Friday, August 19, 2011

Individuals Have Unlimited Wants and Desires and That Prevents Persistent Unemployment

Sam Harris writes on his blog, following a post titled "How Rich is Too Rich?"

"Specifically, I would be interested to know if any economist has an economic argument against the following ideas: 

Future breakthroughs in technology (e.g. robotics, nanotech) could eliminate millions of jobs very quickly, creating a serious problem of unemployment.

I am not suggesting that this is likely in the near term. I am saying that it is possible. Many people believe that there is some fundamental principle of economics (even of physics) that rules this out. Drawing a lesson from the information revolution, many readers have written to inform me that the birth of the computer led to new industries and new jobs (thank you). Needless to say, I do not disagree. I am suggesting, however, that there is nothing that rules out the possibility of vastly more powerful technologies creating a net loss of available jobs and concentrating wealth to an unprecedented degree."

Here's the response I submitted:

1. Yes, there IS a fundamental principle of economics that rules out a serious persistent problem of unemployment: 

The first principle of economics is that we live in a world of scarcity, and the second principle of economics is that individuals have unlimited wants and desires. 

Therefore, the second principle of economics: unlimited wants and desires, rules out any long-term problems of unemployment.

(I shouldn't pass up an opportunity here to invoke Thomas Sowell and point out that the first principle of politics is to ignore the first principle of economics.)

2. What if we were having this discussion in the 1800s, when the U.S. was an agricultural-based economy, and you were suggesting that “future breakthroughs in farm technology (e.g. tractors, electricity, combines, the cotton gin, automatic milking machinery, computers, GPS, hybrid seeds, irrigation systems, herbicides, pesticides, etc.) could eliminate millions of jobs very quickly, creating a serious problem of unemployment.” 

With hindsight, we know that didn’t happen, and all of the American workers who would have continued to work on farms without those technological, labor-saving inventions found gainful employment elsewhere in different or new sectors of the U.S. economy like manufacturing, health care, education, business, retail, computers, transportation, etc. 

For example, 90% of Americans in 1790 were working in agriculture, and now that percentage is down below 2% (see chart above), even though we have greater employment and output overall now than in 1790.  The technological breakthroughs and advances reduced the share of workers in farming, but certainly didn’t create long-term problems of unemployment.  Thanks to “unlimited wants and desires,” Americans found gainful employment in industries besides farming.

Update: If there were examples in the past where farm technology eliminated millions of jobs very quickly, it certainly wasn't a long-term, persistent problem of unemployment

27 Comments:

At 8/19/2011 8:42 PM, Blogger Don said...

One element would seem to be the existence of status consciousness and perceived inequality. There is envy if someone believes that someone else has more material goods or power than he does and there is a desire to actually achieve the reverse of that situation to his advantage.

Regards, Don

 
At 8/19/2011 8:57 PM, OpenID Sprewell said...

A recession happens precisely when breakthroughs in tech are eliminating jobs quickly- for example, all the radio and publishing jobs that are now being lost- but we're still figuring out how to use that tech to do new things and create new jobs, ie podcasting and blogging still make little money. There will be a whole host of information jobs in the coming decades, most just don't know how to monetize them yet. I've talked up a solution, micropayments, but unfortunately most are too stupid to see the value there. As long as that's the case, information job growth will continue to be anemic, which is the correct result if the techies are too dumb to see the solution. I'll note that Mark is answering a different question from the original post. Harris specifically talked about a situation where jobs are eliminated "very quickly," whereas Mark changes the subject to the "long-term problem of unemployment." I agree that over the medium-term we're better off with more productivity because of these changes, but over the short-term it can cause a lot of problems, mostly because our horribly broken education system is completely clueless about retraining workers to enter new fields.

 
At 8/19/2011 9:10 PM, Blogger wintercow20 said...

My few cents:

(1) I have a mental picture of these technologies replacing 100% of the manufacturing and extraction jobs in the US - so, would an acceleration of an existing trend, for only 10-15% of the working population, be devastating?

(2) Suppose the technology replaces more than just manufacturing jobs (e.g. driverless cabs) wouldn't we want to consider that such advances would make consuming almost any "necessity" incredibly rich?

(3)I'd argue that right now that the unemployment numbers don't mean much. In my head, I think of "working capacity" as how much each and every one of us could produce today, given today's knowledge and resources and technologies. And my bet is that our current employment and output levels put this capacity at somewhere south of 25%. My point is that if you looked at the world we are in today and compared it to 100 years ago, it seems as if our inquisitor has had his question answered, in part.

(4) In the world he envisions, our inquisitor assumes that labor income is all that matters. I don't see why such techno-transitions imply that all people who end up out of work will find themselves as capital-less as well. In the event there is such a problem, I imagine a mildly unobjectionable public policy would be for public purchases of various patent rights and stock shares (partially modeled on the ideas of Kremer) and then place those in trust for the "unemployed."

