Tag Archive for growth

Capitalism Makes Us Sick


I often enjoy reading Harvard economist Kenneth Rogoff’s commentaries. He strikes me as someone who kind of “gets it” about capitalism but who is unable, for whatever reason, to draw the logical conclusions. The final paragraphs of his column entries that point to some serious flaw in capitalist economic arrangements are almost always anticlimactic disappointments.

His latest piece, a brief exposé of how capitalist forces contribute to bad diets and poor health titled “Coronary Capitalism”, serves as a great example of his unsatisfying lessons. The piece starts off digging into an important economic matter. After noting that decreased life expectancy is bad for economic growth, he explains that making people fat and sick is probably a net boon to the economy, all aspects considered. Here’s the nut:

Highly processed corn-based food products, with lots of chemical additives, are well known to be a major driver of weight gain, but, from a conventional growth-accounting perspective, they are great stuff. Big agriculture gets paid for growing the corn (often subsidized by the government), and the food processors get paid for adding tons of chemicals to create a habit-forming – and thus irresistible – product. Along the way, scientists get paid for finding just the right mix of salt, sugar, and chemicals to make the latest instant food maximally addictive; advertisers get paid for peddling it; and, in the end, the health-care industry makes a fortune treating the disease that inevitably results.

Coronary capitalism is fantastic for the stock market, which includes companies in all of these industries. Highly processed food is also good for jobs, including high-end employment in research, advertising, and health care.

So, who could complain? Certainly not politicians, who get re-elected when jobs are plentiful and stock prices are up – and get donations from all of the industries that participate in the production of processed food. Indeed, in the US, politicians who dared to talk about the health, environmental, or sustainability implications of processed food would in many cases find themselves starved of campaign funds.

Okay, all of this rings true. But doesn’t it sound like the problem is pretty deep? Doesn’t the problem even seem inherent to capitalism?

Not for an economist steeped in the religion of markets — “free” or otherwise. For these cats, the market — regulated or not — has to form the basis of any solution to an economic problem… even when the market causes the problem in the first place. Rogoff is so conventional in his mindset, he seems to think market forces are actually an excuse for problems, rather than ever being able to draw the conclusion that markets are the problem. Look at the way he almost gives food pricing a pass:

True, market forces have spurred innovation, which has continually driven down the price of processed food, even as the price of plain old fruits and vegetables has gone up. That is a fair point, but it overlooks the huge market failure here.

[emphasis added]

Let’s explore the first sentence, which is so strangely structured as to imply that lowering food prices through subsidies, monocropping, and over-processing is a positive in any way — like, cheap food = good, so it counts for something. But let’s give Rogoff the benefit of the doubt. I think it’s fair to define “innovation” as developments that make something more economically efficient or profitable but not necessarily “better”. Still, I’d bet most people think of innovation as inherently “good”. It would make sense to take pause here and consider that in capitalism, innovation is something that helps capitalists. It may incidentally help workers, but usually it does not. And it doesn’t necessarily help consumers at all; it might even harm them. So finding cheaper ways to get junk food out to people is an innovation — one that is killing us.

But Rogoff acknowledges the “market failure” — so why am I picking on him for allegedly not recognizing that markets are the failure? Am I just nit-picking? Rogoff goes on:

… [P]roducers have few incentives to internalize the costs of the environmental damage that they cause. Likewise, consumers have little incentive to internalize the health-care costs of their food choices.

As far as I can discern, producers have no incentives to internalize the costs of environmental damage of their economic activity. I would love to see Rogoff’s list of the few incentives he thinks they do have. But where is this division coming from, concerning who has what incentives to internalize “externality” costs? This divide between producer and consumer is very real in our society, but how unimaginitive does an economist have to be — or how logically manipulative — to divvy up who bears what costs of bad economic behavior? Rogoff seems to be suggesting, by implication, that producers should have to internalize environmental costs and consumers should have to internalize health care costs of bad agricultural, food-processing, and dietary practices. Consumers somehow aren’t responsible for the production of their food, and producers aren’t responsible for the consumption of their goods (even though previously he notes that advertising is a significant force in the equation). This is the best analysis a conventionally “progressive” orientation on economics produces: bizarre, irrational surface conclusions drawn about a system that is fundamentally flawed at its core.

