Structural Unemployment and Technology
Martin Ford points us to an ongoing concern as our economy changes:
Structural Unemployment and Technology
Previously, I’ve argued here that job automation technology might someday advance to the point where most routine or repetitive jobs will be performed by machines or software, and that, as a result, we may end up with severe structural unemployment. The latest weekly report shows anincrease of 25,000 in new unemployment claims–instead of the decrease expected by economists. Clearly, the economy continues to struggle with job creation, and I think that automation is playing a significant role.
Catherine Rampell recently wrote an article in the New York Times that delves into the impact this issue is having in the lives of typical workers. As the article points out:
For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade.
Rampell’s piece does an especially good job of capturing the denial that is likely to continue to be associated with this issue:
Ms. Norton is reluctant to believe that her three decades of experience and her typing talents, up to 120 words a minute, are now obsolete. So she looks for other explanations….The problem cannot be that the occupation she has devoted her life to has been largely computerized, she says.
“You can’t replace the human thought process,” she says. “I can anticipate people’s needs. Usually, I give them what they want before they even know they need it. There will never be a machine that can do that.”
The fact is that there will very soon be machines and software algorithms that can very effectively anticipate needs and perform increasingly complex (and high-paying) jobs that require higher and higher skill levels. The unwillingness to acknowledge this reality and confront its implications extends not just to impacted workers, but also to economists and policy makers—virtually all of whom are either in denial or oblivious to this issue.
Many mainstream economists are projecting that unemployment will remain high for years to come—but there is a near universal expectation that eventually, the problem will correct itself and we will gravitate back to something close to full employment. The problem with this assumption is that technology is not going to stop advancing while we are all waiting for the job market to recover.
In my book, The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (now available as a free PDF eBook), I argue that automation technology is likely to continue advancing relentlessly and result in significant and continuously increasing structural unemployment within the next 10 to 20 years.
Most economists are likely to dismiss this prediction. Many will suggest that new technology will result in the creation of new industries and new employment sectors. The problem with that assumption is that the new industries created tend to nearly always be very capital-intensive and employ relatively few workers—while at the same time making available technologies that are highly disruptive to more traditional labor intensive sectors that employ millions of people.
The worker that Rampell interviewed for her article has ended up taking what is often the job of last resort: a part-time position at Wal-Mart. But what will happen when Wal-Mart begins to employ significant automation? Is that really unthinkable? In fact, Wal-mart management was already starting to think about it back in 2005.
To see the difference in employment between a traditional industry and a new technology industry, compare Wal-Mart (over 2 million employees and revenue of about $180,000 per worker) with Google (20 thousand employees and over a million dollars per worker). In time, Wal-Mart will begin to look more like Google and new industries that spring up will employ fewer and fewer workers.
A similar story can be seen by in the DVD rental industry. How many workers are (or have been) employed by Blockbuster in its thousands of retail locations, as compared with Netflix in a few highly automated distribution centers? The inevitable migration from delivering DVDs though the mail toward to instantly available streaming video can only accelerate that trend.
The fact is that structural unemployment is here to stay. It will very likely get worse, and it will increasingly impact workers with college educations and high skill levels. Those with few skills and little education have been the first to feel the brunt, but machines are getting better and smarter. The rest of us are next.
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (available from Amazon or as a free PDF download) and has a blog at econfuture.wordpress.com .
“Previously, I’ve argued here that job automation technology might someday advance to the point where most routine or repetitive jobs will be performed by machines or software,”
That part of your argument is correct. Isn’t it just wonderful as well? No more boring drudgery!
“and that, as a result, we may end up with severe structural unemployment.”
That part of your argument is incorrect.
“Most economists are likely to dismiss this prediction.”
Indeed, they do.
Now, when you, as a computer engineer and entrepreneur, think you’ve spotted a great gaping flaw in the logic of a discipline you’re not trained in, it behoves you to stop a moment and think that perhaps the flaw is in your not grasping the discipline you’re not trained in rather than all of those who are being blind fools?
Within economics we start with a very basic assumption. That there are unlimited human desires and yet only limited resources available to satisfy them.
Thus, if we can satisfy one desire, or a set of them, through automation then there are still others, and others beyond them, to which human labour and ingenuity can be aimed at satisfying.
There is only one possible dead end to this argument. That human desires are not in fact unlimited, that there is only some set number and then your argument becomes that we’re about to satisfy all of them via automation.
At which point the only possible reaction to your worry is WTF?
Machines now satisfy all human desires and you think this is a problem? Marx’s world of post capitalist plenty has come to fruition, we are all free to be a farmer in the morning, a musician in the afternoon and a philosopher in the evening?
Oh woe is us! Every human need or want can be satisfied at the flick of a switch? What a ghastly, horrible world that would be, eh?
Summers @ Center for American Progress, Discussion on Jobs 4/3010
From about 3:06 to 3:15 on the video
Social Consequences of downturn:
Calls to domestic hotline up 50%:
Loss of job: 2nd (close) only to death of a spouse, equivalent to divorce
Scope: Worse since WWII
Normal Relationship of GDP to Unemployment did not hold
Unemployment 1-1.5% greater than would normally be expected.
Fewer people required to meet production reqmnt’s for increased demand.
This means fewer jobs for the less educated worker;
40 yrs ago, at any given time, 1 in 20 adult males were out of work
Today, at any given time, 1 in 5 adult males are out of work
5 yrs from now, after the recovery, at any given time, we can expect 1 in 6 adult males to be out of work, and 1 in 10 of those with college.
Causes:
Technology (automation) less labor required to produce more
Off shoring of low tech jobs due to globalization.
http://www.c-span.org/Watch/Media/2010/04/30/HP/A/32373/Center+for+American+Progress+Discussion+on+Jobs.aspx
Summers @ Center for American Progress, Discussion on Jobs 4/3010
From about 3:06 to 3:15 on the video
Social Consequences of downturn:
Calls to domestic hotline up 50%:
Loss of job: 2nd (close) only to death of a spouse, equivalent to divorce
Scope: Worse since WWII
Normal Relationship of GDP to Unemployment did not hold
Unemployment 1-1.5% greater than would normally be expected.
Fewer people required to meet production reqmnt’s for increased demand.
This means fewer jobs for the less educated worker;
40 yrs ago, at any given time, 1 in 20 adult males were out of work
Today, at any given time, 1 in 5 adult males are out of work
5 yrs from now, after the recovery, at any given time, we can expect 1 in 6 adult males to be out of work, and 1 in 10 of those with college.
Causes:
Technology (automation) less labor required to produce more
Off shoring of low tech jobs due to […]
Thank you, thank you, thank you.
And furthermore, how is a one-time unexpected rise in weekly jobless claims in any way related to a proposed long-term structural labor market issue? Really, that is the worst sort of casually implied causal link. Mention of one week’s unexpected anything in new claims simply doesn’t belong in an essay about longer term structural issues.
If you want to make an argument that technological progress is going to boost structural unemployment, then make the argument. “I think” is not an argument. We have a couple of centuries of rapid technological progress to take into account. Your argument might be something like “hours have fallen steadily, and it may only be a matter of time before declining hours begin to impinge on employment levels.” You would, however, have to account for the rise in the labor market participaiton rate through the 1990s.
