in Mumbai because labor is so cheap and so abundant.

    • Matt
      June 8, 2011 at 10:56 pm | #11

      The United States was very accommodating to immigrants before the 1920s (before 1880s, if you were Chinese) and immigrants came to the USA in large numbers after the 1820s. So we have about a century of relatively free labor movement to examine, and information about mechanization in the same period. Mechanization grew tremendously even in this period of free-flowing immigration, particularly in agriculture. In fact it in this period it was only where labor was *not* free to move (slaves in the pre-Civil War south, and the old feudalistic systems in eastern Europe) that agriculture dominated economies as thoroughly as it had in the pre-industrial period. The American substitution of machines for muscles, electrification, and mechanical innovation in manufacturing was also rapid and impressive in this period despite high labor mobility.

      I can tell you that efficiency matters a great deal in commodity chemical plants. If you can produce ethylene from crude oil at 91% efficiency with automatic control vs. 88% efficiency with human operator control, the amount of oil used profitably vs. wasted amounts to millions of dollars per year for a large plant. Humans are not more profitable at any labor cost.

      The sustainable cost of human labor is always greater than zero. Even docile slaves have upkeep costs. At minimum laborers need to consume enough food to continue laboring. Muscles are only about 25% efficient at converting food to mechanical work, and human-edible food is a much more expensive energy source than oil, coal, uranium, or even renewable electricity. If the amortized capital and operating costs of a machine are lower than what’s needed to feed a labor-equivalent group of human workers, no level of labor mobility can dethrone the machine. Human labor cannot win against machines for “grunt work” like towing barges, pumping water, and crushing rock even if the laborers are consuming nothing other than the minimum food needed to keep them laboring. An increasing amount of “brain work” is also profitably off limits to humans as machines improve, despite labor mobility or lack thereof, since humans need to eat even if they’re sitting at a desk all day.

      • June 9, 2011 at 1:16 pm | #12

        “The United States was very accommodating to immigrants before the 1920s (before 1880s, if you were Chinese) and immigrants came to the USA in large numbers after the 1820s. So we have about a century of relatively free labor movement to examine, and information about mechanization in the same period.”

        - I agree with you for the United States, but not all countries allowed labor to move in freely. These countries invested in labor-saving devices that proliferated to the US

        “Mechanization grew tremendously even in this period of free-flowing immigration, particularly in agriculture.”

        - Actually, Farm mechanization exploded in the 1930s and 1940s – particularly with the adoption of mechanized combines. This is well, well documented and significantly contributed to high unemployment during the Great Depression — in the Depression, we had a recession due to a financial meltdown that was combined with a revolution in labor-saving devices. R&D into these technologies surged in the 1920s, and projections for these efficiency gains were priced into the stock market before the crash. These technologies rolled out over the next 20 years and changed American life. So if you want to correlate immigration levels and technology, you have a strong on there: Immigration levels dropped 80% and R&D into labor-saving devices skyrocketed.
        http://marginalrevolution.com/marginalrevolution/2011/04/a-great-leap-forward-1930s-depression-and-u-s-economic-growth.html

        “In fact it in this period it was only where labor was *not* free to move (slaves in the pre-Civil War south, and the old feudalistic systems in eastern Europe) that agriculture dominated economies as thoroughly as it had in the pre-industrial period. The American substitution of machines for muscles, electrification, and mechanical innovation in manufacturing was also rapid and impressive in this period despite high labor mobility.”

        - We had mass immigration in the 1840s and 1850s. And at that time in the South, mechanization options were simply not available — and a shift into manufacturing in the South was not feasible until after World War II (primarily due to climate). Railroads were so uneconomical that they needed massive, I mean MASSIVE, subsidies from the federal government to be built and to operate. Virtually all of the transcontinental railroads went bankrupt when the subsidies dried up and long-distance rail was not economical until the Gilded Age (1880s/1890s).

        “I can tell you that efficiency matters a great deal in commodity chemical plants. If you can produce ethylene from crude oil at 91% efficiency with automatic control vs. 88% efficiency with human operator control, the amount of oil used profitably vs. wasted amounts to millions of dollars per year for a large plant. Humans are not more profitable at any labor cost.”

        - As I said before, my point is that the restrictions on labor has caused over-reliance on capital instead of labor. Now, there are some industries that would have mechanized and automated even if we had 100% labor mobility.

        “The sustainable cost of human labor is always greater than zero. Even docile slaves have upkeep costs. At minimum laborers need to consume enough food to continue laboring.”

        - I know, an earlier poster said “even if labor is free”. During certain times of mass change, the marginal product of some workers drops below what they need to earn a subsistence living — farmhands in the 1930s for example.

        “Muscles are only about 25% efficient at converting food to mechanical work, and human-edible food is a much more expensive energy source than oil, coal, uranium, or even renewable electricity.”

        - Yes, but if the state restricts the supply of labor and subsidizes the supply of inputs to capital and machinery, what is the result?

        “If the amortized capital and operating costs of a machine are lower than what’s needed to feed a labor-equivalent group of human workers, no level of labor mobility can dethrone the machine.”

        - 100% agree. But the costs to feed and pay a labor-equivalent group of human workers is artificially high due to labor restrictions. As a result, the break-even price for capital is lower.

        “Human labor cannot win against machines for “grunt work” like towing barges, pumping water, and crushing rock even if the laborers are consuming nothing other than the minimum food needed to keep them laboring.”

        - In the long-run, you’re probably correct. But by restricting labor, you speed this transition process up considerably…by many decades. And in the meantime, we’re a lot poorer as a result.

        “An increasing amount of “brain work” is also profitably off limits to humans as machines improve, despite labor mobility or lack thereof, since humans need to eat even if they’re sitting at a desk all day.”

        - Yes, for number crunching and similar activities…unless we get strong AI. But why speed this process up artificially?

  6. Liberty
    June 9, 2011 at 9:57 am | #13

    The time will come when technology is the only way anything can be done other than its design. Consider the internet and telephone system. Information is sent into the system which entails trillions of bits of information flying off and between satellites 22,000 miles above us. A modern Toyota could not be built by people any more although the design of the car, factory, logistics are – with the aid of IT. And that is all with current IT. Most in the business believe that IT will be 50 to 100 times more powerful in five years because of developments in multi-core microprocessors, graphene substrates, photonics and the like and that is before the advent of quantum computers expected in the 2020s that will do in a second what current computers would take 1000s of years to do. So all manufacturing, professions, administration, transport , communication, etc will require design of the systems and then they will be autonomous except for initiation such as ordering a car, approaching a doctor, setting the destination in a robotic car or saying ‘Hi Jim’ even if he lives in Sydney Australia.

    The lack of employment will eliminate most salaries whilst anything we need will be virtually free and we will only work for extras. Work will be part-time or intermittent if at all. This will eliminate most economic activity and cause massive deflation. I know that this scares politicians and central bankers but they need not be; they have convinced themselves that deflation is destructive and inflation must be maintained at 0-3% at all costs. Fear of deflation is like being scared of the dark; its fine once you get used to it and a torch helps a lot.

    Governments have been addicted to money printing for some decades because it is a way of overspending and centralising power without raising taxes. The consequences, inflation come later to the next government – that is why democratic governments overspend before elections. Furthermore, few understand inflation, they have been hood-winked into believing that it is as natural as the weather and do not realise that by getting inflation adjusted rises at the end of the year they have lost out during that year and the government and the banks took it.

    Back to technology. Printing money will increasingly be spent on capital accelerating de-employment and deflation thus eliminating the means of hiding overspending and money printing. If governments persist in overspending and printing money then they will run up debts and pump up asset bubbles. The only way out is to balance the books but tax increases will be out because so few will be working but cost savings will be easy with technology. Communication will be so much better that most will know what is going on so governments will not be able to get away with hiding their actions. So, I am hopeful that the power of governments will decline – but this has a sting in the tail.

    Those that build and control the technology will be the elite that will not need workers who will increasingly be addicted to VR. So, a gap will grow and as technological progress will also apply to biotech varied and powerful enhancements will be available and the elite may keep it to themselves. After all, they will have lost contact and dependence of the rest and they can easily be pacified with more VR and biotech interventions. ‘who needs them anyway?’ That could cause two species to evolve and once begun, the elite could accelerate away with nothing to fear from the rest because the elite will be many times more powerful in resources and intelligence, The gap would accelerate indefinitely so that in due course the difference will be as great as that between us and microbes. Something to think about, eh?

    • June 9, 2011 at 1:42 pm | #14

      “The time will come when technology is the only way anything can be done other than its design. ”

      - the “time” is dependent on the relative prices and quantities of different factors of production.

      “Consider the internet and telephone system. Information is sent into the system which entails trillions of bits of information flying off and between satellites 22,000 miles above us. A modern Toyota could not be built by people any more although the design of the car, factory, logistics are – with the aid of IT.”

      - It’s commonly accepted that robotics were pursued by Detroit because the Unions extracted too much in compensation.

      “And that is all with current IT. Most in the business believe that IT will be 50 to 100 times more powerful in five years because of developments in multi-core microprocessors, graphene substrates, photonics and the like and that is before the advent of quantum computers expected in the 2020s that will do in a second what current computers would take 1000s of years to do. So all manufacturing, professions, administration, transport , communication, etc will require design of the systems and then they will be autonomous except for initiation such as ordering a car, approaching a doctor, setting the destination in a robotic car or saying ‘Hi Jim’ even if he lives in Sydney Australia.”

      - All of these technologies are ‘end of the road’ outcomes, I believe, but are heavily dependent on the relative prices and amounts of production factors along the way. Since Japan basically has a zero immigration policy, they spend a LOT OF MONEY researching humanoid robotics to take care of their elderly in the future — if they don’t invent humanoid robots or allow immigration, Japan will cease to exist by 2100. If the Japanese weren’t quite so racist and they allowed Koreans to become Japanese citizens, Japan’s weird obsession with robots would be much more muted.