So what are Rogoff’s disappointing, vague, intangible suggestions for addressing the latest problem he has rightfully (if not rightly) exposed? Well, you can bet he will suggest reforming the “pathological regulatory-political-economic dynamic that characterizes” the food industry, for starters. It isn’t the market, you see; it’s our failure to regulate that pesky rascal. Indeed, Rogoff insists,

We need to develop new and much better institutions to protect society’s long-run interests.

That’s the only sentence we get on the matter, so we’re left to presume he’s talking about regulating bodies of some sort, to rein in the market, or manipulate it so that it works the way centuries-old magic-imbued dogmas suggest it should… you know, intervene to make markets do what they’re supposed to do precisely as long as we don’t intervene.

But even this cop-out directive comes with a familiar warning.

Of course, the balance between consumer sovereignty and paternalism is always delicate. But we could certainly begin to strike a healthier balance than the one we have by giving the public far better information across a range of platforms, so that people could begin to make more informed consumption choices and political decisions.

And that’s it. It’s all he offers. I don’t know Rogoff so I won’t presume to know what goes on in his mind, but it wouldn’t surprise me if the constraints of a neoclassical economics education, a current gig at Harvard, and a couple of stints at the IMF, have limited Rogoff’s imagination so that he can’t fathom there might be another way to manage production, consumption, and allocation in a modern society. Standard forms of centrally planning are too “paternal” to consider; I’d agree with that. And I’d even suggest that having a thoroughly undemocratic government like the United States republic intervene to coerce policy in a major sector of the economy would be rashly paternalistic, with mixed and confusing impact.

So what does that leave us with? Oh, if only there was a way to plan production, consumption, and allocation in a democratic manner, averting the paternalism problem altogether. Information for consumers is indeed a good start. But short of people actually organizing in their dual capacities as consumers and producers, let’s not pretend we can change much just by making smarter purchases. The idea of using the blunt instrument that is “voting with our dollars” to affect the agricultural and manufacturing policies of the handful of conglomerates that dominate our food supply is just plain ridiculous. Change will require collective action to tear down existing institutions and replace them with a foundation of alternatives.


Capitalism… Ugh… What Now?


One of the more disturbing examples of a prestigious economist foolishly phoning in his views on prospects for the future of economics came in the form of a recent interview with Nobel Prize winner Edmund Phelps. It serves to show us once again that a grasp of the real world or the ability to communicate effectively is not necessary for one to be academically successful in the field of economics. (Also not required: a heart.)

This barely coherent piece is so bad, I actually checked to see if it was a translation originally conducted in another language. I normally would never be moved to comment on something of such utterly poor quality. But a website I very much respect, The Browser, featured the interview, and a good friend cheered it on Google+, so I feel compelled to tear it to much-deserved shreds.

Questioned by the interview blog Thought Economics, the Phelps piece is called “Capitalism — What Comes Next?” The response, in case you couldn’t guess, is more capitalism. Interviewer Vikas Shah sets the stage early, lest we get up our hopes that what’s next is something not awful:

As the blinkers of egoism have been lifted, we (as a society) have realised that capitalism — while ostensibly responsible for the vast majority of our civilisation’s advances in the past quarter millennia [sic] — has also been responsible for creating vast inequality, conflict, and potentially irreparable damage to our planet. With no viable alternative to capitalism, however, the time has come to discuss “What happens next?….”

As is par for the “no alternatives” course, Shah doesn’t show his work, so we can’t evaluate how he’s assessed all the alternatives for viability, by what criteria, and so forth. These folks want us to consider their field a science of sorts, but they excuse themselves from the inconvenient duty of scholarly rigor. Bold assertions are allowed without scrutiny so long as they uphold accepted views that favor the privileged classes. And notice how open ended is the treatment of the future of capitalism — economists are encouraged to wildly speculate, and pretty much no one presses them on their pipe dreams, so long as they don’t challenge key facets of capitalism such as markets, hierarchies, and private ownership. Contrast this to the skeptical scrutiny any non-capitalist alternative faces, even from people who admit capitalism has been or has become a veritable train wreck.