Sadly, this is not the first time you have written something along these lines, and not the first time objections to your thinking have been raised. There is no answer here to those objections. Is this the “I’m right, and have no need to respond to my critics, who are wrong” approach?
That list of “thank you”s is for Tim W, of course.
Indeed, what will British clothing weavers do nowadays?!
Let’s smash some computers to save jobs and conveniently ignore that growing automation results in a higher standard of living for everyone and ignore attack fiscal and trade policy mistakes that lead to high unemployment!
I don’t doubt that human wants are unlimited. What I wonder is how an average person who loses a job at Wal-Mart is going to realistically find a way to earn a first-world income by “aiming labour and ingenuity” at these unfulfilled wants in a world where machines begin to match or exceed that worker’s capability. Some people will certainly succeed at that — many wlll not. Millions will not.
You rather sneeringly imply that full automation would be a wonderful thing with all our needs fulfilled at the flip of a switch. I don’t disagree with that either, but people will still need an income or our system will collapse. The idea that if automation dramatically lowers the cost of goods and services, then everything will be great, even if people don’t have incomes is silly. I discussed it here: http://www.angrybearblog.com/2009/12/job-automation-purchasing-power-and.html
Have you really thought about this issue? Or are you just chanting dogma?
Imagine that someday we have genuine machine intelligence and that technology becomes affordable and widely deployed. Do you really believe that every average worker will continue to find some want to fulfill and will still be able to earn an adequate income by doing so? If not, what happens economically, politically and socially?
As an engineer designing and building physical products for the last 25 years “automation” has been a core part of my job. We look at automation as a way to save jobs in the U.S..
Even if an engineer succeeds in almost completely automating the production process, there is still a good chance that the product will move overseas simply because we have lost too much infrastructure.
In my mind the battle for US manufacturing jobs was lost in the 1990’s during the internet bubble. I remember fighting to buy equipment to further automate an old assembly line. The accountants told me I needed to have an 18 month payback on the equipment or they would ship the line to China where everything would be done by hand. Given the profit margins and the interest rates an 18 month payback was not possible.
At the same time I remember Greenspan saying that he was going to keep interest rates high because the economy was getting overheated. The economists did not seem to have a clue that the “internet bubble” companies that were overheated were floating in cash and couldn’t care less what the interest rates were. Mainstream manufacturing was destroyed (but at that time our leaders decided that everyone was going to have a PhD and work in marketing or be a programmer so it didn’t matter if the manufacturing jobs were lost).
I saw this repeated at numerous companies. Product quality was usually a disaster and boatloads of unusable products arrived and orders went unfilled while the few remaining US employees struggled to fix the Chinese manufacturing problems. Meanwhile the accountants “cooked the books” and all the executives got big bonuses for shipping the jobs to China.
Most of the product design jobs are gone. I now work for a semiconductor company and I teach engineers around the world how to design their products and automate the production line. I still work long hours and I watch my unemployed friends leave for a 3 week primitive trip to the baja and I feel like a chump because I cling to my job (but I have a wife and family and we need healthcare and I need to pay for my daughter’s college education). Most of the engineers I work with got here on H1-B’s. They are smart and work hard (longer hours than is reasonable but they come here with no family). But they don’t have the depth and experience of many of the unemployed engineers I know.
Given where the US is now we desperately need job sharing. I should work fewer hours and I should be mentoring a new college graduate. Our leadership has no clue and it would not benefit my employer to change the status quo so I think we are approaching a world envisioned in Kurt Vonnegut’s Player Piano. A few people overemployed and the masses unemployed.
This raises the question of whether we should continue to have investement tax credits, particularly if we are subsidizing capital, rather than human, intensive industries with the credit.
Tim Worstall: “Oh woe is us! Every human need or want can be satisfied at the flick of a switch? What a ghastly, horrible world that would be, eh?”
That depends, doesn’t it? The fact that “every human need or want can be satisfied” does not mean that it will be, does it? What if half the ability to fulfill those needs is owned by 1% of the population? And 10% of the population is homeless? And 25% are employed as servants to the top 1%? And most of the rest lead a hard-scrabble existence? How cool is that? And why do you think that that is not the direction we are headed?
Concern about automation has been around since the 1950s at least. That’s what Kurt Vonnegut’s first book — Player Piano — was about. On the whole, it seems to be somewhat exaggerated although one could make a case that it is the cause of Europe’s persistently high unemployment rates. I think the US practice of exporting jobs may be more of a problem than automation. Although I suppose that it might turn out in retrospect that the jobs we’ve shipped out were going to be automated out of existence anyway
Sometimes, automation turns out pretty well. We probably wouldn’t be carrying on this discussion if the world’s communication networks were still run by operators with headsets and plugjacks.
Often it doesn’t. A 19th century textile mill was by reputation pretty much a prototype for a National Sociallist death camp. Incredible working hours, horrible working conditions, no concern for worker safety. I suspect that Slaves (being substantial capital investments) were probably — on average — treated better.
Mostly, things are in between. Automation probably is not inherently evil. But neither is it everywhere and always a good thing.
***”Machines now satisfy all human desires and you think this is a problem? Marx’s world of post capitalist plenty has come to fruition, we are all free to be a farmer in the morning, a musician in the afternoon and a philosopher in the evening? *** Tim Worstall
I don’t know what planet you are living on Tim, but you ought to try visiting Earth some time (even though you probably won’t much like it). At some point vision becomes delusion. It seems to me that you have crossed over into a dreamworld without traversing the morass of huge problems attendant to implementing technology usefully — which doesn’t seem to me to be going all that well.
***And furthermore, how is a one-time unexpected rise in weekly jobless claims in any way related to a proposed long-term structural labor market issue? Really, that is the worst sort of casually implied causal link.*** khjarris
As usual, you’re right. The very most that this very minor blip can possibly show is that we may not be experiencing a runaway economic recovery. But I can’t think of any sane person who thinks we are.
***Within economics we start with a very basic assumption. That there are unlimited human desires and yet only limited resources available to satisfy them. *** Tim Worstall
I’m not sure who “we” is in this case. I very much doubt that it is the set of all “economists” since all economists rarely seem to agree on anything. But if it were the case that all economists believed it, that would certainly go a long way toward explaining their rather stunning inability to predict much of anything correctly. FWIW, my experience is that most people most of the time do not have unliimited human desires. They just want to be left alone.
And it is not like we do not have a related phenomenon. The agricultural revolution brought great benefits. It is hard to imagine our world today without agriculture. At the same time it brought cities, states, kings, emperors, slaves, poverty, “real” property, castes, serfdom, pollution, increased environmental degradation, and other ills. In balance, was it worth it? Probably, but it was not utopia. As for the fate of those at the bottom of society, there is good reason to think that they have it worse than hunter-gatherers. In Colonial America most children who were abducted by Indians did not want to return home, if given the choice. To some extent that is attributable to the Stockholm Syndrome, but life was typically better for them among the Indians. As for the anti-government sentiment in the U. S., much of that has a history going back to when people fled the coastal cities for the hills of Appalachia. Civilization has its discontents, and people voted with their feet.
So a future ushered in by technological progress, where we can satisfy wants and needs by the flick of a switch is not necessarily a desirable future. Much depends upon how we get there. And if we do so with chronic unemployment and socio-economic stratification, then they will be part of that future, along with concomitant suffering.