      “The lack of employment will eliminate most salaries whilst anything we need will be virtually free and we will only work for extras. Work will be part-time or intermittent if at all. This will eliminate most economic activity and cause massive deflation. I know that this scares politicians and central bankers but they need not be; they have convinced themselves that deflation is destructive and inflation must be maintained at 0-3% at all costs. Fear of deflation is like being scared of the dark; its fine once you get used to it and a torch helps a lot.”

      - This will only happen if the powers of production is liberated from the intellectual property/monopoly regime. If you still require a license to produce goods in 50 years, you won’t see the mass deflation you’re talking about. You’ll just see higher and higher transfer payments to keep the expropriated masses from revolting.

      - I agree that the fear of deflation is irrational, but it is rational for today’s corporatists: you can finance business expansion with debt and pay it back with depreciated dollars. But I also wouldn’t be upset at a policy that quantitatively eased our way back up to 0% inflation, with new money funding capital accounts for lower classes.

      “Governments have been addicted to money printing for some decades because it is a way of overspending and centralising power without raising taxes. The consequences, inflation come later to the next government – that is why democratic governments overspend before elections.”

      - Yes. It’s also in the interests of their patricians.

      “Furthermore, few understand inflation, they have been hood-winked into believing that it is as natural as the weather and do not realise that by getting inflation adjusted rises at the end of the year they have lost out during that year and the government and the banks took it.”

      - As a person of the Austrian economic school, my biggest fear from loose money is the misallocation of resources and eventual bust that causes. If the price of things went up 3% a year without any resource misallocation, I wouldn’t really care that much.

      “Back to technology. Printing money will increasingly be spent on capital accelerating de-employment and deflation thus eliminating the means of hiding overspending and money printing.”

      - Yes. Fractional Reserve Banking represents the connected and wealthy. a 100% reserve standard where we have deflation would be bottom-up capitalism, where individual savers create wealth.

      “If governments persist in overspending and printing money then they will run up debts and pump up asset bubbles. The only way out is to balance the books but tax increases will be out because so few will be working but cost savings will be easy with technology. ”

      - Asset bubbles are caused by Central Bank shenanigans that make interest rates lower than they otherwise would be. It sends false signals to the market that assets should be valued higher than they otherwise should be. When investors realize this, they ‘sell’.

      “Communication will be so much better that most will know what is going on so governments will not be able to get away with hiding their actions. So, I am hopeful that the power of governments will decline – but this has a sting in the tail.”

      - I think that is already happening, but most people accept that the government has a legitimate role to provide certain public goods. Until that changes, the state wlll stay strong.

      “Those that build and control the technology will be the elite that will not need workers who will increasingly be addicted to VR. ”

      - Without state-enforced intellectual monopolies, workers can build their own products.

      “So, a gap will grow and as technological progress will also apply to biotech varied and powerful enhancements will be available and the elite may keep it to themselves. After all, they will have lost contact and dependence of the rest and they can easily be pacified with more VR and biotech interventions. ‘who needs them anyway?’”

      - Again, I point to IP. The state grants ownership rights to certain parts of the Human Genome — such grants if privilege are totally illegitimate and could not persist without state backing.

      “That could cause two species to evolve and once begun, the elite could accelerate away with nothing to fear from the rest because the elite will be many times more powerful in resources and intelligence, The gap would accelerate indefinitely so that in due course the difference will be as great as that between us and microbes. Something to think about, eh?”

      - I see this as unlikely. The Elites would risk mass revolution, so they are faced with the choice — if mega-inequality existed — to either provide them with basic income and subsistence or to ‘off’ them. And I don’t see elites exterminating the bulk of humanity — much cheaper and much more moral to just support them. A civil war of this magnitude would probably destroy the global economy so it would be a self-defeating endeavor. A much better alternative is to remove state privilege so anyone can produce,

  7. Matt
    June 9, 2011 at 5:55 pm | #15

    Hi Nick,

    It’s been fun sparring with you. I think one of my assumptions that needs to be highlighted is that there is no reversing mechanization via labor mobility, though high labor mobility may slow its further development. Even if every nation in the world allowed free movement of people, you wouldn’t see the resurgence of human telephone switchboard operators, secretarial typing pools, riveters, linotype operators, and other jobs that once employed vast numbers of people in the 20th century. The machines are already developed and refined, and re-mobilizing labor won’t un-invent them.

    There are also limits to how quickly unlimited labor mobility can reduce labor costs; someone from Bangladesh who wants to work in Canada will have to pay Canadian prices for housing and food while he lives there, which means he’ll need more than his former Bangladesh wages to survive. He can’t spend workdays in Toronto and nights in Dhaka. Wages and prices for comparable jobs and products in Bangladesh should rise and those in Canada decline to eventually reach parity, except for products with differing regional production costs and high transport costs, but it will take time and meanwhile there is still an elevated level of incentive to further automate jobs in places with historically high wages.

    If automation develops to the point where machines can do most jobs, including manufacturing copies of themselves and other machines, we don’t need to beg permission of governments or corporations to be set free at that point. Everyone who wants to copy will copy, just like with digital music. I wouldn’t steal a car… but I wouldn’t feel obligated to pay anyone if my computer could duplicate my friend’s car. If anyone tries to stop sharing by force, weapons can be duplicated too.

    • June 9, 2011 at 7:25 pm | #16

      “It’s been fun sparring with you. I think one of my assumptions that needs to be highlighted is that there is no reversing mechanization via labor mobility, though high labor mobility may slow its further development. Even if every nation in the world allowed free movement of people, you wouldn’t see the resurgence of human telephone switchboard operators, secretarial typing pools, riveters, linotype operators, and other jobs that once employed vast numbers of people in the 20th century. The machines are already developed and refined, and re-mobilizing labor won’t un-invent them.”

      - you’re totally right that free labor won’t un-invent these labor saving devices; once their commercialized, there’s no turning back in most cases. But since the biggest advances in labor-saving devices are yet to come — and as a reader of this blog you must agree — it is essential that we free labor now.

      “There are also limits to how quickly unlimited labor mobility can reduce labor costs; someone from Bangladesh who wants to work in Canada will have to pay Canadian prices for housing and food while he lives there, which means he’ll need more than his former Bangladesh wages to survive.”

      - Most immigrants earn wages within 10 – 20% of natives — wages don’t get pushed down. But what immigration does to is increase the amount of labor available to perform tasks.

      “He can’t spend workdays in Toronto and nights in Dhaka. Wages and prices for comparable jobs and products in Bangladesh should rise and those in Canada decline to eventually reach parity, except for products with differing regional production costs and high transport costs, but it will take time and meanwhile there is still an elevated level of incentive to further automate jobs in places with historically high wages.”

      - Agree.

      “If automation develops to the point where machines can do most jobs, including manufacturing copies of themselves and other machines, we don’t need to beg permission of governments or corporations to be set free at that point. Everyone who wants to copy will copy, just like with digital music. I wouldn’t steal a car… but I wouldn’t feel obligated to pay anyone if my computer could duplicate my friend’s car. If anyone tries to stop sharing by force, weapons can be duplicated too.”

      - Again — agree. But I don’t want it to come to an armed confrontation over this issue. Just (1) let people migrate as they see fit — that will slow the coming End of Work and (2) let anyone who wants to produce produce.

      • Matt
        June 9, 2011 at 8:27 pm | #17

        “Most immigrants earn wages within 10 – 20% of natives — wages don’t get pushed down. But what immigration does to is increase the amount of labor available to perform tasks.”

        Wages don’t get pushed down by the limited immigration allowed under current conditions. I don’t see how your larger point about spending on capital vs. labor and labor mobility can hold if wages don’t get substantially pushed down by mobile labor in areas with historically high wages*. If high labor mobility depresses (e.g.) US auto worker wages by only 10% I don’t think that automation expansion will slow much.

        I am personally ambivalent about whether we should even try to slow automation. In most developed economies long-term planners are fretting about low birth rates and shortages of future workers needed to support retirees. The upcoming job-shortage and worker-shortage crises projected by technologists and demographers may mostly cancel each other out.

        *For the sake of balance I should admit that more people would see wages pulled up than pulled down; members of the global middle class are less numerous than the global poor, so equalization will help more people than it hurts. But from the perspective of people in regions with large middle classes and general prosperity (South Korea, Japan, North America, Oceania, and the EU) the average worker in these regions is going to work harder and/or earn less after more labor competition moves in, and the compensating decline in prices for goods or services may lag or at least psychologically seem inadequate to make up for depressed wages.

  8. June 10, 2011 at 12:27 pm | #18

    “Wages don’t get pushed down by the limited immigration allowed under current conditions. I don’t see how your larger point about spending on capital vs. labor and labor mobility can hold if wages don’t get substantially pushed down by mobile labor in areas with historically high wages*. If high labor mobility depresses (e.g.) US auto worker wages by only 10% I don’t think that automation expansion will slow much.”

    - they get held down, not pushed down.

    “I am personally ambivalent about whether we should even try to slow automation. In most developed economies long-term planners are fretting about low birth rates and shortages of future workers needed to support retirees.”

    - There is no shortage of future workers to support retirees if labor is free. Future worker shortages are a direct result of state policies.

    “The upcoming job-shortage and worker-shortage crises projected by technologists and demographers may mostly cancel each other out.”

    - except for the billions in poor and developing countries.

    “*For the sake of balance I should admit that more people would see wages pulled up than pulled down; members of the global middle class are less numerous than the global poor, so equalization will help more people than it hurts. ”

    - yes, those with high-end skills will see their wages go up, while everyone else stagnates.

    “But from the perspective of people in regions with large middle classes and general prosperity (South Korea, Japan, North America, Oceania, and the EU) the average worker in these regions is going to work harder and/or earn less after more labor competition moves in, and the compensating decline in prices for goods or services may lag or at least psychologically seem inadequate to make up for depressed wages.”

    - Even though immigration would push down their wages, their quality of life would go up because of higher aggregate production levels (i.e. more purchasing power).