So… since we can’t evaluate their no-doubt painstaking (if secretive) evaluation of all possible alternatives, let’s take a look at how Professor Phelps sees capitalism’s downsides.

The downside? Well… of course there’s always a downside to everything. Modern capitalism is a system in which some people are very lucky — they just happen to be at the right place at the right time… and can cash in big-time; while other people aren’t! Some people are very unlucky- they make decisions which turn-out to be ill-fated.

I guess I should be thankful that Phelps doesn’t say all advantages and disadvantages in capitalism boil down to merit, but I can scarcely imagine how he could otherwise present a worse understanding of the system. How could anyone be so out of touch as to suggest that the primary problem with capitalism is that some people are “unlucky”? How is “luck” even a concept acceptable in serious discourse? This guy won a Nobel Prize, but his view of inequity in capitalism is that it’s a matter of chance? Phelps implies that everyone has an opportunity, and some people have bad luck — he says their decisions are “ill-fated”. The supposition that everyone has an opportunity to roll the economic dice is reprehensible.

No, Prof. Phelps, capitalism ensures that most people are born in the wrong place at the wrong time. Most people have less than the average share of wealth and opportunity; the vast majority live in the same poverty they were born into and that all their neighbors live in. This isn’t making a decision that turns out unlucky. Billions have no turn at rolling the dice; the dice were long since rolled for them. They suffer deprivation induced by markets that shift material well-being — including necessities such as food, shelter, health care, and education — to those who can place valued economic demand on those resources, irrespective of moral influences. And let’s not forget, the resources are only scarce in the first place because the prevailing economic system allows some people to accumulate and horde vastly more wealth than they and their children and their children’s children’s children could ever hope to spend, while others languish in squalor for generations, including huge swaths of people condemned by class or geography to have no real opportunities.

Phelps admits that “there is naturally a huge amount of inequality within capitalism” (emphasis added). That is in response to a question about why there is poverty (not just inequality). He goes on to advocate a solution:

Capitalism can, to a degree, address that inequality by subsidizing — in one or more ways — the employment of workers at the bottom… low wage workers. It also helps to pull up their wages.

It is not at first clear what Phelps means about subsidizing low-wage work, or what “it” is in the second sentence that is so helpful to raise wages. But later he seems to be suggesting traditional subsidy in the form of government intervention. (Phelps never lists the “more” ways capitalism can address inequality.) It’s very weird to suggest a government subsidy is capitalism addressing the inequality it causes. The economy gets the credit for requiring government intervention to stave off poverty; how clever of capitalism.

So what good are these subsidies?

This helps increase economic inclusion and reduce inequality so that low-wage participants in an economy can feel that they’re not receiving unnecessarily low-wages and low-rewards… that society has addressed their situation and done something about it.

You see, it makes people feel like they’re not being screwed over. They are receiving “unnecessarily low wages”, because capitalism suggests employers keep the largest possible share of revenues, but the government can come in and make people feel like society has addressed this inequity. Phelps offers no concrete suggestion as to the form these subsidies should take, but he does at least advocate higher taxes to pay for them.

Then Phelps gets crude on a kind of magnificent level:

That will, of course, leave the Bill Gates’ of the world who are very rich because, besides being very bright and driven, they got extraordinarily lucky. Wealth inequality of that sort doesn’t cause me concern- It doesn’t matter to me that the Rockefeller’s may own half of Maine (for example) or that Ted Turner may own half of Montana… What does it matter? I think Ted Turner did a great thing with CNN and he’s very rich! so what? I just don’t get it. I just never understood why there was such an aesthetic revulsion to outsized rewards for people who had a big idea and- generally speaking- worked their heads off to develop that idea. I don’t have any problem with it. [SIC!]

So the revulsion to outsized remuneration is aesthetic, not moral or ethical? A single family owning or controlling massive amounts of property, thus restricting everyone else to share the remaining portion among themselves, is not a moral matter? It’s not immoral to deprive vast numbers of people of the basics in order to permit some to accumulate and horde extreme amounts of wealth? My objection to that is just a matter of personal taste?