Al: “Let’s smash some computers to save jobs and conveniently ignore that growing automation results in a higher standard of living for everyone”
Growing automation may result in a higher standard of living on average, but that’s not the same as “for everyone”. It may even lead to a lower standard of living for most people, with a much higher standard for people at the top of the heap.
Even if human demands are infinite, the activities required to fill them may not be.
If a person can only fill a few of those roles, but a machine better fills them, then they wind up frozen out of the economy. Most of the jobs being wiped out are repetitive in nature, something computers excel at. The jobs being created in their stead are far more intellectually involved. The assumption that everyone can be trained to do these jobs seems unsupportable to me.
Incidentally, an economy doesn’t need to be focused on labor; capital can drive it on its own.
I think the US practice of exporting jobs may be more of a problem than automation.
Yet total US manufacturing output has continued to rise uninterupted while employment has gone off a cliff. Job offshoring cannot explain the rise in output.
Indeed, what will British clothing weavers do nowadays?!
Quite a few of them starved.
I do not believe we should ban automation, far from it. However, I do believe we should acknowledge that quite a few people may suffer greatly from it.
The industrial revolution benefitted humanity greatly on net, but it’s highly disingenous to claim their was no human cost.
And of course, I fail to proofread. ‘there’ not ‘their’
A 40 hour work week wasn’t always the norm. What are we getting for our productivity gains if it isn’t a shorter work week?
Automation is generally good and there is much more to be done. Just because there are people desperate enough to do an unpleasant job doesn’t mean it should be protected. Instead of putting guards on the Mexican border we should be subsidizing development of agricultural automation and taxing use of immigrant labor.
As we get older, automation will hopefully help cushion the effects of an aging society. I for one don’t want human servants. It seems immoral and I would rather supplement my deficiencies with machines.
Kevin raises a point, that in particular applies more strongly to Europe and Japan right now, with China and Mexico not to far behind, an aging population implies fewer workers, so automation allows the same amount of work with less workers. The US is unique in the developed world in having a growing population, so the problem is not as acute here.Of course the problem with file clerks has been going on for a long time. Recall that at one time, long distance calls generated tickets that were filed into folders by phone number. Once a month the folder would be pulled and a bill generated. This required a large labor force. Then came the automated billing system and no human was needed. Or look at credit cards, it used to be that card stock recorded the sale and the cards were mailed in and sorted to get a bill. Again fewer jobs. Let alone talk about the deliberate policy of forcing people off the farm since the 1890s in the US. Yes individuals get the shaft on this but society benefits as a whole. (Recall that at one time the US had 2 million folks working on railroads now its 200,000 at best). Sort of doing the luddite thing mentioned above, its not clear what one can do. Some retraining makes sense, perhaps an tax on downsizing to pay for this makes sense.
The discrepancy between rising US industrial production and rising unemployment and rising productivity is still explained by off-shoring. Most of
China’s exports are produced by us companies in china…so US companies headquartered in the US can report greater manufacturing output, while using less US labour. This is also how they can report rising productivity; Chinese labour and enviroental costs are cheap… So the lower fifnancial cost of
production is viewed as increased productivity.
***Yet total US manufacturing output has continued to rise uninterupted***
I’ve heard that before. Often. As far as I can tell, that is only true if you use (as the Fed does) a non-intuitive definition of “manufacturing”. I don’t think brewing beer, creating useless software (e.g. Pets.com) or making up frozen pizzas is manufacturing in the sense that most people regard manufacturing. Not that these aren’t important activites (except for pets.com) but labelling them “manufacturing” and comparing the manufacturing total to say 1960 without qualification is misleading.
As far as I can tell, US production of durable goods of all sorts is down a bit since 2000 whereas non-durable goods and energy products are up. That’s not necessarily bad, but it’s not exactly and endorsement of “total US manufacturing output has continued to rise uninterupted”
And US manufaturing jobs have been crashing for decades no matter what definition of manufacturing is used. Even those who disagree about the causes of the decline agree that there is a decline.
Thanks Kevin. I have no idea whether you are right or wrong, but I find posts like yours a hell of a lot more informative than the maunderings of idealouges posting the latest right (or occasionally left) wing talking points.
You are all missing the key observation.
The public sector has achieved NONE of the productivity gains that the private sector has achieved. In fact in 1996, the feds STOPPED even measuring government productivity which had come in under 1% annually since the mid 70’s.
Basic Truth: a 40% reduction in compensation to Federal, State, and Local employees – through real and meaningful headcount reduction and self serve automation SAVES $600 BILLION a year.
Suddenly, for the past decade we are carrying a budget surplus and our WHOLE world looks different.
I’ve been arguing at Big Government (I invite you to check my math and examples) we need only to apply the brutal mindset of business to government.
Let’s Napsterize Education. And save trillions over the next ten years in public teachers and tens of trillions in college tuition student debt.
Lets force the remaining 17% of social security recipients to move to direct deposit, and suddenly END the need for the “where’s my check?” call centers.
You guys are the problem. THINK BIG. All your noise goes away.
If you look at the numbers, manufacturing jobs in the US have been falling almost linearly since 1900 as a percentage of all jobs. There was massive realignment in the 1930s which was a period of major industrial restructuring. Compare just about any industry, or mining, or agriculture, in the late 19th century with its capital intensive form in the 1930s, and you will see one big driver of massive unemployment. Manufacturing labor efficiency often jumped by two or even three orders of magnitude over the period in question. This trend has continued. In the 1990s, white goods labor efficiency increased by a factor of four or five, and this in a mature industry. You’ll notice, if you buy a new washer, that there are only a handful of companies left in the business, and a lot fewer workers.
This is a serious problem.
In one sense our country is closer to meeting our every human need, even as it is harder and harder to find a job that will pay us enough money to afford them. The issue is pay for labor, not productive capacity. World War II ended the Great Depression by providing an excuse to raise wages for all those guys who fought during the war and those who put up with its civilian deprivations.
We need to come up with another excuse. It’s not as if we can’t provide the goods and services. We can. What we lack is the political will.
Morgan Warstler: “The public sector has achieved NONE of the productivity gains that the private sector has achieved. In fact in 1996, the feds STOPPED even measuring government productivity which had come in under 1% annually since the mid 70’s.”
I think that you are forgetting the big gains from public research and development that the private sector enjoys. Like the internet. Like drugs (which private companies are allowed to patent).
Also, productivity is a strange concept for many public functions. How do you measure the productivity of the police? More arrests? Fewer arrests might be a better indication of success. And crime prevention involves many other things than policing, anyway.
kharris:
You are being short sighted on this topic. Where is Participation Rate today as compared to 2001 and where is Unemployment Rate? Where have we been moving numbers back and forth while we await the explosion in job creation since 2001? Sadly, Martin is closer to reality than Tim is today. Automation, globalization, and skewed productivity gains are the cause today
Hi martin:
I rcently recertified in Lean Six Sigma by doing a lean project on a robotic cell consisting of 3 robots. I am the purchasing, scheduling and materials guru on this project working with two engineers. 60 minutes to set the cell up reduced to six minutes. Don’t ask where the productivity gains went to as it wasn’t an increase in wages for the operator. Your premise is correct, maybe poorly stated, and is an outcome for many in the US unless something changes.