  9. Dblade
    June 12, 2011 at 3:00 pm | #19

    Nick, no offense, but if you think labor migration is good, you have little sense of history. Pick up a copy of Steinbeck’s “The Grapes of Wrath.” Or look at Mexico’s migration rates to Arizona.

    • June 12, 2011 at 3:14 pm | #20

      You’re greatly mistaken. Have YOU read the grapes of wrath? Do you prefer Okies starve on the plains instead of working for landowners in California? Do YOU have the right to block a mutually agreed upon labor contract? Do YOU think Mexicans have no right to improve their lives by moving? Do Arizonans have no right to improve their lives by hiring migrant workers?

      In your world, the Irish would have starved to death. Labor mobility optimizes economic activity, just like capital mobility does. Nominal wages may stagnate due to migration, but REAL wages — measured in purchasing power, skyrockets.

      • Dblade
        June 13, 2011 at 6:27 pm | #21

        The migrations set Okies against residents. A lot of places simply could not absorb them. At a community level, there are a fixed amount of jobs, and its bad enough for the local residents. Opening the floodgates and allowing everyone in the world to compete against locals is going to cause massive disruptions and nativisim on an insane scale.

        It will also depress wages because you increase the pool of applicants to such a point where the business owner can set his wages. The starving man works for food.

        Migration also destroys social safety nets. Europe is discovering that right now, and is frantically backpedalling trying to limit the amount of immigration. I’m sorry, your ideas are not going to be helpful, and in the local communities are not workable. Maybe in abstract economic theory they might, but you are not going to be able to open up economies suffering already from systemic unemployment at 10% and up, and expect them to deal with even more migrants.

  10. Rolf
    • June 17, 2011 at 5:09 am | #23

      Interesting link. He starts out with a synthesis of Marxist economics and Austrian economics, which is good. But he then delves into nonsense about the inability to grow long-term.

      What makes the current era so special that growth cannot be attained in the future?

      He also states that there is plenty of production — that we now only have a distribution problem. Really? Global output — measured in per capita GDP — is about $8,600. That is the living standard of your average Russian or Brazilian — is that all we can do? The non-American world needs to grow seven-fold in order to reach US living standards — there is a long way to go.

      He opposes debt but calls for a citizens’ income — who pays for that?

      “Rather resource allocation decisions will have to be made on a collective basis at local, national or international level. ”

      - That is downright frightening, and anyone who advocates this in a position of power needs to be locked up. Most communist countries were just pure dictatorships, but the Soviets made a real go of this after Stalin died. They had massive resource mis-allocation, products nobody wanted, poor quality, etc. — as a result, they began implementing market socialism (Kosygin’s reforms) — pretend markets — to help coordinate production…only prices and markets can coordinate production. This made things better, but it still failed miserably — just not as catastrophically. Mao didn’t even bother with market socialism — he just determined that the people need steel, so he moved them off the farms and killed millions.

      - So in a nutshell, the “Left Alternative” is Soviet-Style Collective planning.

  11. June 17, 2011 at 4:41 am | #24

    @Dblade –

    “The migrations set Okies against residents. A lot of places simply could not absorb them. At a community level, there are a fixed amount of jobs, and its bad enough for the local residents.”

    - Jobs are not fixed unless regulations make them so. Better to have Okies on subsistence levels in California than starving on the Plains. And real purchasing power for Californians improved as a result — more and cheaper food, cheaper services, etc. — the total pie grew a lot.

    “Opening the floodgates and allowing everyone in the world to compete against locals is going to cause massive disruptions and nativisim on an insane scale.”

    - There is nothing wrong with disruption, but I would advocate a gradual adoption of open borders to quell shock and nativist actions.

    “It will also depress wages because you increase the pool of applicants to such a point where the business owner can set his wages. The starving man works for food.”

    - Nominal wages would fall and real wages would go up. With all that cheap labor, the price of goods and services will drop more than his nominal wage. Real wages — purchasing power — goes up because more is being produced per capita.

    “Migration also destroys social safety nets. Europe is discovering that right now, and is frantically backpedalling trying to limit the amount of immigration.”

    - That’s not true. In the United States, immigrants use fewer services than natives. Furthermore, heterogenous societies are less likely to support wealth redistribution. See Bryan Caplan on this subject.

    “I’m sorry, your ideas are not going to be helpful, and in the local communities are not workable. Maybe in abstract economic theory they might, but you are not going to be able to open up economies suffering already from systemic unemployment at 10% and up, and expect them to deal with even more migrants.”

    - I would be perfectly willing to sterilize the shock with a loose money supply. Nominal wages would stagnate, real wages would fall, and purchasing power would go UP. This gets around the sticky wages issue — if wages drop 10% and prices drop 10%, it doesn’t make a difference.

  12. Audrey
    June 18, 2011 at 2:07 pm | #25

    J C Penney’s has just hired Apple Exec Ron Johnson and according to an article here at Huffington Post:
    http://www.huffingtonpost.com/2011/06/14/apple-retail-ron-johnson-jcpenney_n_876679.html
    one of the things “apparel” retailers have admired about the Apple stores are handheld checkout devices. It will be interesting to see what happens to J C Penney’s over the next year. I just read “The Lights in the Tunnel” a few weeks ago and I agree with Ford’s assessment of how automation is affecting employment. It’s happening all around us, and closer and closer to home every day.

  13. June 19, 2011 at 12:08 am | #26

    I don’t have time at the moment to read all the comments, so I apologize if I’m repeating a point already made. I think you have to make a clearer case for why the point in your graph where “machines becoming autonomous” marks a qualitative break from past trends of technological improvement.

    As you point out, people have long feared that increasing productivity will lead to higher structural unemployment. However, the ensuant growth has always created demand for goods and services and lead to not only more employment opportunities, but higher wages. You could argue that demand will reach it’s limits once machines provide everything for us, but that seems like a failure of imagination.

    The jobs of the future won’t be like the jobs of today, just as the jobs of today aren’t like the jobs of yesterday. But one can take a stab at imagining what demand will be like when autonomous machines leave people will more money to spend: more demand for therapists, more demand for yoga instructors, more demand for musicians and artists, more demand for actors and writers, more demand for tourism related services, more demand for e-books about the meaning of existence, more demand for high-quality bloggers. Most importantly: more demand for medical services.

    It seems to me that the conventional wisdom dotted line if the graph is indeed wrong: once machines approach autonomy, that line will come much steeper. Can someone please explain to me why this is that not the obvious consequence of increasing productivity, even if that increase is the result of “autonomous machines?” I might be missing something, and I hope someone explains what if I am, but this post seems like a pretty serious failure to learn from history.

    • June 21, 2011 at 6:12 pm | #27

      “The jobs of the future won’t be like the jobs of today, just as the jobs of today aren’t like the jobs of yesterday. But one can take a stab at imagining what demand will be like when autonomous machines leave people will more money to spend: more demand for therapists, more demand for yoga instructors, more demand for musicians and artists, more demand for actors and writers, more demand for tourism related services, more demand for e-books about the meaning of existence, more demand for high-quality bloggers. Most importantly: more demand for medical services.”

      - With the exception of medical services — a field that seems ripe for automation — you’re right…the post-information economy will be the “artistic economy”. However, this does not address the issue of inequality. Enough will be provided for all, but the owners of autonomous machines will accrue all the wealth.

      This wealth accrual by the owners of intelligent machines will be entirely due to intellectual property laws. If, instead, you repeal these monopoly privileges, communities can produce their own goods and services at cost.

  14. June 20, 2011 at 8:30 pm | #28

    “The jobs of the future won’t be like the jobs of today, just as the jobs of today aren’t like the jobs of yesterday. But one can take a stab at imagining what demand will be like when autonomous machines leave people will more money to spend: more demand for therapists, more demand for yoga instructors, more demand for musicians and artists, more demand for actors and writers, more demand for tourism related services, more demand for e-books about the meaning of existence, more demand for high-quality bloggers. Most importantly: more demand for medical services.”

    Demand for music has increased exponentially given the cascade of digital media revolutions/upheavals with most people listening to hours and hours of music each day, yet musician and artist wages have gone down or stagnated over the past decade. The fact that practically any song or movie you want can be had in mere seconds or hours via the internet, effectively decoupling demand from market value certainly doesn’t help. Music is already being automated by algorithmic song-generation software in some sectors (pop especially). There is only so much therapy and yoga instruction one can take and that is a drop in the bucket when you consider the number of jobs in low, mid-skill, and managerial jobs that will be jeopardized. Therapy is already turning into a kind of marketing arm for pharma companies to push mental disorder drugs. People are already consuming on average 5-10 hours of media per day, not counting the reading, not sure how much more actors and producers and writers are going to be employed. And the production costs (AKA salaries) along with actor salaries are way way down — look at the massive influx of “white Mexican” cheap British and Australian actors. Medical services are also entering a tidal wave of automation that is only just ramping up — IBM’s Watson was primarily targeted at health care analytics and the mid-level and office work which employs huge swaths of the medical sector. Then we’ve got “efficiencies” (salary loss) in the form of remote care, self-monitoring systems, and if many of the diagnostic functions can be handled by AI, that will take out a sizable chunk of the average doctor visit and nurse check-in work.

    The main take away I think is that, while it may be heart-warming and a nice mantra to tell your kids that human potential is unlimited, in reality, there is a range of possible human physical and cognitive abilities which have value in the market, and if even the lower and mid-level human abilities are eclipsed by machines, that will create immense unemployment given our current market system that cannot be easily remedied.

    • June 21, 2011 at 4:58 am | #29

      My point is less about where specifically future jobs will come from – that list is an example of an attempt at a guess – but that jobs will come from somewhere, even if it isn’t obvious to us now. People 50 years ago had no idea that services would be the dominant sector in our economy. People 200 years ago couldn’t have imagined an automobile industry, let alone ipods or GPS. But what people could have imagined was that the logic of competitive markets will inevitably lead to increases in productivity, which would lead to people having more money in their pockets to spend on other things, leading to new unimagined industries. Now, you could argue, as he is doing in this post, that increased productivity caused by “autonomous machines” is different from other kinds of increases in productivity and won’t lead to new jobs, but the burden of evidence would be on you. History wouldn’t be on your side, so you would have to make a pretty convincing case.

