The End of Employment – Eternal 20%+ Unemployment

Theses are some inconclusive thoughts I’ve been having lately, not a manifesto. They are somewhat re-inspired by Francine Hardaway’s recent write-up on the subject.

Industrial efficiencies are increasing exponentially, and are rising much faster than human productivity. It is now economically beneficial for factories in China to replace laborers with machines and computers, even when the workers are paid only dollars a day. This mirrors the job stagnation in the United States, where companies are finding they do not need as many employees as they once did, and competition for jobs requiring less skill overwhelms diminishing openings.

In the radical future, goods will be manufactured cheaply in our homes and neighborhoods. Computers will drive, design, harvest, and manage resources, even improve themselves, better than humans could. The need for “less skilled” labor will evaporate rapidly as we become both masters and slaves of terrifyingly efficient technology. We will have the real possibility of every human living for 500 years almost entirely supported by machines that can cater to our every need. Depending on your constitution, that could sound like paradise or hell – but we are already partially there and the next 50 years will be an era of staggering change in that direction.  The other possibility is continuing on the trend we are now, where a large portion of our population is becoming less employable and wealth is becoming unhealthily concentrated.

There are a few shorter term consequences to the wane of lesser skilled jobs:

1. The demand for unskilled labor has plummeted such that it greatly undershoots the supply — now and forever. We must learn to deal with the significant portion of the population that will always be unemployable in anything other than unskilled labor due to a lack of training, education, intelligence, discipline, interest, or other reason. There will be no recovery in jobs for these people, and while 20%+ employment could become the norm, it will exceed 50% for this group. Those exact numbers are arbitrary, but I think they are in the ballpark.

2. With less need to pay employees while generating wealth, that wealth increasingly flows to the few who can exploit these new technologies and efficiencies – the managers and investors in companies. A very small team can now design, produce, and distribute almost any product, and should that product be successful, most of the profits will go to that small team and their investors instead of being widely dispersed to factory workers, store owners, distributors, salespeople, and other shrinking economic actors.

3. Employment is declining as the primary distributor of wealth to support the middle class, and thereby the consumer economy. Employment really only served that purpose for the seventy or so years of manual-based industrial expansion, and there is no reason to expect it will happen again. We’ve all heard the story of Henry Ford generously paying his workers so they could one day afford his cars. Every year that goes by, he would need fewer and fewer workers to run his factories, and we could hardly expect companies to endlessly employ people they do not need.

What can we do? Truthfully, I have no solution to prevent the world from falling back into a medieval dichotomy of oligarchs and the economically detached masses. Here’s a few non-conclusive thoughts:

Education

It is to everyone’s benefit to bring as many people as possible into the skilled labor pool. Heavy investment in education is a no brainer. Unfortunately, simply increasing funding is not the answer – we already invest a lot in education by world standards and are still failing.

Taxes

In the past, generating wealth required heavy investment in people, and we could expect some of that wealth to trickle down to employees. While generating wealth still requires people, it now requires many fewer and therefore much less distribution of that wealth. Without employment, the only way to ensure our society isn’t undermined by poor, unemployed, dissatisfied masses, and to maintain the middle class necessary to drive our economy, is to tax the wealth and somehow make sure there is some proportional benefit to everyone.

Distribution of Wealth

Somehow we need to make sure we don’t have starving or unnecessarily sick people living in the streets, and instead have strong happy societies. In any implementation, this inherently involves a transfer of wealth from those who generate it to those who can not – “conservatives” must learn to face this unpleasant fact – the recent short-lived phenomenon of a job-based middle class is fading.

We could directly feed, house, treat, and clothe those who can not work, however that approach has the fundamental problem of undermining basic societal bonds and incentives. There is a perverse incentive to avoid self-sufficiency and economic entanglement. And how do we decide who gets subsidies? If some is not working, is it because they can’t or would prefer to live on the dole? When you try to transfer wealth to the unskilled, it’s often the skilled who exploit the system. Whether or not to help those who don’t help themselves depends on whether they can’t or won’t. This false distinction is fundamental to the battle between so-called conservatives and liberals in America. The distinction is false because both groups exist along a broad scale, but it is extremely difficult to know where someone lies and how much subsidy they should receive.

We can also increase government spending, but that always turns into a bureaucratic nightmare of inefficiency and corruption.

Another option might be to simply tax and distribute a portion of wealth evenly regardless of need, much as the conservative Sarah Palin territory Alaska and the United Arab Emirates do with their oil wealth. This is a clear, simple, fair distribution of wealth. Because of it’s fairness and lack of social engineering, it is less likely to undermine market economic incentives to work. You might argue it’s unfair to those who generate the wealth, but ultimately more wealth may be generated from a society with money to spend and the world will be a happier, more stable place for the rich to live in.