Technology will replace the highly skilled workers too.
Google may have 13,000 workers, but craigslist only has 26. Software can reasonably replace the more skilled jobs today as well.
“What I wonder is how an average person who loses a job at Wal-Mart is going to realistically find a way to earn a first-world income by “aiming labour and ingenuity” at these unfulfilled wants in a world where machines begin to match or exceed that worker’s capability.”
This again speaks to your lack of knowledge about the things that economists have already worked out about the world. Average wages in an economy are not determined by individual productivity. They are determined by the average productivity of labour in that economy (source, Paul Krugman in “Ricardo’s Difficult Idea”, so this is hardly a right wing baby eater’s assertion). The further automation goes the more productive is human labour. Thus the higher wages go on average.
As an example, a barber cutting hair in Manhattan is about as productive per hour as a barber cutting hair in Bombay. Both are essentially using the same technology: scissors and a comb. They cut the same number of heads per hour. Yet the guy in Manhattan makes multiples of what the guy in Bombay does. Why?
Because of the alternative ways in which that labour can be used: those alternatives in Manhattan being vastly more productive than the alternatives in Bombay. Thus wage levels in Manhattan are higher than those in Bombay.
This is also why wages in a factory in Shenzhen are lower than wages in a factory in Seattle. Even if the factories are using exactly the same technology, if the workers are equally productive, the alternative uses of that labour are not. Thus the wages are different: they are driven by the productivity of the possible alternative uses of the labour, not by the productivity of the labour as applied to the task at hand.
So, as labour productivity rises in general (which is simply another way of saying increased automation) then wages rise in general.
As long as we continue to have competing employers vying for human labour, rising productivity will mean rising wages. This is a very fundamental point and yet one you are ignorant of: and that ignorance makes a mockery of your argument.
“I discussed it here:”
I’m aware of your earlier piece. If you look at it you will see that I made similar comments there as well.
“Have you really thought about this issue? Or are you just chanting dogma? “
I don’t actually have to think about it all that much. Many tens of thousands of highly intelligent men and women have done that for me. We call the accumulated wisdom of these people “economics”. It isn’t “dogma”, it’s a simple fact about the universe that we live in that rising labour productivity leads to rising wages right across the economy in which that labour productivity is rising…..with one proviso, that there is no monopsonist purchaser of labour.
For the meaning of “monopsonist” please add that to your list of basic economic ideas which I recommend you look up.
“Imagine that someday we have genuine machine intelligence and that technology becomes affordable and widely deployed. Do you really believe that every average worker will continue to find some want to fulfill and will still be able to earn an adequate income by doing so?”
It’s not a belief: it’s a fact.
Please read this:
http://web.mit.edu/krugman/www/ricardo.htm
While in general it’s about trade he touches upon exactly the points at issue here. What determines wages?
As I suggested above, the problem here is that (and as Krugman points out about trade in that essay) you’re attempting to critique a body of knowledge without actually understanding that body of knowledge. As such you are ignorant of the most basic findings from that body of knowledge.
Let […]
I’m not sure you that your analogy between economics and computer science works very well. There have been certainly been many people without formal credentials in computer science who have made major contributions to the field. Bill Gates is a drop out, after all.
This idea that you need to be a member of the high priesthood–or else your are a moron–seems to be somewhat peculiar to economics. I’m not at all sure that the track record of economics profession justifies that degree of arrogance.
I don’t pretend to be an expert in comparative advantage, but I do have an understanding of the concept. I’ve wrote a post on that as well, here: http://econfuture.wordpress.com/2009/11/25/comparative-advantage-v-machines/
I understand that you didn’t like my analysis there either. However, I am not at all sure that comparative advantage works when people are competing with machines that begin to exibit some degree of intelligence. The reason is that the machines can be replicated in a way that people (or countries) cannot. I don’t think Ricardo gave that much thought. I am not sure that Krugman did either.
While you may be confident that you can prove mathematically the free trade is always best, I don’t think the empirical evidence supports you. There can be little doubt that unfettered trade has resulted in diminished wages in the U.S., and that that has resulted in consumption based on debt rather than income. I believe that contributed heavily to the financial crisis.
Free trade has also resulted in enourmous imbalances, with production focused in low wage countries and consumption in developed countries. That is not sustainable and it is very unclear how those imbalances are going to be resolved in an orderly way.
Tim:
“So, as labour productivity rises in general (which is simply another way of saying increased automation) then wages rise in general.
As long as we continue to have competing employers vying for human labour, rising productivity will mean rising wages. This is a very fundamental point and yet one you are ignorant of: and that ignorance makes a mockery of your argument.”
This hasn’t been the case “in general” and has not been the case since the earlier eighties as the productivity gains have been skewed from Labor toward Capital. Granted your post is classical economics; but, it is not what is happening with Labor today. As automation and globalization takes hold, the alternative is not doing other things, it is going into the unemployed or not in labor force. China faces the same issues with their Labor.
Spencer did a nice post on “Labor’s Share” http://www.angrybearblog.com/2009/10/labors-share.html which details where the productivity gains are going. Here is one graph from ithe post: Nonfarm Business; Labors Share http://2.bp.blogspot.com/_Zh1bveXc8rA/SuddUhLWUaI/AAAAAAAAA7M/iU2gefk317M/s1600-h/Clipboard01.jpg in support of the contention that Labor has not seen the gains you speak of resulting from increased productivity gains. So where is it going? Spencer goes on with another graph here: “After Tax Profits” http://4.bp.blogspot.com/_Zh1bveXc8rA/SuiGsMYdZ7I/AAAAAAAAA7s/F6jjMdO3YY8/s1600-h/Clipboard01.jpg
Further in the thread, Juan discusses a longer term view of Labor and non- Supervisory Wages and he posts this statement and graph:
former bush policy advisor andrew samwick, lets look at only real earnings of private production and nonsupervisory workers ($2008), 1964-2008. As he noted, “This is one of the most depressing graphs I’ve ever seen.” “Real Earnings of private Production and Non Supervisory Workers” http://js-kit.com/blob/estJlU8pglzt3_ib_A94f7.jpg
While this is not a static economy, and the transition from one sector to another is supposed to be dynamic, Labor has not seen it as evidenced by the large pool of people in Not In Labor Force and Unemployed. This abundance of labor tends to hold any wage gains down.
I tend to think the problem is slightly different. I have a saying: “Even rocket science isn’t rocket science once you get used to doing it.” I’m not positive that’s completely true, but I think it is. The problem is, I think, not that the intellectual-type jobs are too demanding for many, but that they’re just too few.
A poster above had the answer. Pay us the same amount for much fewer hours until everyone’s working about the same amount making a decent living. Maybe that’s socialist (involving central planning). I don’t give a hoot. “Socialism”, loosely defined as most of us do, has gotten a bad rap, IMO. “Capitalism” hasn’t been working out for many of us all that well, lately.
Where’s the money come from? Tax the really high income brackets, those who, since the Reagan “Revolution”, have been madly gathering the wealth to themselves. they ain’t gonna go hungry, nor, for a long ways in redistributing income, will they stop producing all that great, tremendous, creative, entrepreneurial wonderfulness the right attributes to them when claiming that they earn every dime of their billions and trillions.