      I’m pretty simple minded about these things, so you’ll have to help me here. Why won’t this story be told in the future, just as it’s been told in the past: Productivity gains cause things that people like to buy to get cheaper. People therefore have more money in their pockets to spend on other things. Most people buy more of the things that they wanted but couldn’t afford before, helping existing industries expand. Other people buy things that clever entrepreneurs invent in order to extract that extra money from them, creating entirely new industries.

      Seems to me that autonomous machines might accelerate that story, but what would make you think they will reverse it?

      • June 21, 2011 at 6:14 pm | #30

        “Productivity gains cause things that people like to buy to get cheaper. People therefore have more money in their pockets to spend on other things. Most people buy more of the things that they wanted but couldn’t afford before, helping existing industries expand. Other people buy things that clever entrepreneurs invent in order to extract that extra money from them, creating entirely new industries.”

        In the aggregate, yes. But a person needs to produce to consume. And when you have government licenses to produce, one cannot consume.

      • June 21, 2011 at 8:17 pm | #31

        “Jobs will come from somewhere” assumes that there is a “where” sizable enough within the mental and physical capabilities of the human species to replace the obsolesced sector of jobs. The Luddites who were replaced during the Industrial Revolution by the loom (and not without violent and vehement protest) and the Industrial Revolution assembly line workers who were supplanted by robots were both engaged in jobs on the very lowest tier of human capability — that is, simple, repetitive, rote tasks. These are the very easiest of automatable tasks in the design space of machines; they are essentially a four line algorithm: “wash, rinse, repeat”. All the examples you mention have been replacement by machines of small slices of human potential, and so have been absorbable as new “oil wells” of human potential have been tapped into and utilized — rote work replaced by slightly higher service industry and knowledge work skills, but the difference in the coming AI/robotics revolution is that we’re going to run out of “wells” of potential to tap. And even the automation thus far has proven to have massive destabilizing effects on society as a whole. The manufacturing was first outsourced in the US in the Reaganomics era to third world slave-labor and robots, and this again causing massive upheavel in the low and middle class. There was not some wonderful cornucopia of new money to spend as people saved all their cash from the reduced costs of production; all the extra wealth was siphoned up to the Blue Blood Owners of the companies. Their wealth has continued to go exponential as the middle and lower class wages have stagnated or declined, and living standards per-work-hour have drastically fallen. So this notion that the rising tide of innovation and technology raises all boats certainly has not been true for the past four decades at least. And the manufacturing sector, along with our economy’s supposed “replacement” sector – the service industry – are only being more and more automated — self-checkout is spreading like a contagion and most US manufacturing is done by robots, just have a look at a video of an IBM factory. We have been and continue to feel the effects of machine-sourcing, and it is only going to get worse as the machines get better.

        While there may be an unending litany of new products to come out (next season’s iPhone, a better electric car, some other as yet uninvented tech), there is not an unending litany of new human physical and mental abilities being pumped out every season. What we’ve got is what we’ve got; the human body and mind are a finite resource and we are rapidly approaching peak humanity. We humans have low-skill rote work abilities (automated), knowledge work abilities — manipulating, analyzing, and applying information (being automated as we speak), creative abilities like writing, musicianship, art (harder to automate, but its happening and those sectors are already in dire straits because of other “technological innovation”). Biological evolution of our brain is happening at a rate magnitudes slower than technological evolution, and it is ultimately only a matter of time before our technology — robots and AI — can do anything that we can do, but better. It doesn’t matter what new “product of the future” comes out: if the machines can do what we can, then it will be *them* being hired for the new jobs, not us primate meatbags. This is the crux of the problem. Automation does not automatically make everyone richer but rather exacerbates income inequality and unemployment as the ultra-wealthy simply rake in more of the pie. And it is not even necessary that machines do 100% of the jobs: even if they do 50% of the jobs, and humans do the very highest-order intellectual-creative science and invention, that would completely break our current system.

        As computer automation of the mid-skill and knowledge work begins to really set in, more and more people are going to be squeezed out of the workforce, with limited human-employability pie. The for-profit college loan ponzi-scheme scams are a symptom of this: you need a four year degree to even start competing for jobs that pay anything livable, and yet even with these degrees, almost half of the new college graduates leave school without a job, and are unable to find a good one. Indeed that great wave of “economic growth” we’ve been riding for the past decades has been art dropout brand-pushing AKA marketing — a zero-sum non-wealth-creating tug of war over customers — and the best and brightest going for that MBA to engage in plutocratic wealth-stealing schemes consisting of sandcastles of financial paper shuffling built on clouds of shadow mark-to-model systems. Culminating spectacularly in the recent global financial meltdown, and continued shambling of the zombie financial system which still permeates the world like a cancer of toxic debt. And this monstrosity, coincidentally, was enabled by automation of the stock market via algorithmic and high-freq trading, obsolescing another swath of the formerly human field of “systems analysts” the star children of the 80′s and 90′s.

        Now enter Watson 2.0 AIs who start edging out the knowledge workers and parts of the creative class, evicting whole floors of glass-pyramid offices, pulling out that entire trophic crown jewel of the US, the “middle to middle-upper class” and forcing the former white collars to compete with the service jobs – the last bastions of human value, till android developers close the uncanny valley. The already struggling lower class, finding themselves competing with flailing PhDs for culinary and car repair jobs being eclipsed by robomechanics, are thus forced into…. Central America-grade crime or bloody revolution, possibly both. That’s I think why this blog’s owner suggests that we’re not going to make out so well as a species unless we can figure out some better way than our status quo of getting the wealth more fairly distributed and not just rely on the economics establishment’s tagline “the jobs will come from somewhere”.

  15. Name (required)
    June 21, 2011 at 1:58 pm | #32

    “Other people buy things that clever entrepreneurs invent in order to extract that extra money from them, creating entirely new industries.” – Harumph Frog

    The flaw here is that next time the entirely new industries will not be labor intensive. We will make and buy new things – but we will likely have fewer humans drawing paychecks during the process.

    “…jobs will come from somewhere” – Harumph Frog

    This is not sound economic policy. Keep your prayers in church.

    • June 21, 2011 at 5:37 pm | #33

      How strange it is when someone quotes you out of context in a comment thread when the original meaning is so easily found by looking at the next comment up. By “…jobs will come from somewhere,” it’s quite obvious that I didn’t mean “I have faith that jobs will come from somewhere,” but that “jobs will come from somewhere, even though it’s not obvious now where, as has been the case for over 200 years of economic growth.”

      Say you made the claim that something in the atmosphere has changed and, even though evaporation continues apace, starting today it will never rain again. Now, maybe you are right, but given historical observation and current theory, you will have to support your claim with pretty strong evidence.

      Economic growth hasn’t historically caused the creation of new jobs by magic, but because the ability to more cheaply produce goods leaves people with more money to spend on other things. If the production of those new goods are less labor intensive, than those goods will be cheaply made – increasingly so, as the technology used to produce those goods improves – leaving people with yet more money to spend, and so on and so forth.

      Of course all this can’t go on forever, but where the end is is anyone’s guess, and I fail to see why you would assume it ends with high unemployment rather than a situation where, as Keynes put it, “the economic problem has been solved.” Seems to me like a utopian world of abundance and leisure, not a dystopian world of an endless depression economy.

  16. Audrey
    June 21, 2011 at 8:59 pm | #35

    I find it ironic that it the same increasingly sophisticated technology and automation that is leading to unemployment is the same force that has made it possible for the population to expand so drastically in the last century – through dramatic increases in agricultural production through technology. Am I right about this? It doesn’t suggest a solution, it’s just ironic.

    • June 22, 2011 at 3:45 am | #36

      It’s a fundamental change in the type of technological advances, from advances that improve human abilities to those that replace human abilities.

      • November 14, 2011 at 8:20 pm | #37

        @Nick

        You obviously know your stuff. I’ve been baffled by the lack of literature on the fundamental relationship between highly restricted global labor mobility and swashbuckling capital mobility. Any recommendations?

        I once sat on a plane next to a young guy who was pursuing a graduate degree in economics at Berkeley. I asked him this same question and he gave me the blankest of blank looks.

  17. June 22, 2011 at 2:42 am | #38

    While there may be an unending litany of new products to come out (next season’s iPhone, a better electric car, some other as yet uninvented tech), there is not an unending litany of new human physical and mental abilities being pumped out every season. What we’ve got is what we’ve got; the human body and mind are a finite resource and we are rapidly approaching peak humanity.

    Peak humanity is a good phrase, and what I was looking for: an explanation for why you think the rules that the economy has been following since the industrial revolution are about to change. Is it fair to say that you basically have a Marxist perspective, but with the caveat that Marx was off by 150 years or so?

    It seems to me that whether you look at the direction technology is taking the economy and see a quickly approaching dystopian future or a utopian one, is really a question of temperament, or aesthetic preference. Being temperamentally optimistic, let me make the case for optimism:

    It’s useful every so often to think about what is real in the idea of economic growth. All growth really is is the increasing ability for society in the aggregate to produce more of the things people want, while using less resources or effort. I don’t it’s debatable that growth is a good thing. I’m glad that I, as a not particularly wealthy person, live in a society where I can have enough food to eat and shelter and leisure time and access to transportation and a computer and a cell phone and on and on. That is all thanks to 200 years of an average of 3% economic growth.

    I also think that it’s not debatable that the free market system has been the most effective means of achieving and maintaining that growth. Granted that growth can’t go on forever and at some point we will hit “peak humanity,” making the standard market mechanism for labor untenable. I’d guess that we’re farther from that point than people here think, but it will happen.

    At that point, there are a few things that could happen. One is the dystopian vision people here implicitly hold: a tiny uber-wealthy elite living in fortified compounds, with the vast majority of people wandering the land like a futuristic Grapes of Wrath.

