Even the title of Paul Krugman's latest piece in
the NYT (see below) is evidence of his
old-fashioned way of looking at the world. It's
not that he's left-wing (I'm great deal more
left-wing in some of my beliefs than PK -- a
member of the high-earning elite -- will ever be)
but that he doesn't appear to be up-to-date on
several highly important players in the economic
game (e.g. demography, biology, energy resources).
The refrain that comes through time and again,
and really shows that Krugman is living in a
Keynesian past, is the way he thinks about where
profits come from -- that is, by rich people
exploiting workers, simply because the rich
exist. (This argument is the same as saying that
the industrial revolution could never have come
about because the existing land-owning
aristocracy already owned pretty well the total
wealth of the country.) Profits don't come by
exploitation when using anything like the usual
meaning of the word. Profits come from
encouraging the largest possible mass market
(with adequate wages) to come into existence and
to stay in existence, furthermore in persuading
workers within it to buy houses and non-essential
goods of the highest possible price in order to
keep up with the Jones or, for the more ambitious
individuals, to lay claim to higher social
status. Well, I'll tell Krugman what 'profit' is
if he really wants to know. Profit comes from
making a product with a new method that uses less
energy than one's competitors or of a previous
method. (Colloquially, you can be said to be
making a profit from a slave but only because you
are using his total available energy. If you pay
someone he will use his energy more efficiently
and you'll get more profit. If you are making a
products with a purely automatic method and,
subsequently, competitors drive your profits down
to zero, then your only recourse is to devise a more efficient automaton.)
Although he mentions Brynjolfsson's and McAfee's
book ("Race Against Machine") with seeming
approval, Krugman still hasn't taken on board the
likelihood that every possible job or profession
which consists of regular methods and outcomes is
going to be automated sooner or later. Krugman
complains about the decrease of mass market
incomes in the last 30 years. This is not only
going to continue but the mass market itself will
decline in numbers at the same time -- as it has
done in Western Europe in the last 50
years. America is following, too, with
less-than-replacement birth rates in the last two
or three years. As far as livable wages are
concerned, they will disappear over the coming
decades due to automation -- as will the people also!
There'll be plenty of non-routine jobs remaining,
albeit a minority of what, today, is the total
range. Whether the elite and the highly skilled
will go against the majority and improve their
birth rate to ensure that they will have heirs
who can enjoy a less crowded world remains to be
seen. There's some anecdotal evidence that the
elite (what I call the 20-class) are now having
more children. Many career women are not only
deciding to have a child but are also retiring
from work completely and becoming what has become
that much despised profession "mother and
housewife". If the 20-class decide that they want
children to enjoy but don't want to go through
the 'labour' bit then it will not be long before
we will be able to add Artificial Gestation to the hospital curriculum.
In the case of Krugman, the needle got stuck when
he heard his first lecture about Keynes. It's a
pity that he is not a polymath as Keynes
was. He'd then be much more in touch with other important trends.
Keith
As far as livable wages for the present majority
are concerned, they will disappear over the
coming decades due to automation as will the
people also. There will be plenty of jobs remaining
--------------------
Robots and Robber Barons
Paul Krugman
The American economy is still, by most measures,
deeply depressed. But corporate profits are at a
record high. How is that possible? Its simple:
profits have surged as a share of national
income, while
<http://www.bls.gov/opub/mlr/2011/01/art3full.pdf>wages
and other labor compensation are down. The pie
isnt growing the way it should but capital is
doing fine by grabbing an ever-larger slice, at labors expense.
Wait are we really back to talking about
capital versus labor? Isnt that an
old-fashioned, almost Marxist sort of discussion,
out of date in our modern information economy?
Well, thats what many people thought; for the
past generation discussions of inequality have
focused overwhelmingly not on capital versus
labor but on distributional issues between
workers, either on the gap between more- and
less-educated workers or on the soaring incomes
of a handful of superstars in finance and other
fields. But that may be yesterdays story.
More specifically, while its true that the
finance guys are still making out like bandits
in part because, as we now know, some of them
actually are bandits the
<http://www.clevelandfed.org/research/commentary/2012/2012-10.cfm>wage
gap between workers with a college education and
those without, which grew a lot in the 1980s and
early 1990s,
<http://www.epi.org/press/wages-young-college-graduates-failed-grow/>hasnt
changed much since then. Indeed, recent college
graduates had stagnant incomes even before the
financial crisis struck. Increasingly, profits
have been rising at the expense of workers in
general, including workers with the skills that
were supposed to lead to success in todays economy.
Why is this happening? As best as I can tell,
there are two plausible explanations, both of
which could be true to some extent. One is that
technology has taken a turn that places labor at
a disadvantage; the other is that were looking
at the effects of a sharp increase in monopoly
power. Think of these two stories as emphasizing
robots on one side, robber barons on the other.
About the robots: theres no question that in
some high-profile industries, technology is
displacing workers of all, or almost all, kinds.
For example, one of the reasons some
high-technology manufacturing has lately been
moving back to the United States is that these
days the most valuable piece of a computer,
<http://economix.blogs.nytimes.com/2012/12/07/when-cheap-foreign-labor-gets-less-cheap/?partner=rss&emc=rss>the
motherboard, is basically made by robots, so
cheap Asian labor is no longer a reason to produce them abroad.
In a recent book,
<http://www.theatlantic.com/business/archive/2011/10/why-workers-are-losing-the-war-against-machines/247278/?single_page=true>Race
Against the Machine, M.I.T.s Erik Brynjolfsson
and Andrew McAfee argue that similar stories are
playing out in many fields, including services
like translation and legal research. Whats
striking about their examples is that many of the
jobs being displaced are high-skill and
high-wage; the downside of technology isnt limited to menial workers.
Still, can innovation and progress really hurt
large numbers of workers, maybe even workers in
general? I often encounter assertions that this
cant happen. But the truth is that it can, and
serious economists have been aware of this
possibility for almost two centuries. The
early-19th-century economist
<http://www.econlib.org/library/Ricardo/ricP7.html#Ch.31,%20On%20Machinery>David
Ricardo is best known for the theory of
comparative advantage, which makes the case for
free trade; but the same 1817 book in which he
presented that theory also included a chapter on
how the new, capital-intensive technologies of
the Industrial Revolution could actually make
workers worse off, at least for a while
which<http://www.econlib.org/library/Enc/IndustrialRevolutionandtheStandardofLiving.html>
modern scholarship suggests may indeed have happened for several decades.
What about robber barons? We dont talk much
about monopoly power these days; antitrust
enforcement largely collapsed during the Reagan
years and has never really recovered. Yet
<http://www.washingtonmonthly.com/features/2010/1003.lynn-longman.html>Barry
Lynn and Phillip Longman of the New America
Foundation argue, persuasively in my view, that
increasing business concentration could be an
important factor in stagnating demand for labor,
as corporations use their growing monopoly power
to raise prices without passing the gains on to their employees.
I dont know how much of the devaluation of labor
either technology or monopoly explains, in part
because there has been so little discussion of
whats going on. I think its fair to say that
the shift of income from labor to capital has not
yet made it into our national discourse.
Yet that shift is happening and it has major
implications. For example, there is a big,
lavishly financed push to reduce corporate tax
rates; is this really what we want to be doing at
a time when profits are surging at workers
expense? Or what about the push to reduce or
eliminate inheritance taxes; if were moving back
to a world in which financial capital, not skill
or education, determines income, do we really
want to make it even easier to inherit wealth?
As I said, this is a discussion that has barely
begun but its time to get started, before the
robots and the robber barons turn our society into something unrecognizable.
New York Times 9 December 2012
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