The further I read in the thread I see that many have said this already.
Seems to me that your on the right track.
The outcome is debatable, but we shall see.
I would like to ask a question. How is this information changing your plans for the future?
Can someone prepare for this future?
terra,
yep, my last software project knocked out 200+ consultants. that’s the work of 10 or so people for a few years replacing 200 highly skilled people plus their support staff/management.
rdan is right: one day you have a good six figure salary, the next day you have nothing.
Comparative advantage is usually described in linear terms: person X can find some activity A at which they are relatively competitive. But, the real world has fixed costs associated with every transaction: even at $0/hour, those consultants would not be retained. Some might be able to become stand-up comics or fishing guides or web designers, but at the end of the day, another tranche of skilled workers just got obsoleted.
It may be that the jobs of the future are not part of the capitalist system, but a public system funded by the taxes on the capitalist system. Health care, education, ecology, land reclaimation and energy production are possbilities. What you end up with is a system where robots produces goods and wealth, while labor is used for increasing quality of life.
Otherwise, a large and growing population of disaffected unemployed could just provided an excuse for a police state protecting a declining number of folks able to support the capitalist system.
Vt,
I was trying desperately not to jump in on this thread, but since I found something we agree on I had to. Very nice comment.
And I had no idea that the US Government equated Pets.com in the same way as steel bending. One way to pad the stats…
Islam will change
Kevin,
The 40 hour work week wasn’t always the norm. So true. Its only been recently that we got it down to that level. Back in 1900, when what, 70% of the US lived/worked on a farm a typical work day started at sun-up and went to sun-down. Every day. Automation has given us tremendous amounts fo free time, especially for children. I would say that’s a good thing…
Islam will change
Ok I really was hoping someone else would bring this up, but I will.
Automation is eliminating jobs, mostly from the bottom of the labor pool, by replacing unskilled/minimally skilled jobs.
The value of unskilled labor has been falling my entire lifetime. In the 60s you could graduate from High School and get a job that gave you a middle class lifestyle in a few years. Those days are gone.
I grew up in the rust-belt. Less than a third of my classmates ever saw the inside of a college classroom. Less than a quarter ever graduated. Only 1 of somewhere over 400 ever attained a PhD (becoming a Dr.). And why should they? They were born in the early 60s, the tail end of the baby boom and their parents all lived the middle class lifestyle, sans college. My classmates parents lived in small homes (1200-1500 sq ft), had multiple cars, some boats, savings and enjoyed life. So my classmates, with their successful parents as role models, went off to jobs in Cleveland or Akron with the Unions, or became truckers, and some took over the family farms. The girls got married and pregnant and started raising the next generation (this is a simplification obviously but stay with me).
Now a lot are out-of-work. No skills that aren’t common with millions of others. Their homes no longer nice little ones in good neighborhoods, but falling down on the wrong side of the street. No boats, old cars, strained marraiges and lots of debt. And no skills in this information economy. And unlike your newly minted HS grads they won’t take minimum wage jobs or like it if they did (think about how you would hold up if you went from making $60K on the line building car parts to $30K at McDonalds).
So much for anedotes. Back to some not so researched thoughts. In 1900 I bet almost 99% of all jobs in the US did not require schooling above the HS level, and lots would propel you solidly into the middle class.
What does everyone here think that number is now? Unskilled labor is cheap and fungible. My 17 year old son can replace family-aged adults in large chunks of jobs with little or no training. And get minimum wage doing it. But that won’t support a middle class life-style for even a single person, especially on the coasts and the big blue cities. Forget raising families except as part of the poor.
And now to my point (after all that rambling). As many as postulated on this thread, there are lots of people who can’t hack college. And even among the many who can get through for a degree in history or philosophy (or worse the “studies” curriculum) they come out numerically and scientifically illiterate. So we have an increasingly numeric and science based economy, which increases the advances in automation, which then wipes out more and more unskilled jobs from the bottom, slowly decreasing the number of people who can actually get jobs allowing them into the middle class. Not everyone can be a Harvard graduate numerically illiterate blogger like Yglesious (my favorite comedy relief) and make it. So now we get college graduates fighting for assitant manager jobs at McDonalds (for $30K/year). Where does that leave the HS grads???
Yes we will adjust, but what do my HS grad, but otherwise unskilled late 40s classmates do when the factory closes and they are replaced by a robot?
As someone mentioned some of those weavers starved…
And that doesn’t even touch the issue of global unskilled wage arbitrage going on. I bet there are some Chinese workers that are cheaper than robots, for now.
Solution? I have thoughts, but nothing new. But in the near term no politician will last long with 10+% unemployment and stating that this is the new ‘baseline’ would be intolerable.
Islam will change
Seems a pretty easy task you’ve set yourself, run. Instead of demonstrating that Martin is right and Tim is wrong, you simply assert that it is so. Instead of attempting to measure my visual acuity, you simply declare me to be short sighted. You’ve made your bias clear, but haven’t contributed to the discussion in a useful way.
The record over time is very clear. More technology has meant better lives, though there have been those little glitches with slavery and the use of carbon based fuels. Pollution doesn’t have anything to do with Martin’s argument though, and you have to squint pretty hard to make slavery fit. When it comes to Martin’s argument, history is mostly on the other side. So his argument has to be that this time, it’s different. To make that argument, he needs to make something beyond the argument that has been made so often, and so wrongly, in the past.
This is an excellent example of exactly the point I’m trying to make. Your post elsewhere:
“Suppose we have a tractor and a team of oxen. Both can be used to plow fields, pull wagons or do other things around the farm. Clearly, the tractor out-performs the oxen in every task. Still, there ought to be some area in which the oxen don’t perform quite so badly relative to the tractor.”
You have completey misunderstood “comparative advantage”. Totally.
The “comparison” in “comparative” is nothing at all to do with comparing what tractors can do to what oxen can do: that is all about absolute advantage. The comparison is between what oxen can do and what oxen can do.
Ricardo is simply saying that if we all do what we’re least bad at (that is, among the various things we can do we do the thing which we are comparatively best at) and then swap the resulting production then there will be more of that production for us to share. That is, we will be richer than if we do not specialise in our comparative advantage.
Imagine that, of all the things oxen can do, the thing they do least badly is shit to provide fertiliser. Thus the oxen should specialise in shitting in fields while the tractor specialises in ploughing and harvesting the larger crops that come from having more fertiliser. In the end there is more produced so all are richer.
His great insight was that even if someone else is better at everything than I or you are, this still holds true.
Now, you’ve completely misunderstood this very basic and essential economic point. No, you don’t have to be a member of any high priesthood in order to comment on the subject: but when some well meaning member of the public points out that, well, you know, you’re getting that wrong because you don’t understand the basic concept, the logical thing for you to do is to try and work out why you don’t understand it, rather than simply point to another area of the subject you don’t understand.
As a response to “you’re ignorant on this subject” saying “here’s another area of the subject I’m ignorant about” doesn’t work all that well.
“I don’t pretend to be an expert in comparative advantage, but I do have an understanding of the concept.”
Sadly, no, you don’t.
“This idea that you need to be a member of the high priesthood–or else your are a moron”
Please understand: I am not accusing you of stupidity, or being a moron, of being incapable in any manner whatsoever. I am however accusing you of ignorance. Ignorance, fortunately, can be remedied.