    That to me seems like the least likely scenario. Another could be a Marxist style revolution, and the resulting utopian vision that he wrote about. Or maybe a more Keynesian style fix of using the government to tweak the market system in ways that make it tenable. Or maybe a Milton Friedman kind of “negative income tax,” with similar redistributive results. How about a legally mandated 5 hour work week?

    How can you have such little faith in the ability of a democracy to solve it’s problems, when the problem is so easily solved? Politics won’t always be as wacky as it seems right now. We’re not talking about a world where there isn’t enough to go around. This is a world where we have become too good at producing things. Seems much more like a blessing than a curse.

    Cheer up.

    • June 22, 2011 at 10:23 am | #39

      First I should say that while I’m certainly not optimistic, I try not to be too pessimistic (though I think it better to err slightly toward caution as a rule of thumb). Ultimately, optimism and pessimism, utopia and dystopia are two sides of an idealist coin, a natural but unfortunately common human duality. Realism should ultimately be aspired to, but in a pinch, be prepared.

      I don’t think that some horrible post-apocalyptic scenario is inevitable: quite the contrary, but I don’t think we can afford to just sit back and relax, let our civilizational ship go on autopilot while the techno-cultural icebergs are looming through the mist, and expect things are just going to work themselves out like some Bruckheimer summer blockbuster.

      “Is it fair to say that you basically have a Marxist perspective, but with the caveat that Marx was off by 150 years or so?”

      I think reality is a far more intractable Gordian Knot than any Enlightenment Era Rosetta Stone-theorist can account for, be it capitalism, communism, or any of the other long procession of tenure-track isms that we’re intellectually shackled by collectively as a society. There are some things which Marx was right about, in the sense that he was a kind of steampunk equivalent of the modern day Silicon Valley technovangelist: he was concerned about a day when machines really did subsume the entire means and labor force of production in response to the machinization of everything. (It is in fact difficult to distinguish much SV rhetoric with readings of Das Kapital) His suggested chain of events that magically solve all our problems, however, seem woefully misguided. For one thing, who the hell is going to “frolick about in the dandelion fields during the day, reading classics and poetry to one another and practicing archery in the afternoon”? This idea that “capitalism would inevitability lead to social revolution where private property in the means of production would be superseded by co-operative ownership and production would be organized for use” is terribly naive.

      Many forms of modern techno-utopianism, such as Singularitarianism, transhumanism, and belief in global shared abundance suffers from the same myopic delusions of grandeur and human magnanimity as Marx’s communism. It’s hammered in again and again like an Apostles creed by the Singuvangelists that we’re going to have all our Earthly primate problems solved, Deus Ex: the Omniscient Machine in its ineffable wisdom shall cure all our diseases, bring peace to all our intractable conflicts, bring us into eternal life, elevate us into eternal blissful joy where every potato chip tastes like a thousand orgasms, said 89 Dark Elven virgins, the answer to every question, the meaning of life, the question who’s answer is 42, etc etc.. The same goes for the post-scarcity “Abundance” people who think that if we just have enough productivity capability up our sleeves, if we just “build all the machines” universal wealth and happiness “will come!” where we can work one hour and have enough to buy food shelter and health care for a month.

      But guess what? We already have the resources, the wealth, to give every man woman child a 1st world or near 1st world life style. Every bank-puppeted economist will sing to you the undying praises of the modern globalized free market and how thanks to business and technological innovation we’re many times better off than we were half a century ago. However, as any major non-Koch brohers funded study will tell you, as if you didn’t already know, the wealth gaps have been and are only growing into ever more impassible chasms, EVEN as the sum total of pie to go around is getting bigger. As the Barclay’s head honchos buy their fourth tropical island nation as their personal getaway, we’ve got half the planet still starving and grinding their cartilage to dust 14 hours a day for a dollar, and even in the Greatest Country on Earth we’re seeing steady decline or stagnation in living standards. Simply adding better tech to the equation does not equal better or more even distribution of that wealthier future to everyone. On the contrary, if the pattern continues, we should expect a Singularital heaven, a super-intelligence run orbital Villa Straylight on which only the long WASP procession of royalty clones shall remain, literally disconnected from the hell below. Tell the rioting Greeks and Brits losing their prized social safety nets to “austerity measures” that are being used to pay retroactively bankster billionaire bonuses to “trust our democracy, it’ll all work out!”. Tell the Wisconsonites and Michiganers and other states who are rapidly losing their bargaining rights among other things to pay for the toxic debt the 500 Frat brothers have saddled us and our childrens’ children with to “be optimistic!”. Tell the invisible “other half” of the planet that works for less than a dollar a day, “Don’t worry, I’m sure we’ll be frolicking in the dandelions soon!”

      I don’t doubt that we as a species and a society have the *potential* to solve the challenges ahead. I don’t think that these problems are “easily solved”, or that they can be solved with our current level of engagement, although I certainly applaud the tens of thousands in Wisconsin and Michigan, and all the people who are truly trying to move and shake this thing up. But our so-called “democracy” is surely in jeopardy when the spineless marionettes we call politicians side with The Money over the government workers, teachers, fireman, policemen, nurses, and everyone else who turned out in force. When popular support was 300:1 against the bank bailout/Theft of 700 billion dollars from the American people and their children, and yet it still passed. I’m not seeing a lot of “hope and change” optimism abounding when the Washington “outsider” put into office to shake things up hires the unholy Wall Street triumverate who dismantled Glass-Steegle and helped seed the financial FUBAR onto his economic advisory, and continues to play sweetheart to the banks despite pretty uplifting but empty Oprah-book-club speeches. I’m going to have to temper that optimism with a strong chaser of realism. And if you think things are going to start getting better soon: we haven’t even had the *first* shoe drop with our financial mess, let alone the Great Automation. Give it a year or two of Japanese-style lost-decade and wait till we *actually* take the pain.

      The human desire to compete for wealth and status and prestige and its second-order effects within complex socio-political configurations are routinely glossed over by the platonic hallowed Shangrilahs that permeates much of Marxist ethos and its spiritual progeny. You can try to deny that desire to compete, like some communist states and flower-throwing communes and naïve Silicon Valley programmers, and believe that billions of years of psychological evolution are just going to go away, and we’ve all seen how the Soviet experiment turned out. Somebody will always come out on top, whether that’s 500 frat brother network of CEOs, a genocidal dictator, an authoritarian People’s Republic. Today’s cute anti-authoritarian revolutionary in the bushes is tomorrow’s tyrant on the throne. Today’s “hope n change” presidential candidate is tomorrow’s Wall Street-owned puppet. Today’s grass roots take-back-the-government tea party is tomorrow’s “guns gods n gays” Republican freakshow. Revolution may come, but it is not enough to let the Tzar’s heads roll under your Bolshevik revolution if you wake up the next morning, rub the party hangover out of your eyes, and discover a Stalin at the podium. And marxists/abundantists who prefer to leave that fundamental non-linear x-factor out of their perfect equations for their model worlds are making their own Procrustean Beds (and the similarly deadly beds of innocent and/or ignorant bystanders). Not unlike the hordes of Gaussian Copula and “Great Moderation” flaunting economists who tried to fit the world to their theories and not vice versa. And we’ve all seen starkly and painfully how that 2008 economic Singularity worked out.

      “More leisure time” is a myth: we’re working longer hours when you count all the work we have to take home, both parents and often kids need to work just to stay afloat in more cases than not, half of all Americans have no health insurance or have dismal coverage, and we’ve got multiple families stuffed into houses or apartments that used to be affordable by a single working parent half a century ago. It’s true, we have a lot more cheap crap nowadays, gadgets and xboxes and bling with which to tweet our neocortices into net-gen comas to keep us distracted and anesthetized from what’s going on. It’s also crappier crap that breaks easy — it’s five times cheaper but break five times faster than it used to, and you can count how long an iPad lasts with any children in the household in days. And the notion that capitalism is doing such a fantastic job making stuff so cheap has been as imaginary a gain as the 600 trillion in derivatives paper bullshit still orbiting the planet like some invisible Cthulu-entity patiently awaiting the next sovereign default / bubble burst that gets counted as “GDP increase”. That bargain iPad you picked up at Futureshop is provided by slave labor by some suicidal one-legged teen working in a Shenzen Foxconn factory 16 hours nonstop in a cloud of asbestos snapping together “lickable” beige plastic for a dollar a day, forget overtime or benefits. Externalized costs: shift the red off to someone else and frame the black in gold, and call it “progress”, that’s what we have to thank our “capitalist free market” system for in modern times (more like “kleptocratic distorted market”). Personally, I’d like the health care, an affordable home, and more leisure time to spend with family and friends over a bunch of cheap flat screens and gizmos and poison baby formula covered in negative karma.

      • Scott
        June 24, 2011 at 2:50 pm | #40

        Wintermute — thank you for this discussion above. I for one agree wholeheartedly and appreciate your efforts writing here where Martin has left off.

      • June 24, 2011 at 9:20 pm | #41

        It all sounds pretty bleak when you put it like that!

        I’m not going to address every point you make here, but speaking generally: there is an unfortunate tendency for many on the left to be fatalistic to the point of absurdity. Before throwing your hands up in despair, you should first consider two things:
        1. People have always thought that doom was right around the corner, when what came instead was longer life spans, more material wealth and so on. At the very least that should call for some modesty on the part of doomsayers.
        2. People tend to not spend enough time marveling at the modern age. Yes, there are problems, but compared to what? Not only is there unimaginable material wealth, but because of it, society has shifted farther towards liberal values than anyone could have ever possibly dreamed. Look at where women’s and minority rights have come. The US recently passed the 50% mark on support for same-sex marriage. Compared to any other time in the history of the civilization, that fact is
        remarkable. You might disagree, but I don’t much doubt that this great shift in human values is entirely the result of the material prosperity brought about by 3% growth over 200 years. The most important event in the history of the women’s rights movement was the invention and widespread adoption of the washing machine. Plain and simple.