And we see again that there’s nothing wrong with an economy valuing luck, perhaps because we all had an equal chance of being born a Rockefeller, and it’s tough luck if we were not.

Phelps then states that “there are plenty of leftist billionaires”. This is a curious claim. I wonder what he means by “plenty” and “leftist”. He does at least admit there are more on the Right. But that kind of calls into question, since the issue is political influence of capital, how one side having fewer can still have “plenty”.

When the conversation turns to the Arab Spring, Phelps staggers boldly into the land of the bizarre, redefining capitalism to suit his peculiar slant. This part is barely coherent, so read carefully:

I think Egypt and Tunisia were examples of yet-another economic system… namely the system which, for a lack of a better word, we call ‘Corporatism’. This system has private ownership… one of the things that Egypt did, for example, in the last ten or fifteen years was privatise a lot of enterprises. Those enterprises became owned by people in the military. Corporatism doesn’t mean social ownership… that’s socialism. Corporatism means that there is a great deal of central control, directed by the government, of the private sector. A great deal of regulation… a great deal of two-way communication occurs with the private sector seeking favours from the government and the government seeking the same from the private sector…. In Egypt and Tunisia, you had a very rudimentary corporatist system which was being exploited all-out by the rulers who took advantage of their powers to put their cronies in place as managers and owners of various enterprises. The bulk of the population, many of whom who- by this time- have college or university degrees of some sort.. cannot break into the system! They can’t get jobs in those enterprises.. they are strictly for the insiders. They can’t even sell their fruits on the streets without a license- and there aren’t very many of those [licenses] distributed. It’s a very closed system… a system that’s about as far from modern capitalism as you can get! Well functioning modern capitalism allows anybody to start-up a company, to go into business for himself, and start coming up with new ideas, and working on their development.

Okay, for starters, I think Phelps’s assessment of the situations in Egypt and Tunisia are generally sound, if a bit elementary. That’s not where my gripe is.

I’m slightly more concerned with the near-useless label “corporatism” for a heavily regimented private-ownership economy. It sounds like fascist corporatism in the European sense, but in the US, corporatism is understood to be when private enterprises dominate society, not when the government strong-arms corporations. Basically, the term is close to meaningless, even as Phelps defines it. (The Thought Economics blog appears to be UK-based, but Phelps is an American US-based economist.)

Yet this semantic gripe pales compared to how odd it is that Phelps describes a model that is essentially identical to that of the US in structural description — the US being an economy he says is truly capitalist, not “corporatist”. Phelps basically describes the US “modern capitalist” system (when describing Egypt/Tunisia), then says it’s as far from modern capitalism as an economy can get. Jobs for insiders only, licenses required for fruit vendors, private sector and government in bed with each other — how is this not precisely what we have here, let alone the farthest thing from it? While I think it’s safe to say corporate influence on government is far stronger than the reverse in the US, that hardly makes it the polar opposite of a scenario where the reverse is true but the effect on everyday people is nearly identical.

Granted, in Tunisia and Egypt, these noted obstacles are in some ways much more severe, but the difference is one of degrees, not fundamental or structural. What a strange way to make a case that an economic system is not like that of the United States.

Finally, skipping lots of other weirdness that’s simply too depressing/obtuse to critique, we get to the big question of interest to FuturEconomy.com. Shah asks Phelps, “What is the future of economics as a discipline?” After prattling on about his own past contributions to the field of economics, which I won’t comment on here because I’m admittedly unfamiliar with them, Phelps provides his response:

Economics has contributed to the march away from these principles by reducing economies to ‘stochastic steady-state models‘ in which prices are the entire interest. Prices, in these models, ‘vibrate’ in some way. I find this incredible…. This thinking began seeping into the financial sector so then the banks started importing French mathematicians to work out how to price various assets as if anyone could possibly know what these assets are worth? We live in an uncertain world… not just a vibrating one! Economics will (and should) always have a scientific side… but it has to remember that no piece of evidence is ever decisive on its own… we have to understand that our subject is human creativity. That will be a very different kind of science from what we have had before. There hardly is any science of creativity yet- yet alone a science of individual or societal creativity which understands the interactions of people- that’s the next giant-step.