“However, I am not at all sure that comparative advantage works when people are competing with machines that begin to exibit some degree of intelligence. The reason is that the machines can be replicated in a way that people (or countries) cannot. I don’t think Ricardo gave that much thought. I am not sure that Krugman did either. “
I am not entirely sure that arguing that a man awarded the Nobel Prize for his work in international trade has not bothered to think about the most basic concept in international trade, comparative advantage, is going to get you very far. Especially when you make the very common mistake of confusing absolute advantage with comparative advantage.
“There can be little doubt that unfettered trade has resulted in diminished wages in the U.S.”
Absolute nonsense. nonsense upon stilts.
But back to my main and major point. I have absolutely no problem with you as a non economist thinking about or writing about economics. I am not an economist and that’s something that I do too. My problem is when you critique the findings of economics without actually understanding what […]
“This hasn’t been the case “in general” and has not been the case since the earlier eighties as the productivity gains have been skewed from Labor toward Capital.”
That the returns to capital have been rising faster than the returns to labour (and even possibly just returning to historical norms) tells us nothing about whether returns to labour have been rising or not.
1) Has productivity been rising since the 80s? Yes, certainly.
2) Has total labour income been rising since the 1980s? Yes, certainly. We might have to do a little statistical work to show this….look at total compensation, not just wages, might want to adjust for falling household sizes if we’re looking at household income figures and so on, but yes, labour income in treal terms has been rising over the last 30 years.
This shows that rising productivity does not increase returns to labour in what manner?
I’ve figured it out already.
If we can just flick switch, a genie appears, and our wish is granted, this would be hugely deflationary. China would collapse because all capital intensive production would return to the US.
The Fed would start printing money like crazy to fight deflation. Everyone with an IQ above 140 would become biotech scientists and figure out how to turn baby boomers into Cyborgs. Everyone else would get a job at a bank and make loans to people with no jobs and no income. Since everyone in the US is now employed at a bank, and the Chinese are now all out of work, the rich will loan to the poor, as it should be.
The Boomer Cyborgs begin violating the Three Laws of Robotics.
We’re not quite there yet.
VtCodger: “FWIW, my experience is that most people most of the time do not have unliimited human desires. They just want to be left alone. “
As I read through the comments my brain was working hard to process what was said, and to stay my hands from the keyboard until I’d read it all. I’ll decide whether or not to comment on the topic once I’ve done that, but I just had to post immediately to say how much I appreciate your comments. I’m laughing out loud at the portion I’ve quoted. Can I borrow it from time to time?
The Japanese were at least a decade ahead of the US in adopting factory automation (to make real stuff, not just government stats) and they began to realize that there is a cost trade off between capital investment and ultra cheap labor in the developing world.
But for automation to work, you still need the “elite” worker. Modern factories have electronics techs, PLC programmers, network engineers and MRP production control people. They are connected with suppliers and customers by B2B software. And shipping became efficient too. (I still remember the 80s Japs talk about building huge nuclear powered cargo ships with which to invade our shores)
But the other reason for automation besides cost is quality control. We wouldn’t want to return to the “hand built” world of yesteryear.
The caveat is equipment is it’s own industry nowadays, and anyone with money can buy it. You just need the skilled workforce to run it.
So I’m afraid manufacturing will still run downhill to China.
The Japanese were at least a decade ahead of the US in adopting factory automation (to make real stuff, not just government stats) and they began to realize that there is a cost trade off between capital investment and ultra cheap labor in the developing world.
But for automation to work, you still need the “elite” worker. Modern factories have electronics techs, PLC programmers, network engineers and MRP production control people. They are connected with suppliers and customers by B2B software. And shipping became efficient too. (I still remember the 80s Japs talk about building huge nuclear powered cargo ships with which to invade our shores)
But the other reason for automation besides cost is quality control. We wouldn’t want to return to the “hand built” world of yesteryear.
The caveat is equipment is it’s own industry nowadays, and anyone with money can buy it. You just need the skilled workforce to run it.
So I’m afraid manufacturing will still run downhill to China.
The Japanese were at least a decade ahead of the US in adopting factory automation (to make real stuff, not just government stats) and they began to realize that there is a cost trade off between capital investment and ultra cheap labor in the developing world.
But for automation to work, you still need the “elite” worker. Modern factories have electronics techs, PLC programmers, network engineers and MRP production control people. They are connected with suppliers and customers by B2B software. And shipping became efficient too. (I still remember the 80s Japs talk about building huge nuclear powered cargo ships with which to invade our shores)
But the other reason for automation besides cost is quality control. We wouldn’t want to return to the “hand built” world of yesteryear.
The caveat is equipment is it’s own industry nowadays, and anyone with money can buy it. You just need the skilled workforce to run it.
So I’m afraid manufacturing will still run downhill to China.
I think your post does a great job of capturing the reality for people who have not gone to college. The important point that I have been trying to ad is that COLLEGE GRADS ARE NEXT. The reason is simply that machines are becoming more capable and job offshoring is also likely to accelerate among knowledge workers.
I recently read somewhere that in 2000 59% of new college graduates were able to find a job that required a college degree (in other words 41% ended up under-employed). The latest figure was 51%. As college graduates fail to find appropriate jobs and start competing for jobs that can be done by HS graduates, that obviously will make things even worse for those who don’t have a college degree.
Imartin,
I’m surprised that the number is as high as 51%. I know I’m bad about this topic, but most college grads are graduating a few years older and more mature, usually able to write fairly well, and otherwise indistinguishable from a High School Graduate. Oh and 10 of thousands in debt. My favorite example is young Mattew Yglesious. He graduated from Harvard with exactly 1 course in math. ONE. (Intro to Stats). For all practical purposes he is illiterate in todays economy. The fact that you can graduate from Harvard without a deep understanding of math and the sciences belies the notion its an elite institution. My oldest son will graduate HS with Harvards Math requirement complete….What it tells me is you go to Harvard to network with the rich and politically connected. Not for the education.
And your correct, the non-math/science educated college crads are next. They should be able to adapt faster we hope, but they don’t have the academics chops to handle it. I can teach an engineer to write. I can’t teach calculus to people who have trouble balancing their checkbook.
Islam will change
Martin,
I think that has been going on a long time already. I also think that the reason macroeconomists missed it is that they think stoplights are orange, and the place to find orange data is the BLS or FRED.
For one thing, there always have been a lot of college degrees that don’t lead to jobs in your field of study. And if you want to be part of what is sometimes is called “the flexible workforce”, how many times you go to college (or “continuing education”) is what matters. This requires contortions that many of our workforce cannot even comprehend.
And when corporations do decide to go offshore, you have to realize it’s not just assembly line jobs that disappear. At least 20% of the jobs are technical or managerial in a factory.
Then, to make matters worse, the developing world is after our white collars jobs as well, notably computer programming, engineering and even accounting!
Martin,
I think that has been going on a long time already. I also think that the reason macroeconomists missed it is that they think stoplights are orange, and the place to find orange data is the BLS or FRED.
For one thing, there always have been a lot of college degrees that don’t lead to jobs in your field of study. And if you want to be part of what is sometimes is called “the flexible workforce”, how many times you go to college (or “continuing education”) is what matters. This requires contortions that many of our workforce cannot even comprehend.