        But guess what? We already have the resources, the wealth, to give every man woman child a 1st world or near 1st world life style.

        Maybe. But don’t you think there may be a few complications and unintended consequences? Are you proposing some kind of massive global redistribution of wealth? There are two things at play here: society’s potential at any given moment to enhance human welfare, and society’s ability to grow and increase that potential. Cuba is famous for having taken a pretty meager economy and oriented it the best they could for maximizing the welfare of their people. Cuba has achieved life-expectancy and infant mortality levels that are way higher than you would expect given their per-capita wealth. The problem is that in the process, they stifled the ability to grow and hence, in the long-run harmed their capacity to enhance human potential. China, on the other hand, first took a similar path as Cuba but now are focusing more on growth. They’ve improved the lot of millions of people in the process.

        Personally, I’d like the health care, an affordable home, and more leisure time to spend with family and friends over a bunch of cheap flat screens and gizmos and poison baby formula covered in negative karma.

        Somehow it escapes people that no one is making then buy cheap flat screens and gizmos. If you value more leisure time to spend with family and friends, then stop spending your money of cheap gizmos so you don’t have to work as much. The point is that you have the choice. I think people should spend less time worrying about the preferences of other people. If you think reality TV is stupid, do as I do: don’t watch it. I see no point in worrying about the fact that other people do like to watch it. If the gizmo exists, then someone must want it. Let them have the stupid thing. Maybe they don’t like their friends and family much and find their only escape in watching reality TV on a large flat-screen. Let people choose and usually everyone is better off. Usually.

        Poison baby formula covered in negative karma, on the other hand, should probably be banned.

  18. Fernando Cruz
    June 23, 2011 at 12:01 pm | #42

    I just finished reading the Lights in the Tunnel book.
    I do share the opinion of the author with respect to the negative impact of automation on the job market and a possible incentive solution that would tie “sustainable behaviour” to income. I do believe we are PAST the critical point, though. Structural unemployment is everywhere. Action and a quantum shift in our market models and mentalities is needed NOW.
    I am not sure I accept the idea that “forever increasing growth” in consumables would be a, or the, positive desired result. The lack of natural resources would potentially be solved by nanotechnology or even biomimicry technology. But, if we go back to surveys that indicate that people are not happy, and, as the author comments, are not themselves in their workplaces, then I think we need to think of future solutions that do address all levels of Maslow’s Pyramid of Needs. Our current world, and the author’s solution, are still too centered on the first two bottom levels of Maslow’s model.
    I also believe that current unemployment and dissatisfaction is the result of the migration of knowledge and technology from people’s hands and minds and into the manufacturing buildings. This caused a disempowerment of the willing workers. And amassed wealth in the hands of a few. We could solve this problem with a different market and taxation model as the author suggests, but I believe that a more effective solution would be to return knowledge AND technology to the average person.
    Examples are aplenty of successful societies with this approach. Their demise was the permissivity with which we, the people, allowed (or had no other option without government support) this knowledge and technology to move from the streets to the ivory towers of knowledge and the smoke spewing stacks of the manufacturing glass houses (of the current high tech industries).
    Humans are not just consumption and sophisticated gadgets. Humans are, primarily emotional and spiritual beings that have found no satisfaction of theses needs in the bulk of the market driven solutions to life’s material needs.
    So I defend that we climb up Maslow’s pyramid as we try to find solutions to this well identified problem that the author defends in his book.

  19. Audrey
    June 23, 2011 at 7:27 pm | #43

    In my town, the local big car dealership just donated $25,000 to the hospital towards the purchase of robotic surgical equipment. Meanwhile, flesh and blood doctors set up shop and close down within the year because they can’t make enough money to pay for their own upkeep in this retirement community. Who will be using the robotic surgical equipment? Retirees with large chunks of money saved up… Until it runs out.

  20. June 25, 2011 at 12:08 am | #44

    @Harumph Frog: “People have always thought that doom was right around the corner, when what came instead was longer life spans, more material wealth and so on. At the very least that should call for some modesty on the part of doomsayers.”

    I agree. It’s not about the apocalypse. I also agree that in terms of very very wide geological time, things have been getting better for the human species in terms of comfort and breadth of societal empathy, although it is not just a straight ramp of “progress” but fits, starts, and regressions — some greater and longer than others. However, “More material wealth and longer life spans” have NOT been historically inevitable everywhere in the world over the past half century, and certainly, the future arrives always unevenly distributed. The Civil Rights movement was not automatic: it was hard won with blood, sweat, tears, police beatings and jail time, and many died for their cause, not the least of whom was Martin Luther King.

    “Yes, there are problems, but compared to what? ” I fully agree that we should be thankful for what we have. We should not however use “Just be thankful you’re not a black slave in 19th century southern US!” as an excuse not to try to make things better.

    “Somehow it escapes people that no one is making then buy cheap flat screens and gizmos.”

    Totally agree. People need to take responsibility for their own purchases. The point was to show that, yes, we have some gains in terms of productivity and cheap goods, but the gains are supported on the backs of slaves across the ocean, and the things that ARE really important (health, shelter, food) are actually more expensive and people are consequently actually worse off in terms of well being than they were decades ago.

  21. The Social Critic
    June 25, 2011 at 5:00 am | #45

    Freelancing once was the bane of artists and writers. In this economy, however, short-term gigs are the new norm. How does one build any type of “employment security” on a string of mostly low pay, no-benefit consulting, temp or contract jobs in a downwardly mobile economy?

    The real question everybody ought to ask at this late stage of the recession is WHY. If you think it began with a subprime mortgage crisis — or that structural unemployment is primarily a byproduct of technological advance — dig deeper. During the expansion phase of American history GDP benefited not merely from the Industrial Revolution but from the workers behind it: slaves, child laborers and slave-like wages. That would have continued right up to the present day, as it has in China and elsewhere in the Third World, were it not for the union movement, among other civil rights efforts, which spawned the concept of the “living wage”. By in large, this worked to raise the average American’s standard of living, educational options and even life expectancies through better nutrition and healthcare. It then translated to a wealthier population who could be taxed to build America’s prized infrastructure. We not only built interstate highways and higher education institutions to become the “envy of the world”, we built a consumer class who could buy goods, services and homes (with appropriate downpayments). Despite this progress, our memories of a dirtier, more short-lived and monopoly-driven American way of life —- what with New York not even having trash pickup or sewage services and oil and railroad barons running the show —- began to fade. In its place came a push back against the “lazy worker” who wanted “special treatment” and the disadvantaged “noncompetitive business”.

    That began to change in the 1970s we began to expand trade to countries that benefited from a labor market with far fewer encumbrances — labor pools much like our own 200+ years back.

    So what is the solution now that it would appear to have disadvantage?

    Dong Tao, a Credit Suisse economist, said on CNN last year that Americans must prepare to make do on at least 80 percent fewer wages and the Chinese must start consuming more to level the playing field so that we may end this undeclared trade war.

    For most of us, that’s going to hurt. It also implies that for all the talk of a housing/credit crisis at the root of this protracted downturn, the subprime lending meltdown was yet another symptom of our Post Middle Class transition.

    If we wish to ask where this lopsided game began, we can blame the “greedy American” for simply wanting to feed, clothe and send his/her kids to college (which requires living in a decent area with decent schools, in many parents’ perceptions). We can also blame technology. But at the heart of it all, the buck stops with poorly implemented trades, tariffs and economic policies on the part of the US (which the other First World nations have emulated, thinking we knew what we were doing in this newfangled era of globalization).

    My argument is that “all of the above” play a role, but if you really want to know why bad continues to move toward “worse” for your job security, wages and children’s prospects in the neo economy, you only need look back at Ross Perot’s urgent warning of what was to come (as a self-made billionaire in his own right).

    When NAFTA, GATT and other so-called Free Trade Agreements were passed it seemed quite benevolent. Why not share the wealth by throwing off trade barriers? The catch was this: Unless those trade agreements were balanced with human rights, labor and environmental protections that bore some semblance to one another, “free trade” was anything but. Not only did we create an incentive to offshore our economic growth, Congress’ lost much of its ability to collect corporate taxes: 2/3 of US corporations, according to a Congressional study pay no federal taxes whatsoever! (Google alone is alleged to have eliminated its US tax burden to the tune of $7 billion per year!)

    In order for free trade to function the way the global idealists promised, every nation must play by essentially the same set of rules. If not, what you have instead is a chaotic game of musical chairs wherein the Third World and First World can trade places faster than anyone dared to imagine. This is a recipe for uncertainty at best and uncertainty does not spur hiring and growth!

    In the end, even Wall St. could not avoid the pinch of a less profitable domestic economy. Less of a real economy on which to sustain productivity-generated profits led to creative, if not foolish gambling — casino practices that remain largely unscathed by reforms. Financial instruments — like faulty mortgage backed securities and credit default swaps — have come to represent an increasing chunk of every First World trade exchange in direct proportion to the loss of manufacturing and tangible growth.

    It is no accident that we have become the debt-ridden government and society we are today. Wall St. investment firms are now taking US dollars and converting them into foreign-denominated investments because not only has our labor market offshored but so too has much of the investment trade! (Even the NYSE is in the process of relocating!)

    As Americans, our stagnating wages and unpredictable career trajectories trace back to how little we understand the influence of trade practices on our personal financial fates. Government leaders, in their infinite wisdom, continue to craft new and equally lopsided free trade agreements with South Korea, among others. This isn’t to say that those nations shouldn’t be permitted to enter a trade agreement — only that it should be negotiated more equitably. It’s no secret that the US is by far the worst trade negotiator at the table. We cave to deals that undermine our manufacturing and engineering prowess while kowtowing to Third World preferential demands.

    All of this comes to one conclusion: What we are witnessing isn’t merely the beginnings of a “double-dip recession”. The so-called Great Recession is, in fact, the Great Realignment.