Now, I admit I don’t really have a clue what he’s talking about. I could guess, but I don’t think I should have to. He should just explain it, or his interviewer should if he thinks it’s worth publishing at all. Excluding the ironic polemic on the importance of science in economics, I want to focus on the one real declarative statement that I can at least understand syntactically.

Phelps says the field has reduced economies to “stochastic steady-state models”. I think perhaps this is a somewhat astute observation about the world of finance. Wall Street and its in-house economists and consultants and analysts seem to have done this. And you’ll notice, Shah has linked to the Wikipedia entry for “steady state”, the scientific modeling concept, not the economic concept, which is also referenced in that entry.

Now, if you think about it, the academic and broader field of economics has really done the opposite with regard to everything outside of Wall Street. Almost nobody is looking at the US or global economies as “steady state”. They’re instead hanging onto the ages-old notion of infinite growth. A steady-state economy is fundamentally different from a dynamic growth economy. Have you seen a trend among economists to declare that consistent growth is no longer (or even should not be) desirable and possible? For the most part, liberal and conservative economists fully agree that growth is the way forward; their only dispute is over how to grow the economy (and to some much lesser extent, for whom). Only a few people are talking about steady-state economies that are fixed to population size and do not grow via fiat currency and financial leveraging.

The almost hilarious paradox here is that, in answering what needs to happen next for economics, the field, Phelps misses an opportunity to say we should be entertaining the school of steady-state economics because we live on a steady-state planet. Instead, he offers a vague prescription about how economics needs to get “creative” in looking at human capacities (at least, I think that’s what he’s saying).

To end on a positive note, let’s take Phelps’s advice: what could be more creative than exploring — with a firm grasp on the relevant science — ideas for steady-state non-capitalist economics? I’m going to try to do more of that here in coming weeks.


Linkage: Sachs on Happinomics, Baker Kicks Double-dippers, Yves Kicks Ezra, More


I read so damn many interesting commentaries and articles every day, I couldn’t hope to blog even a fraction of the most provocative here. So I’m going to start posting links to good stuff with (very uncharacteristically) brief comments here, if I remark at all. Right? Sure. I’ll try it.


First up, a great piece I by one of the few progressive economists who really convincingly cares about people: Jeffrey Sachs. We disagree on solutions and some other big areas, but I can’t help liking this guy, and not just because he’s buds with my little brother. His latest commentary is on “The Economics of Happiness“, and it made me smile. A quick excerpt:

[T]o promote happiness, we must identify the many factors other than GNP that can raise or lower society’s well-being. Most countries invest to measure GNP, but spend little to identify the sources of poor health (like fast foods and excessive TV watching), declining social trust, and environmental degradation. Once we understand these factors, we can act.

Baker Kicks Double-Dippers; Rasmus Kicks Back

Notoriously prescient economist Dean Baker, whose prediction of a housing bubble and its effects I started paying close attention to way back in 2003, gained lots of attention yesterday with remarks in his own blog about the prospect of a double-dip recession, or lack thereof:

Of course consumption is not really growing that fast, more likely it is increasing at near a 2.0 percent annual rate, but maybe this number will shut up the arithmetic challenged economists who keep talking about a double-dip recession.

The implication is that tens of millions of people will remain unemployed or underemployed because of the Wall Street sleazes and the incompetent economists who could not see an $8 trillion housing bubble and still don’t know a damn thing about the economy. It’s a crime that they still have their jobs.

These fighting words — which really just pile on to a more detailed argument from last week — got noticed by some economists who foresee a second dip, including one of my other favorites, Jack Rasmus, who took exception:

Baker conveniently forgets that some of the most prescient economists who predicted the recession and financial collapse back in 2007 are also now predicting that a double dip in the coming months is increasingly likely. In other words, not everyone forecasting double dip today were the polyannas predicting no recession back in 2007.

Dean isn’t without friends, though. Karl Smith over at Modeled Behavior backs him up, tentatively.

Yves Smith vs. Ezra Klein on Refi Ridiculousness

One of the Obama administration’s hairbrained ideas for boosting the slouched housing market and economy is to offer a new federal refinancing program that would of course work with private lenders to help homeowners get a new life on their equity or maybe get out from underwater.