And when corporations do decide to go offshore, you have to realize it’s not just assembly line jobs that disappear. At least 20% of the jobs are technical or managerial in a factory.
Then, to make matters worse, the developing world is after our white collars jobs as well, notably computer programming, engineering and even accounting!
Martin,
I think that has been going on a long time already. I also think that the reason macroeconomists missed it is that they think stoplights are orange, and the place to find orange data is the BLS or FRED.
For one thing, there always have been a lot of college degrees that don’t lead to jobs in your field of study. And if you want to be part of what is sometimes is called “the flexible workforce”, how many times you go to college (or “continuing education”) is what matters. This requires contortions that many of our workforce cannot even comprehend.
And when corporations do decide to go offshore, you have to realize it’s not just assembly line jobs that disappear. At least 20% of the jobs are technical or managerial in a factory.
Then, to make matters worse, the developing world is after our white collars jobs as well, notably computer programming, engineering and even accounting!
Tim,
Ok, so in trying to compare oxen to a tractor I am misunderstanding (or misusing) comparative advantage. Fine. But I don’t really see the point of comparing oxen to oxen: the oxen are in the Alpo can.
I know I am not doing a very good job of expressing my thoughts, so let me try it this way:
Suppose you are better in absolute terms at everything than I am. Still, you might hire me to do some things BECAUSE YOUR TIME AND ENERGY ARE LIMITED. You want to use your available time and energy in your most productive activity. So you are willing to outsource the other stuff to me.
It seems to me that the theory of comparative advantage rests on this reality that the TIME available to a worker is limited.
Now suppose that you can press a button and clone or replicate yourself. (Think of the scene in the Matrix movie where the agent character replicates). Now will you still hire me? Or do I end up like the oxen?
The point I am making is this:
1. The nature of machines is changing. Machines increasingly incorporate intelligence and will begin to approach the versatility of human beings.
2. Machines can be replicated. When an machine is replicated any “intelligence,” knowledge, or skill associated with that machine is also instantly replicated. Machines do not need to be trained.
3. The cost of information technology is continously falling, so the cost of replicating these machines will also keep falling. Many “machines” might just be software, so the marginal cost of replication is effectively zero already.
I really really don’t think David Ricardo thought about THAT. And I do not think it is appropriate to compare today’s computers to the mechanical looms that pissed off the Luddites. At what point is a machine no longer a machine in the traditional sense? What if a machine evolves from being a tool used by a worker, to BEING a worker–but still enjoys the advantages of a machine (ie. it can be replicated)?
kharris:
Why do I have to continually reassert Participation Rate and Unemployment as the identifiers of what has occurred since 2001? Since 2001, what has taken place kharris? How big is the labor pool of people not working. How large is the hidden cost to the economy of those people not working. The record is very clear since 2001 and you and others refuse to recognize it. One could look at the BLS historical records on employment and Not In Labor Force. One could look at Laurent Guerby’s charts on males aged 25 to 54. One could realize what Dr. Elizabeth Warren dissertation “The Coming Collapse of the Middle Class” is based upon what has happened to the Middle Class since the seventies. Below I have offered some charts from both Spencer and Juan depicting where productivity gains have been skewed and the resulting profits.
History was also on the side of setting up factories by function. Drill presses in one area, saws in another, turret lathes, finishing, deburring, 30 day lot sizes, etc. It was easy to do because that was the accepted practice. Guess what, it isn’t today. The lot sizes are minimal and the production is set up by product and component with triggers that allow the least amount of time in inventory. If you wish to follow tradition, be my guest. You are wrong.
I can not help if you and academia have not been on the shop floor, purchased parts, scheduled parts, made parts, dealt with the long supply chains from China/Asia, driven down setup and production times, or understood that Labor is the smallest component of the Cost of Manufacturing today. Drucker understood it. I understand it enough to drive setup on one cell of robots from 60 minutes to 6 minutes and the productivity gains went to the company (big time chaffing of lips on my ass and 2 engineers from the company) Ford does understands the issue in a perverse way.
Automation and globalization is the issue and the growing global labor pool is the result with little job creation to supplant the technology. Maybe soylent green is the answer?
Tim:
As a Lean Six Sigma Black Belt, I look forward to your statistical analysis.
I already presented the work of Spencer and Juan, two notable people in economics. No, real income has not been rising since the eighties. What took one person with a high school education in the seventies and a good work ethic now takes two incomes today. Dr. Elizabeth Warren made a great presentation of this in “The Coming Colapse of The Middle Class.”
I do not know of one cent of SS, 401ks, vacation time, sick time, osha, child labor laws. ot laws, epa laws, discrimination laws, etc that made one part. I look at real labor sans the burden. The same as allocating capital (classical accounting) is burden to labor. Labor is king and to do an apples to apples comparison to Asia, you drop those costs.
Productivity has been rising but the gains have not gone to Labor. It is far easier to make the big bucks on WS with tranched CDO, CDS, naked CDS, synthetic CDS, Capital appreciation sans labor. Time to reconcile Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp, split true banks from WS, and force GS, etc to decide whether they are banks or investment firms.
You need a lot size of 1 to win.
jon:
Tom Walker (Sandwichman) advocated the same on working fewer hours. He cited Chapman.
While it’s true that oxen drivers have fallen on hard times these past hundred years or so, the flip side is that without automation many industries wouldn’t exist.
Take everything electronic for example. Once upon a time peasants soldered discrete components onto a printed circuit board, then stuffed in the vacuum tube, and we got Howdy Doody and the Three Stooges on TV.
Since then we moved to automated assembly of surface mount components, stuff them into a computerized automated test machine that nearly simultaneously does thousands of tests to verify quality. Then we ship it off in a box and get Lady Gaga and Rush Limbaugh on our iPhones.
Think where civilization would be if it weren’t for that.
And what if cars didn’t only cost $25,000? How big a market would there be?
While it’s true that oxen drivers have fallen on hard times these past hundred years or so, the flip side is that without automation many industries wouldn’t exist.
Take everything electronic for example. Once upon a time peasants soldered discrete components onto a printed circuit board, then stuffed in the vacuum tube, and we got Howdy Doody and the Three Stooges on TV.
Since then we moved to automated assembly of surface mount components, stuff them into a computerized automated test machine that nearly simultaneously does thousands of tests to verify quality. Then we ship it off in a box and get Lady Gaga and Rush Limbaugh on our iPhones.
Think where civilization would be if it weren’t for that.
And what if cars didn’t only cost $25,000? How big a market would there be?
While it’s true that oxen drivers have fallen on hard times these past hundred years or so, the flip side is that without automation many industries wouldn’t exist.
Take everything electronic for example. Once upon a time peasants soldered discrete components onto a printed circuit board, then stuffed in the vacuum tube, and we got Howdy Doody and the Three Stooges on TV.
Since then we moved to automated assembly of surface mount components, stuff them into a computerized automated test machine that nearly simultaneously does thousands of tests to verify quality. Then we ship it off in a box and get Lady Gaga and Rush Limbaugh on our iPhones.
Think where civilization would be if it weren’t for that.
And what if cars didn’t only cost $25,000? How big a market would there be?
I think you are correct about the intellectual/high skill jobs being too few.