    We may experience these changes in our personal lives as increasing competition for jobs, wages that seem unjustly low for the amount of time and money we put into our degrees and/or our professional development, longer spates of unemployment and more stress associated with taking on ever-increasing levels of responsibility on the job. Until we educate ourselves, demand a more intelligent American media and spend more time voting with these issues in mind, we can expect more of the same.

    None of this is to say we should endorse a resurgence of protectionism or aggressive unionism. What should be the case, rather, is a healthy sense of respect for a counterbalance to unsustainable trade deficits. The future is entirely dependent upon how wisely we elect our representatives and how closely we scrutinize the trade laws to ensure that the American Dream is not yanked from beneath our feet.

  22. June 25, 2011 at 11:45 am | #46

    • @Harumph Frog: “It all sounds pretty bleak when you put it like that!”

    As science fictional dystopia-like as this stuff sounds, I’m not making this stuff up. There is a not so pretty world outside of your suburban bubble of Starbucks and Twitter feeds.
    “there is an unfortunate tendency for many on the left to be fatalistic to the point of absurdity. Before throwing your hands up in despair, you should first consider two things:”
    Obviously you have been filtering everything I have said into the “left-bleeding heart-liberal” tulpa within your mind – yet another unfortunate dichotomy we can thank the 20th century political-economic baggage for imprisoning our dialog within – since you obviously missed this important qualifying point in my previous post:
    “I don’t think that some horrible post-apocalyptic scenario is inevitable: quite the contrary, but I don’t think we can afford to just sit back and relax, let our civilizational ship go on autopilot while the techno-cultural icebergs are looming through the mist, and expect things are just going to work themselves out like some Bruckheimer summer blockbuster.”
    This is not about “left-and-right” or “liberal-and-conservative” as the political-industrial infotainment complex’s marionette puppet show that passes for our political discourse would like you to get caught up in a perpetual tribalistic war within, so the ultrarich Ownership Class can keep screwing us over as a people. But if you would like to continue flogging that frayed and tired strawman, go for it. Capitalism and socialism are ideological chimeras, they’re comic book heroes and villains. Sure, there are some truths to either side, but they are anything but perfect. Any society worth anything incorporates the better aspects of either and finds an intricate and nuanced balance.

    “People tend to not spend enough time marveling at the modern age.” I am all for toothpaste, I am all for penicillin, I am all for (true) economic growth. Don’t see any argument there. That’s cool if you like a modernist circle jerk.

    “People have always thought that doom was right around the corner, when what came instead was longer life spans, more material wealth and so on. At the very least that should call for some modesty on the part of doomsayers.”
    I agree. It’s not about the apocalypse, again, Teh End of Teh Werld is for schlocky cashcow summer blockbusters, just like “Capital F” Gernsbeckian futures. Doomsayers have existed since there was snake-oil money to be made. Y2K, 2012, recorded music, the list goes on and on. I am not pointing out the end of the world. I am happy that aspects of capitalism along with aspects of socialism have enabled great strides over the past centuries in terms of economic growth, though you continue to insert words into my mouth because of your apparent projections of liberal socialism upon me. It is not this either-or dichotomy; few nations worth their constitution adhere purely to one or the other: these are merely ideological tools which can be utilized in concert to construct some pragmatic, realistic forms of governance and economics. Rooting for one “team” – liberal vs conservative, capitalism vs socialism, assorted other binary constructs – is like a pair of chefs, one arguing that “Flour is the bane of cakes; we need as much sugar as possible!” and the other that “Sugar creates unnatural and unsustainable cakes; cakes are best made with maximum whole wheat flour!”. If you pack the cake full of sugar you kill your taste buds and contract diabetes. If you go all out sugar-free whole wheat flour cakes, the cake becomes bland and boring. What we need are the sweet-spots of capitalism (free markets in particular), well-regulated and balanced with a high-fiber diet of the best parts of socialism.

    “society has shifted farther towards liberal values than anyone could have ever possibly dreamed. Look at where women’s and minority rights have come. ”

    Again, no real disagreement here. While economic and technological growth can certainly *facilitate* social change, i.e. the Civil Rights movement in which said minority and women’s rights were progressed, I would add the caveat that growth is necessary, but not sufficient. The other part of the equation is human beings actively trying to make their world a better place. Nuclear energy, developed in the US during WWII thanks to economic, technological AND governmental cooperation in the form of public investment and subsidy, is agnostic: people can decide to Mutually Assure one another’s Destruction, or they can power their homes and businesses. One could even say that it was the social change originating in the union movements which empowered the exploited the industrial worker with better pay, compensation, and access to quality public services (namely education). This in turn enabled the creation of the educated, well-paid, American middle class consumer that made the US the powerhouse economy, and which created a fertile intellectual and cultural ground for the blossoming of social change that swept the nation during the 60′s and beyond. And yet, the Civil Rights movement was not automatic: it was hard won with blood, sweat, tears, police beatings and jail time, and many died for their cause, not the least of whom was Martin Luther King. And I believe King’s ominous words totally nails our times: economic inequality is the next civil rights problem. And there are many places in the world, with very very high “productivity” in terms of GDP growth – surpassing that 3% to 6% or more — which are abominable in terms of civil/human rights, and those basic tenets of social welfare (coughChinacough). And so I think this GDP – well-being correlation does not always work. Sometimes it’s all sugar and no fiber.

    While the washing machine freed up some time women used to spend doing household chores, today we find the laissez faire market has left those liberated feminists and their rolled up shirtsleeves oppressed not by cultural norms and gender roles but by economics: working 60+ hours a week alongside their husbands just to meet the same living standard their parents once enjoyed, absent parents leaving broken homes and horribly stress-filled relationships (incidentally adding to the queue of medical problems people can’t afford to have in the US). And this occurs not just in the (growing) slums but even amongst the particleboard subprime suburbs, where both parents are often indentured debt-slaves to a mortgage that is hugely and falsely inflated by CDO-based real estate ponzi. Economic growth is not the same as growth of financial shenanigans and massive theft of the wealth of the many by the few zero-sum add-nothing-to-the-pie mogul wealth strippers who have their AIs play virtual casino with people’s mortgages and the price of food and gas and the futures of our children and grandchildren, stifling and withering good quality companies. I am not for this Reagonmics/neo-liberal/trade imbalanced economic vampirism some misleadingly refer to as “free market capitalism” that circumvents and eviscerates the social safety nets: collective bargaining, minimum wage, workers comp, work safety, access to quality public education, medical treatment etc. etc. that were clawed back tooth and nail from the institutional monopolies of systemic exploitation and wage slavery after the industrial revolution. I am not cool with these golden parachuted investment bank CEOs using the stolen loot just so that they can have another dozen homes on tropical islands that they never live in, another dozen nights of Icelandic hookers and blow in the Imperial Suite of the Wilson on a Geneva junket while half the country has no health care, or the kind where they loose their house if they break a hip.

    “Cuba has achieved life-expectancy and infant mortality levels that are way higher than you would expect given their per-capita wealth. The problem is that in the process, they stifled the ability to grow and hence, in the long-run harmed their capacity to enhance human potential. China, on the other hand, first took a similar path as Cuba but now are focusing more on growth. They’ve improved the lot of millions of people in the process.

    Oh, what an absolute catastrophe that those poor Cubans are giving up a little bit of potential per-capita-growth, able to afford only 1 iPhone a year instead of 12! I’m sure they wish they could be like us in the US and have THAT GROWTH AND EVEN MORE OF THEIR SALARY stolen away from them via financial shell games, “fat-trimming market efficiencies” euphemism for wage-arbitration-based pay cuts and busting of unions, regression of workers rights thanks to US corporate exploitation of outsourced human rightless labor markets and the myriad other hardcore-capitalist joys that those lucky suicidal Chinese dollar-slaves enjoy as they “help China grow”! (Or help the well-connected People’s Republic barons’ bankrolls grow from their slave labor and trade imbalances, at any rate) I’m sure those cigar rollers would love to give up their healthcare for a few more falsely inflated GDP points siphoned off by the royalty, just like we happy Americans have. But forget Cuba: look at Canada or Scandinavia where they give up some of that gdp (that mostly goes to the uber rich who don’t need it any way) and who have much better average living standards, poverty levels, happiness quotients, and general well-being levels than we in the US with our uber-gazillions, over-stressed over-worked over-consuming overweight underinsured and relatively unhealthy, unbalanced existence.

    I’m not saying we as a human race haven’t done good (and some bad): I’m just saying we can do a LOT better.

    Case in point: Canada. When the US and much of the rest of the world was suffering borderline financial meltdowns, catastrophic failures, and near-depressions, Canada suffered none of that, only a mild recession, and is now one of the top performing industrial economies.

    Why is that?

    Well, they use that “big scary government” to regulate the amount of risk you can take and the creation of *toxic* debt, that is, debt unlikely to be repaid. You cannot over-mortgage your property, and if you are financing more than 75% of the value, you have to get insurance *for tha bank* let alone the borrower. And thus, while their moguls are rolling in a few less mountains of dough, Canadian banks have come out way ahead from mortgages. The cops actually do their job there, examining banks on a day-to-day basis, and requiring them to adhere to stricter standards, and, get this, they actually require banks to hold mortgages ON THE BALANCE SHEET! (The sound of a thousand US suits, seized by heart attacks) No shadow banking mark-to-model bullshit shenanigans, it’s all daylight-disinfectant all the time up in Canadia land. And with tougher regulation of what kind of toxic sludge derivatives and CDOS flow in (mostly from south of the border), Canada’s six biggest financial institutions survived the global financial crisis without disaster, and the resulting wealth-stripping and economic destruction seen in the US.
    Hey guess what else? Canadian home prices have remained stable when prices were shooting through the roof down in the toxic sludge wasteland below.