This is dumb. Thanks to Naked Capitalism’s Yves Smith (heavily citing Adam Levitin) for speaking direct, simple truth to this silliness. Levitin shuts the idea down effectively, but Smith locks the door by pointing out that there are real opportunity costs to pursuing mediocre-at-best policies, a lesson the administration seems determined not to learn. Whereas administration pumper Ezra Klein had said “it’s worth a try”. No, Ezra, it’s really just not.

‘Who Will Help the Poor?’

This is the title question of a commentary by Dominique Moisi, who worries (as do I) that in a belt-tightening frenzy ravaging the West, the world’s most vulnerable populations are without a helping hand. I wish I had time to critique this one, as I don’t totally agree with the premises, but I am so hungry for anyone actually caring about this matter, I wanted to draw readers’ attention to it even without remark.


Managers Shifting Growth Gains from Labor to Capital


Even when the US economy is technically “growing”, it is not “recovering” in any meaningful sense of the word. Aggregate demand is down, unemployment shows no real signs of improvement, and the most productive workers in the world go unrewarded (or really penalized).

Robert J. Gordon’s keen analysis of the latest figures puts this all into perspective. The key findings here, for those mainly interested in the human impact of economics, are that corporate management has favored cutting jobs over other strategies for surviving the economic downturn since ’08. This hypothesis isn’t new, but these figures offer a pretty good illustration of just how it came about, the effect it has had, and why it persists.

When the economy begins to sink […] firms begin to cut costs any way they can; tossing employees overboard is the most direct way. For every worker tossed overboard in a sinking economy prior to 1986, about 1.5 are now tossed overboard. […] My “disposable worker hypothesis” […] attributes this shift of behaviour to a complementary set of factors that amount to “workers are weak and management is strong.” The weakened bargaining position of workers is explained by the same set of four factors that underlie higher inequality among the bottom 90% of the American income distribution since the 1970s – weaker unions, a lower real minimum wage, competition from imports, and competition from low-skilled immigrants.

Gordon has been saying this for a while, so I’m eager to see if anyone can make a case that his latest analysis is somehow skewed to uphold earlier conclusions… or if he’s just been right all along.

Gordon’s analysis also demonstrates why aggregate demand and jobs have not recovered with growth. The technical causes are interesting (a “double hangover” effect rooted in the housing market — excess housing supply and excess consumer debt), but still it is the distinctly social factor of his findings that are most relevant, to my mind.

A change in labour market dynamics accounts for about 3 million of the over 10 million missing jobs in mid-2011. This shift can be traced to weakness of labour and growing assertiveness of management.

Now, if you’re thinking, “How can this be good for the capitalists in the long run?” — you’ve got a great point. In favor of fattening their short-term coffers, capitalism’s decision-makers are taking a huge bite out of domestic consumer demand, and this has an inevitable positive-feedback effect (that’s bad in this case) on the economy and thus private-sector revenues, not to mention government revenues.

This is just another failing of capitalism — it permits elites with inordinate power to make decisions that hurt working people and the economy overall, and even probably hurt themselves in the long run. Sure, capitalism allows them to not act irresponsibly, but given the nature of humans with elitist attitudes*, irresponsibility is what is to be expected, and there is no averting it without massive intervention against market forces — which won’t happen because Guess Who decides when and where the government intervenes.

* I won’t call it “human nature”, because it could be a self-selecting special “breed” that behaves this way; though I could be wrong, we’ll never find out, since capitalism will only ever allow the disproportionately greedy among us to be tested vis a vis how they prioritize constituents when setting major business policy.

Cartoon by Carol Simpson.


The Coming Second Dip


I don’t plan to spend a lot of time on this blog writing about acute economic scenarios like our likely double-dip Great Recession, as I have my eyes a good bit further down the road. But I’ve been seeing a lot lately about us being on the verge of that second dip. I don’t do analysis on this level, but I do pay attention to it, so I thought I’d share some. The stock market is beginning to bet on that second dip, which of course doesn’t help us avert one (if that’s remotely possible).