Imagine that you would wave a magic wand and give everyone Einstein’s IQ. What would happen? Not much…the jobs created by the economy would be essentially the same routine jobs. You’d have a bunch of unhappy Einsteins working at McDonalds and Wal-Mart. And you would have unbelievably intense competition for jobs in the university physics department.
In the long run, of course, there should be a benefit to making everyone smarter…but there is no reason to believe enough high level jobs would be created to absorb all those smart people. Most of the work that needs to get done is routine in nature and most likely always will be. In the future, machines will do more and more of that routine work
Cedric Regula: “Then we ship it off in a box and get Lady Gaga and Rush Limbaugh on our iPhones.
“Think where civilization would be if it weren’t for that.”
Much better off, right?
😉
I think that is a slightly different point. The productivity differencials between people with the right and with the wrong skills might become so big, that a market based system yields socially instable results.
Tim,
In Marx’s view, working people would benefit from this, not be left to starve. (The Senate just went home without acting on unemployment extensions, and the House Dems just killed health care for the unemployed.)
You’re saying that the workers are heading for the Alpo can, too.
Exactly. I think the top 5% now own something like 50% of all the wealth of the country, the top 1% have received all of the income gains from productivity boost and these trends are accelerating.
Every incentive now is to eliminate jobs at the bottom (ours), to achieve bigger bonuses at the top (theirs).
What is the answer?
Cylons?
Dave Johnson: “Every incentive now is to eliminate jobs at the bottom (ours), to achieve bigger bonuses at the top (theirs).
“What is the answer?”
The answer is the one you gave. Eliminate jobs at the bottom. Then decide between welfare for (almost) all, which is the socialist answer, or make-work as servants for the rich, which is the capitalist answer. After all, robots can do floors, but not nearly as well as people.
Cedric Regula: “The Japanese were at least a decade ahead of the US in adopting factory automation (to make real stuff, not just government stats) “
And they are still ahead of us on keeping their people employed. Verrrry interesting!
Kaleberg: “In one sense our country is closer to meeting our every human need, even as it is harder and harder to find a job that will pay us enough money to afford them. The issue is pay for labor, not productive capacity.”
Henry Ford understood that if he was going to sell a lot of cars, a lot of people, ordinary people, had to be able to afford them. During the Great Depression he kept wages up, realizing that the consumer is the basis of industrial economies, and the worker is the consumer. If the only significant consumers are the rich, we are all in trouble.
“Suppose you are better in absolute terms at everything than I am. Still, you might hire me to do some things BECAUSE YOUR TIME AND ENERGY ARE LIMITED.”
Once again, this is not what comparative advantage is about.
Let us start at the very beginning, with all of the assumptions that economists already make.
1) There are unlimited human desires and needs and yet only limited resources to meet those needs.
2) Human labour is a resource which can be employed to meet those needs.
3) Any individual human (or group, class, country full of, whatever) has a number of different ways in which their labour can be employed to meet one or other of those huiman needs or desires.
Those are our assumptions. I don’t see that you are arguing with any of those either.
So, what can we now say about the world by examining the interplay of our assumptions?
We will be able to satisfy the maximum amount of those needs and desires when humans specialise in the labour in which their own situation (skills, availability of capital, their own desires) makes them most efficient at satisfying those needs and desires.
This is what comparative advantage is about: it is nothing to do with comparing your skills with my skills. US skills with China skills. It is about comparing the ability of an individual (or group, class, country full of, whatever) to do the various different things which are possible. And clearly, if everyone specialises in the thing which they are least bad at then there will be more things, goods and services, with which to satisfy those different desires and needs of other human beings.
This is Ricardo’s point. That it doesn’t matter that you are both a better computer programmer and a better writer than I am. I am, myself, a better writer than I am programmer. Thus I should specialise in writing.
There is nothing here that changes if we assume increased automation. We still have unsatisfied desires and needs (because they are unlimited, remember?) and thus useful things to which human labour can be applied. And given this it is still true that more of those needs and desires can be satisfied by the division of labour, its specialisation and the subsequent trade of the greater production thereby created.
The only time this fails is if automation continues to the point where all human needs and desires are satisfied. Despite our assumption that this is not possible, let us relax that assumption. All needs and desires are satsified. So who the hell cares what happens next?
From near the beginning of Tim’s first comment:
“Within economics we start with a very basic assumption.” That there are unlimited human desires and yet only limited resources available to satisfy them.”
as·sump·tion /əˈsʌmpʃən/ Show Spelled[uh–suhmp-shuhn
–noun
1.something taken for granted; a supposition: a correct assumption.
2.the act of taking for granted or supposing.
3.the act of taking to or upon oneself.
4.the act of taking possession of something: the assumption of power.
5.arrogance; presumption.
Real science starts with a set of observed and measured facts rather than a sense of pomposity regarding one’s assumptions.
And then Tim said:
“That there are unlimited human desires and yet only limited resources available to satisfy them.”
Failing to recognize that there seem to be unlimited labor resources when one thinks on a global scale. Capital flows to the source of the cheapest cost of production.
Welcome to the wonderful world of the long-term where short-term structural unemployment is an unfortunate consequence of rising productivity and wealth.
You can certainly complain about growing wealth inequality and poverty, but those are different issues and we can choose to address them without going neo-luddite.
Chris, in contrast to pre-industrial Britain the risk of starving in modern Britain has gone from fairly good to virtually nil.
I’m not arguing that there are no human costs, and it is indeed incorrect to do so – however, I will argue that growing automation will over the long-run is good for society and there are things we can do right now to address the income inequality and structural unemployment that come with the introduction of new technology.
The real question in the face of changing technology is this: What percentage of the workforce will thrive?
Market centralization, concentration & efficiency are euphemisms for JOB/WAGE LOSS.
Structural unemployment occurs when both the knowledgeable & unskilled are displaced. IBM’s Watson, which appeared on Jeopardy, is being reworked to serve as a doctor of sorts. The future may very well be one in which medical professionals are adjuncts to machines! Computers can produce creative essays and musical scores, too! Should we also displace writers & artists?
The day will come when the human mind — limited to biochemical speed — will not keep up with artificial intelligence operating at light speed. Education offers no promise against irrelevance & income loss. Idle & underpaid hands shift the social burden. If the world becomes increasingly socialist, technology will have played a BIG role.
We can reduce the size of government and save a lot of money. But we will pay right back into the social services when all the laid off government workers can’t find jobs. And all the rest of the people competing for private sector work will have it that much harder.
Same thing with technology: You can improve efficiency and reduce certain types of cost through automation but you will never get all the people that technology displaces to up their IQ or their ambition adequately to compete in an ever-increasing technical society. So all you have done is take the waste out of the provate sector and transferred the burden to the public sector.
In a closed system for every savings in one area there is an equal but opposite cost in another area. Your only real choice is to pick the lesser of the many evils.
When people begin to really internalize the meaning of “no free lunch” we will see that it is never an adequate response to attack a problem in an overly partisan way.
For instance, let us imagine that we acheived the lofty goal of improving public education to the point where everyone was more or less equipped to handle the challenges of an increasingly competitive and technically advanced society. The good news is that now you have a more prepared and qualified labor force. The bad news is you have a more prepared and qualified labor force. You improve things yet find yourself confronted with the “up the competitive ante” problem.