 
At 8/19/2011 9:30 PM, Blogger Larry G said...

".... our horribly broken education system is completely clueless about retraining workers to enter new fields"

it's worse than that. in many high schools in the US, Only 1/3 of kids who graduate meet international standards for proficiency in science and math even though the dumbed-down state test claim otherwise.

a significant number cannot qualify for anything but the lowest level jobs in the Armed forces.

The higher you score on the armed forces test, the more job opportunities are available to you.

the same is true in the non-military job market....

"re-training" when you don't have the basics is even harder.

and the more folks we have in this condition - the more it's going to cost us in entitlements like MedicAid, food stamps, subsidized school lunches, etc...

 
At 8/19/2011 10:41 PM, Blogger Jet Beagle said...

sprewell: "our horribly broken education system is completely clueless about retraining workers to enter new fields"

If you are referring to the U.S. public education system for children, perhaps you are correct. But both private and public post-secondary vocational schools seem to be doing a decent job of preparing future workers.


IMO. the only reason public post-secondary schools are successful is because they face stiff competition from private vocational schools.

 
At 8/20/2011 2:13 AM, Blogger Ron H. said...

"and the more folks we have in this condition - the more it's going to cost us in entitlements like MedicAid, food stamps, subsidized school lunches, etc..."

So, what statist solution do you suggest?

 
At 8/20/2011 2:35 AM, Blogger PeakTrader said...

Many people actually prefer a society where everyone has a lower standard of living with less inequality than a higher standard of living with more inequality.

Punishing the rich is more important to them than helping the poor.

 
At 8/20/2011 4:41 AM, Blogger Larry G said...

" So, what statist solution do you suggest?"

Clearly, we should shut the public schools down and have private schools.

And if you can't pay for them then don't have kids.

 
At 8/20/2011 5:24 AM, Blogger Bret said...

Carpe Diem wrote: "...the second principle of economics is that individuals have unlimited wants and desires. ..."

While that paradigm has worked for all practical purposes thus far, we are not infinite entities and therefore do not have unlimited wants. There're only so many hours to consume so much of so high a quality before our wants could become sated.

It's hard to know when the unlimited want paradigm will break down.

 
At 8/20/2011 7:26 AM, Blogger Bruce Hall said...

Oh, really? Doesn't seem to work that way in England.

http://journalstar.com/news/opinion/editorial/columnists/article_4ac6ccbf-4999-5656-9c59-d3e807e01d04.html

 
At 8/20/2011 8:26 AM, Blogger Larry G said...

that's cuz they coddle the buggers over there...

 
At 8/20/2011 8:59 AM, Blogger juandos said...

Sam Harris, scare monger or total and complete hypocritical fool?

Sam Harris' posting begs a thorough fisking...

Note this line from Sam's whine: "Many conservatives pretend not to find this embarrassing"...

Embarrassing?!?! How about 'hypocritical'?

"Conservatives view taxation as a species of theft—and to raise taxes, on anyone for any reason, is simply to steal more"...

What else can one call it when the government extorts from the productive in order to pander to the parasitic?

 
At 8/20/2011 12:02 PM, Blogger Ron H. said...

Larry, this is not bad! You are doing much better, even though I suspect you are attempting to use sarcasm. Keep up the good work.

"Clearly, we should shut the public schools down and have private schools."

This would be an ideal solution, as private schools would provide the type and amount of education parents and students actually want, rather than what various groups in government believe they should get, in a one-size-fits-all package.

A good first step toward that end would be to attach current taxpayer funding to each eligible student, rather than to the school closest to their physical address.


"And if you can't pay for them then don't have kids."

I know you don't really intend to tell other people how to manage their lives, so maybe the wording could be changed slightly to convey the same message in a gentler way. Do you think this might be better?

"If you can't afford to have kids, it's not likely that anyone else is interested in paying for them, so please don't expect them to."

This doesn't presume to interfer in peoples personal decisions, but reminds them that everyone is responsible for the consequences of their own actions.

 
At 8/20/2011 12:12 PM, Blogger Larry G said...

...personal decisions ...with public consequences....

if you can't afford to have kids.. then don't expect others to pay for them....

We have way too many people who think a "personal" decision entitles them to money from others to pay for their kids needs.

A full third of Medicaid funding is for birth deliveries and health care for the kids.

SCHIPs is another govt program for kids whose parents can't afford them.

Then we have food stamps and subsidized school lunches...

plus housing vouchers....

to say nothing of the 10K per year education costs that others pay.

 
At 8/20/2011 1:34 PM, Blogger FSM_47 said...