Relax

As a society, we are rapidly approaching a point where we could all be healthy and happy if we can find a way to marshall our resources. That’s a good thing. This is not a zero-sum game. Somehow, we need to find a new way for everyone to benefit from and contribute to economic growth, because we do not have the need for 6 billion employees.

 

US Debt Should Be Downgraded – Rip Off This Band-aid

Does anyone remember what caused the financial crises a few years ago? Basically, junk debt was sold as high quality debt largely because rating agencies didn’t do their job, and when the emptiness of that debt became apparent, enormous wealth evaporated.

This sounds familiar in the current crises of US fiscal policy. The definition of a AAA rating on bonds is that they have “virtually no risk of default.”  Does anyone really believe this is true of the US? Debt is approaching 100% of GDP from under 40% just 20 years ago, influential political groups are threatening to choose default over losing their political battles, and our entitlement programs are outrageously unsustainable. While the US has a good chance of recovering from these threats, there is certainly a significant risk of eventual default, and getting away with lying to world markets about this default is a dangerous game.

US debt should be downgraded so that markets can adjust. Piling false credibility on a shaky foundation makes collapse both more likely and more catastrophic. Downgrading US debt now would be painful, but beneficial in the long run. It would force more reasonable diversification of the world’s wealth among commodities and debt markets, and it would force major changes in the US fiscal policy which ultimately could earn a legitimate and sound AAA rating.

I predict the current rating will hold, but purely for political and self-interested reasons of the rating agencies – just as they did with real estate debt in the first decade of this century. When there is no consequence for taking bad risks, markets fail to account for them and debtors fail to to adjust. Ratings exist to measure and communicate risk, not to preserve wealth and stabilize markets. We already saw what happens when they are used for that purpose.

The US should absolutely not default, however S&P and Moody’s should downgrade America’s debt.

 

Does craigslist have a Case?

Regardless of your opinion of the ethics involved in either party’s conduct, craigslist’s case against Ebay seems to be based entirely on the fact that they feel betrayed.  There is no doubt in my mind that Ebay behaved poorly and manipulatively gained the trust of Craig Newmark and Jim Buckmaster and has been trying to stab them in the back ever since.  However that does not mean that Ebay will lose any rights they may have to acquire more of craigslist.  I’m going to attempt a layman’s analysis.  You guessed it, I’m not a lawyer – I just play one in my blog.

craigslist’s claim is that Ebay backed a cement truck over the feel-good intentions they layed out during “negotiations.”  I put “negotiations” in quotes because it appears as if craigslist had no say in what actually happened, despite the appearance that they were an actor in the talks between the former shareholder and Ebay.  This is apparent because Ebay ultimately purchased an option without the involvement of craigslist, and craigslist executed the option without objection.  At that time, craigslist was not yet comfortable with the acquisition.  Why then would they have gone along with the purchase if they actually had veto rights over the transaction?  It appears that while the former shareholder and craigslist made efforts to have an agreeable sale, that was really just out of the generosity of the former shareholder – a generosity which ultimately ran out when a multi-million dollar check was handed to him.

If I’m wrong and craigslist grudgingly went along with the sale, even with the power to stop it, then Craig and Jim were seriously hoodwinked by far more savvy professional business people.  Perhaps at the time Craig and Jim did not understand how companies, and public companies in particular, work.  Board members and executives turn over rapidly and are pushed around and out by demanding shareholders.  If the people running the show are turning down money because they made some vague oral promises to some company they invested in, shareholders will apply pressure and those executives will change course or be disposed of.  Any feel-good vibe does not mean a thing when transacting with a large company, and you believe any such vague promise at your peril.

Warren Buffet likes the saying “only invest in companies that an idiot could run, because eventually one will.”  A corollary might be, only enter into business transactions where it is still to your advantage if your partner becomes your adversary.

The craigslist motion is an interesting read, but it feels more like an appeal to good taste than a legal proceeding.  Based on that feeling, and a lack of substantial concrete violations, my intuition is that they have a weak legal case and are therefore making their case to the public.  They will succeed in temporarily getting Ebay off the board, stopping the deceptive advertising, recovering some damages, and perhaps limiting some shareholder request rights, but any economically valuable shareholder rights are unlikely to be terminated.  My sense is some powerful shareholder options are the real target here, but the private nature of the companies leave that unclear.  I have positive, but mixed feelings about craigslist and the way it is operated, but like Craig and Jim, I think an Ebay acquisition would be detrimental to the public.  Unfortunately, unless there are antitrust issues (which are extremely difficult to prove,) public interest is not the basis for decisions in these sorts of civil proceedings.

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