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“Americans have been historically less inclined than Europeans to explosions of social rage, despite suffering more poverty than most other wealthy democracies.”

September 11, 2011 Leave a comment

This article makes an important point about the burning luxury cars in Berlin and the American proletariat’s general inaction against its bourgeoisie. It could be America’s strong anti-communist cultural values, but I think an even more likely cause is the large number of lower income, fiscally conservative Republicans. Whether they are fiscally conservative because they are Republican or Republican because they are fiscally conservative is of little consequence: the strange assortment of characters under the GOP’s formerly big tent is united by their unyielding belief in ideology, whatever that ideology may be. You have a mixture of people who don’t understand what tax bracket they are in, or how progressive taxation works.  or else they have noneconomic reasons for voting the way they do: morality (include both Christians and Minarchists here), racism, last place aversion, etc.

If the Democrats were the gun nuts, rather than the Republicans, we might be seeing protests here that are more riotous and violent in character, similar to what tends to happen in Europe as of late (France 2005, UK 2010/11, Germany 2011). For now, perhaps the banker’s sleep better at night knowing that the party of our nation’s proletariat is also the party of its peaceniks.

 

 

 

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Is the rise of technology and the obsolescence of labor a case for public ownership of capital?

September 7, 2011 Leave a comment

Just read this piece about the USPS and it got me thinking. It fits into the bigger narrative that I’ve been assembling about prolonged chronic unemployment; essentially, most of the jobs that have been shed in the last 3 years are never coming back. Now that firms have scaled back their labor forces, they are realizing a number of efficiency gains through the use of technological capital, and they aren’t going to need those old workers ever again.

When automation was first introduced into manufacturing, labor unions had to organize politically in order to maintain “fair” wages for employees who would have otherwise been displaced by the automation. On the margins, firms still benefited from automation, but part of the gains were shared with labor. Today, with the unions eviscerated, and the internet bringing about a new era of labor saving/capital intensive innovation, labor will not receive any of the gains from automation. They will be chronically unemployed and the all of the profits will go to the owners and management.

In the long run, this will decrease demand as wages fall, and should lead to falling prices… “should” being the operative word there. Market inefficiencies will slow price signals and allow the firms to capture extra consumer surplus as real price levels rise due to falling real incomes. How long it will take to reach this new equilibrium is uncertain, and in the meantime, we have a chronically unemployed underclass.

I think of Jonas Salk, who invented a Polio vaccine and gave it to the world for free, rather than make a billion dollars from it. This doesn’t happen anymore. The gains from technology are not shared by society. Capital enjoys the lion’s share, while labor and consumers receive a modest marginal benefit: the option to purchase said technology.

The utopia I imagine is a world where people don’t have to work; robots and artificial intelligence can do it all for us, and society can share in the benefit presented by this automation. The problem is that the emergence of that level of automation will only happen if and when capital invests in it (and the “if” is resoundingly a “yes” because it will reduce variable costs so greatly), and capital will only invest in it because of their profit motive.

“Isn’t it bad for producers when real incomes (and demand) fall? Isn’t it in the economic interests of firms to support a strong middle class consumption base?” Yes, in the long run it is bad for firms, and it is in firms interest to support a strong consumer base; to share the pie. The problem is that “firms” are abstract. Management and ownership is making the decisions, and these decisions are biased towards short term revenue and profit projections. The problems of an eroding consumer base are on the far horizon, and in the meantime, capital can use its political power to make stop-gap solutions to prop up demand, such as expanding the government’s balance sheet, the monetary supply, and/or the lower and middle class’s tax burdens (this is already happening, and has been happening for 30 years [with brief respites here and there in the 90’s], to give you an idea of the time span that it takes for these real income shocks to have an effect). By the time that stagnated or falling real incomes come to have an impact on the firms’ income statements, the current ownership and management is going to be long retired.

The only way to avoid this is for labor and the unemployed to reorganize politically, or for some radical cultural realignment that replaces the motivation from profit with the motivation from compassion (Bill Gates and Warren Buffet are setting an example, but in the grand scheme of things we will need millionaires, as well as billionaires, to change what motivates them).

Categories: Business, Economics, Socialism