    Oh, sure, critics say, “The Canadian banks were ‘less innovative’”, making it harder to issue debt. But ‘innovative’ is just economics-speak codeword for “toxic”. They had a relatively smaller financial system and less debt flowing around. Less capital flowed around. The super-rich made a bit less money. They got “left out of the incestuous transnational bond in debt” as you say. But the capital did not “drain out of the country”, bakers did not stop baking, teachers did not stop teaching, bankers did not stop banking, CEO and financial “talent” did not all “brain drain” away from the country, hockey players did not stop playing hockey, moose did not stop annoyingly trotting out in front of your car, and the world did not end, like you seem to claim. The contrary. The Canadians got along just fine, and in fact are doing extraordinarily well now, sighing and shaking their heads at their silly neighbors and their car-crash of an economy.
    Imagine that: a financial and corporate sector doing its job as the grease of the economic sector and actually *facilitating* real economic growth rather than just draining it and mucking up the gears into debt-laden recessive stagnation to benefit the too-wealthy. Oh, and then there’s the fact that 100% of their population actually has health care. That’s a slightly less unregulated-laissez-faire-capitalism filled cake, and a little more wholesome socialist flour, with a heavy dose of smart practicality, and it goes a long way.

    “Are you proposing some kind of massive global redistribution of wealth?”

    Not a massive redistribution, just a slightly more sane and sustainable balance than the ridiculous, unregulated ponzi-monster of a system we currently have. And for another look at a slightly smarter-balanced concoction of socialism-capitalism, exhibit B: Sweden.

    Their “welfare state” model is an excellent example of effective national taxes. Among other things the state provides universal tax-funded childcare, parental leave, health care, education (including university), retirement pensions and sick leave. Including value added tax (VAT – kind of like sales tax), it is possible to pay up to 80% of your income as taxes. Contrary to popular belief, Swedes are quite OK with their high taxes – after all it gives them tons of high quality services and they almost never need to take drastic action like taking quick payday
    loans just to make ends meet. In fact, most of the services for the public are free. They have sustainable, non-excessive non-klepto business growth in balance with a healthy public sector and sense of general welfare. They sacrifice a little bit in corporate profits but that is made up for in a more healthy, able, and resilient workforce. And the benefits are measurable. Sweden consistently rates higher in general happiness and well-being than the US. A system like this will have a much easier, more lubricated time, absorbing the economic repercussions of a transition to greater automation.

  23. Audrey
    June 28, 2011 at 11:11 pm | #47

    I’ve seen two movies this summer that reflect interestingly on The Lights in the Tunnel – at least the first part.

    In Super 8, man is fighting a machine that just wants to go home. It’s super technologically advanced, but just can’t seem to find each piece it needs to leave. People are wandering around, wondering whether to fight it or help it (some have opinions that they act on). This seems like a metaphor for humanity’s frustration with increasing automation. On the one hand, it seems to be advancing so fast (as if it had a mind of its own, like an alien) and on the other hand, it is replacing us as a labor force. Ford explains it much more clearly, but this movie gives a voice to the frustration felt knowing that the very technology we are so dependent on will also be that which eventually undermines our very comfortable way of life.

    And in Cars 2, there is a striking refrain: “Everything is voice activated.” Aside from the obvious fact that the characters in the movie are self-automated cars (robots), there is also a sense that racing around (arguably not real work – merely a distraction) is the main occupation – and we might explode as we race. And the theme of the movie is that a bunch of guys buy up an oil field and then make alternative energy sources look bad in an effort to raise the price of and demand for oil. Of course, in the real world we know that the reason why alternative energy looks bad is that nothing is currently as effective (cost or otherwise) as fossil fuel. What does this have to do with automation? People have been talking about running out of fossil fuels for decades (probably longer than that) and I’m sure it will happen, but meanwhile, right in front of us, a much bigger issue looms: automation. The cars are the main characters in the movie. They are the more pressing issue hiding right before our very eyes. The fossil fuel question may turn out to be moot.

  24. July 9, 2011 at 7:54 am | #48

    So have people work less! That was easy.

  25. July 15, 2011 at 9:40 am | #49

    Several authors in Europe have developped ideas that are very similar to yours. Paul Jorion, Pierre Larrouturou in France share your concerns about job destruction by ad tech.

    In fact as Josephs Stiglitz has demonstrated in his excellent book “Free Fall” it is the greed and cupidity of some society members who have accaparated the productivity gains that create the problem. It is also the stupid price war that industrial and commercial organization have started using productivity gains that caused job losses. If they had competed on products and services quality , productivity gains would have resulted in quality job creation rather than just losses of uninteresting jobs…

    Paul Trehin
    France

  26. Liberty
    August 2, 2011 at 1:52 pm | #50

    Lean and mean BRIC economies have taken our business but cost cutting was resisted and debt taken on instead but the burden of debt has become unsustainable and now cost cutting is unavoidable. Additionally, technological development has continued to accelerate making technology cheaper than people and automation is now the most important factor in economics. For desperate firms in high wage economies the best way to compete is to use technology so cutting employment but this has not stopped automation in BRIC economies. Chinese imports of automation equipment doubled last year and manufacturing employment peaked some years ago as production continued to soar. The Taiwanese fabricator for Apple, Dell and many others is replacing workers in China and Brazil with 1,000,000 robots over the next three years.

    Services too are rapidly automating. Retail is the UKs biggest employer but are losing business to online stores that are highly automated. Our second biggest employer is food processing and that too is automating rapidly. South Korea has provided ipad type tools for all their primary school children.

    This is why unemployment is so high everywhere. The power of automation is increasing at 20-30% pa, doubling every 4 years. This will not stop but accelerate because technological development is intrinsically exponential. There are physical limits to the power of IT per £ but life and work will be transformed long before they are reached.

    Wealth is access to goods and the more they are produced by machines the less work for us to get them. But a lack of work means a fall in income and demand so fall in prices, more automation in a deflationary spiral that will be all the more disruptive the less politicians understand what is happening. Prices will fall with demand and welfare met by taxes on firms. Technology will improve to the point where all production will be automated and cost will be irrelevant so economics as we know it will end.

    I can’t see that things will get ugly other than during the transition over the next five to ten years if government do not understand what is happening and they try to inflate or borrow their way of of cutting costs and ‘stimulating’ the economy. After that, as IT improves then the goods will improve increasing quality of life for no extra work.

  27. August 2, 2011 at 2:39 pm | #51

    For a detailled analysis and some proposals to this low cost , low wages, low demand puzzling situation see Martin Ford’s book: “The lights in the Tunnel”
    Available as PDF file for free upon the author’s request to the publisher.

    http://www.prodigyproductionsllc.com/articles/automation/free-book-the-lights-in-the-tunnel/

    A must read book if interested in societal technology impact.

    New technologies fast evolution has another dramatic impact on productive investments. At the current technology evolution changing rate, it has become extremely difficult for investors to bet on future business investment’s performances.

    This might explain, but not excuse banks for not being eager to invest in goods and services productions. Who knows if by the time a business investment comes to its term, one or several new innovations will not have made the initial bet on its success a total failure.

    Hope to see discussions about that problematic situation..

    As a former and successful business forecaster, I think I would now be having great difficulties forecasting five years ahead business as I did when I was working at IBM…

    Yours sincerely.

    Paul

  28. Raid71
    November 14, 2011 at 4:43 pm | #52

    No mention of the industrial revolution, how is that possible?

  29. November 15, 2011 at 1:00 am | #53
  30. January 10, 2012 at 3:02 pm | #54

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  31. January 25, 2012 at 8:27 pm | #55

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  32. January 25, 2012 at 10:45 pm | #56

    While reading Martin Ford’s visionary book “The lights in the tunnel”, a fantastic and enlightening book It came to my mind that there is no need for far fetched science fiction “robots or do it all machines” just think for example at RFID cash register, with a unique simple and very limited functionality : identify all items carried in one’s supermarket cart as one goes through a gate similar to airport security gates, at normal walking speed. Then automatically print a receipt and charge your credit card, perhaps if you are a cautious person, asking you to “ok” the transaction..
    This will cut thousands of jobs and might be readily accepted by consumers for convenience and faster check out.

    No need for Asimov humanoid Robots to make jobs disappear.

    RFID technology exists right now. It is cost effective since the chips posted on products are very inexpensive: they are precisely frequency tuned passive coils, just entering in resonance with radio frequencies sent by the gate system.
    Ware house applications of such RFID systems are multiple and just as efficient…

    Hidden high tech automation linked job losses, are bound to be even more ignored by medias than visible industrial robots production line automation. And even those are receiving far less coverage than job losses due to “manufacturing or services offshoring”

    Yet, several authors demonstrated that automation is destroying far many more jobs than “offshoring” and the hope that new jobs will appear to replace old jobs, turns out to be wishful thinking as new jobs often require far more advanced skills that the ones that were needed for the previous job.
    Perhaps the way out of this dramatic situation is a fundamental change in education programs and philosophy: future students mains purpose will be to become effective at learning fas in an ever changing technological environment. The other purpose will be to teach students to enjoy learning about new stuff, no just to get diplomas…

    Paul

  33. February 13, 2012 at 9:00 pm | #57

    @Paul. Square has a product that is essentially a pre-cursor of the technology you describe. https://squareup.com/#!cardcase

  34. April 4, 2012 at 6:30 pm | #58

    You can’t stop science, but you can guide it. Workers were not sucessfully at stopping the spinning Jinny and we will not beable to stop things like RFID or Robot Automation. We need to embrace these technologies so that the balance of power is truly balanced to true human desire.

  35. Ted Jenkins
    November 21, 2013 at 12:18 am | #59

    We create our economic problems by basing all our policies on the past. How to keep effective consumer demand when less human labour is required? In a variety of ways.
    1. Lower the birthrate of workers by paying less-wealthy women to be sterilized. 2. Increase the wages of workers in line with productivity. 3. Tax the out-put of machines and transfer the proceeds to consumers. The problem is simply one of distribution of production and income. Government intervention is required; but private enterprise can continue. The decreased portion of time spent working needn’t lower income. A wonderful world awaits. A guaranteed basic income regardless of work (adjusted to inflation) will mean that only the ambitious and more productive will need to work. And these are the most effective workers.

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