For a light listen, NPR is on the ball with “Double Dip: Is the U.S. Headed for Another Recession”.

So how much does this matter? This report from the Economic Policy Institute suggests the mere slow recovery is having a measurably negative impact:

[T]he last six months have seen an average growth rate of less than 1%, a rate of growth that fully explains why the previously declining unemployment rate reversed course in the past six months.

So imagine what another downturn would do.

For a slightly headier review of the prospects, check out Harvard economist Kenneth Rogoff’s analysis. He notes:

But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.

Which of those sounds most enticing? (I know my choice, if I can’t have none of the above.)

For true long-game insights, never miss Jack Rasmus. On the impending “dip” (plunge?), and how it relates to the recent debt-ceiling “debate”, Jack’s take is cynical but probably very realistic:

No wonder the stock market shuddered on Monday, notwithstanding all the “good news” about the debt deal. The performance of the real economy was far more important and “real” than all the huff and puff about debt ceilings and defaults by the US government. The alleged “good news” of the debt agreement was overwhelmed by the undisputable “real news” that the real economy was heading for a relapse.


Bring on the Robots; Death to the Robots

Terminator Robot

The subject of automation and innovation — especially their effects on labor and productivity — is one I’ve spent a lot of time pondering and researching. The issue is gaining renewed, much-deserved traction lately.

The matter boils down to productivity increases, and why in a sane economy they would be good for workers writ large, but in market capitalism they are not. As economist Tim Jackson (Prosperity Without Growth) put it recently:

We are caught in a productivity trap. While it generates wealth, productivity also generates unemployment.

We’ll hear more of Jackson’s critical ideas in the future, but for now I want to implore you to check out a piece called “Debtmaggedon vs. the Robot Utopia” from Caleb Crain’s blog Steamboats Are Ruining Everything. A taste of the brilliance:

You remember the robot utopia. You imagined it when you were in fifth grade, and your juvenile mind first seized with rapture upon the idea of intelligent machines that would perform dull, repetitive tasks yet demand nothing for themselves. In the future, you foresaw, robots would do more and more, and humans less and less. There would be no need for humans to endanger themselves in coal mines or bore themselves on assembly lines. A few people would always be needed to repair and build the robots, and this drudgery of robot supervision would have to be rewarded somehow, but someday robots would surely make wealth so abundant that most people wouldn’t need to work and would be free merely to enjoy and cultivate themselves—by, say, hunting in the morning, fishing in the afternoon, and doing literary criticism after dinner.

Your fifth-grade self was wrong, of course. Robots aren’t altruistic beings; they’re capital investments; and though robots may not ask to be paid, their owners demand a return on their investment. We now live in the robot utopia, which isn’t one.

Thanks in large part to computerized mechanization, manufacturing productivity in the past century has increased many times over. Standards of living are higher than they ever were, but we no longer need as many humans to work as we once did. Perhaps not coincidentally, human wages, in America at least, have stagnated since the 1970s. If humans made no more money in the past four decades, where did the wealth created by the higher productivity go? Toward robot wages, as it were. The owners of the robots took the money—that is, the capitalists.

Any fifth-grader can see where this leads. At some point society has to choose. Either society accepts the robots’ gift as a general one, and redistributes the wealth that the robots inadvertently concentrate, or society allows the robots to become the exclusive tools of an ever-shrinking elite, increasingly resented, in confused fashion, by the people whom the robots have displaced.

[paragraphing added]

The idea of “robot wages” collected by capitalists is brilliant, and I’m disappointed I’d never thought of it quite that way.

This is all similar to something I went around saying for a couple of years. “You know what’s wrong with capitalism? Robots, that’s what.” Why aren’t robots making our lives easier? The typical pro-capitalist response would be something about productivity increases — we’re getting more stuff. Much more. It’s everywhere. Between cheap labor and automated labor, those in privileged societies/classes are veritably are piled with crap. But “more stuff” isn’t making our lives significantly better in the short term, and it’s killing our habitat.

A sane economy would take benefits accrued from productivity increases of all kinds and parlay them into generalized gains.

I don’t know why we’d expect capitalism not to disappoint in this regard. After all, we were also promised jet packs.