'The times they are a-changing." I built a career as an Enroute Air Traffic Controller. This is a job that didn't exist prior to 1936 and only began to develop as a career in the 1950's. When I retired we were using technology that had only existed in thought when I began my career.

 
At 8/20/2011 2:18 PM, Blogger juandos said...

Apparently only government is able to drive persistent unemployment...

Consider what Dan Mitchell has to say...

 
At 8/20/2011 3:16 PM, Blogger Larry G said...

DOD has 1.4 million active military and 750,000 civilian.

if we cut DOD's budget in half - (as some Libertarians advocate) - we could put about a million more people out of work and add another percent to the unemployment roles.

Of course since we know that the government does not create jobs then we ought not count layoffs as jobs lost, but rather deficit reduction, eh?

 
At 8/20/2011 3:58 PM, Blogger juandos said...

"if we cut DOD's budget in half - (as some Libertarians advocate)..."

Are these alledged libertarians you're refering to also asking that ALL of LBJ's pandering to parasites programs be eliminated also?

 
At 8/20/2011 4:01 PM, Blogger Ron H. said...

"We have way too many people who think a "personal" decision entitles them to money from others to pay for their kids needs."

That's because there are way too many people who agree with them, as evidenced by the existence of the programs you mention in your comment.

This certainly sounds like a complaint about your money being spent by government on those who you don't think deserve it. This is good stuff, Larry, if this is what you really mean.

It's also possible that I misread you, and what you are really recommending is means testing so people can demonstrate their ability to pay for children, before the government will grant them permission to have any.

 
At 8/20/2011 5:01 PM, Blogger Ron H. said...

"if we cut DOD's budget in half - (as some Libertarians advocate) - we could put about a million more people out of work and add another percent to the unemployment roles.

Of course since we know that the government does not create jobs then we ought not count layoffs as jobs lost, but rather deficit reduction, eh?
"

Oh, darn it. You were doing so well, now you're back to this kind of nonsense.

The implication is that taxpayers should continue to pay for public employees that aren't needed, solely to keep them from being unemployed.

Would you suggest that a private company keep unneeded workers for that reason?

For public employees, at least, the worst case is that taxpayers would continue to pay for those who are not needed while they are unemployed.

 
At 8/20/2011 6:03 PM, Blogger Larry G said...

well you know.... DOD is bigger than all the other govt departments put together and it's budget is close to what we pay for Medicare Part B and MedicAid.

even if you cut DOD in half.. there will still be almost a million employees...

but you'd STILL have an annual deficit of a trillion dollars.

Ron Paul has a 5 year balanced budget proposal.

The thing is - at the end of the 5 years when we reach balance, we've still got a 14 trillion debt plus whatever got tacked on to it in the 5 years.

so you'd have to cut even more than the 1.5 trillion deficit.

Even if you cut 2 trillion it would take another decade to have zero debt and no deficit.

sounds pretty impossible, eh?

 
At 8/20/2011 6:56 PM, Blogger Craig said...

And if you can't pay for them then don't have kids.

In today's society, that is a shocking statement, indeed. You should see the looks of outrage I get when I suggest that, since insurance exists to cover unforeseen events, it should not cover maternity care and delivery.

And don't even get me started on the costs of educating the little buggers.

 
At 8/20/2011 10:20 PM, Blogger Brendan said...

To Don (first comment):
Are you suggesting that people are soley motivated by envy and 'keeping up with the Jone's"? For some this may be the case partially or wholly but I suspect this is not the primary motivator for most people. If you lived in a Crusoe situation, would you try to improve your situation or would bare subsistence be enough? There are no 'Jones' to around to envy so why try?

It's not the level that is the motivator but the desire to improve one's economic situation regardless of the relative level of comfort. Ask Gates or Buffet, they could have retired in total luxury years ago.

 
At 8/21/2011 9:44 AM, Blogger juandos said...

"well you know.... DOD is bigger than all the other govt departments put together and it's budget is close to what we pay for Medicare Part B and MedicAid"...

Well Larry G you sure do like that fairy tale...

 
At 8/21/2011 11:07 AM, Blogger Scott said...

Is it possible that the Great Depression was convergence point for shaking out unemployment resulting from transitioning from an agrarian economy to an industrial one? I completely agree that, in the long run, technology will not result in persistent unemployment. But in the short term, the transition will have major implications on employment. It takes time to retrain employees and to update support structures. Efforts to artificially increase the rate of technology acquisition by society only exacerbate short term employment effects. An economy is more naturally capable of absorbing the shocks of technological shifts if it is left to do so unaided/unhindered by outside forces. But even then, a massive convergence is inevitable whenever there is a massive technological shift. It appears we are in the middle of one such convergence today.

 
At 8/21/2011 12:25 PM, Blogger Larry G said...

here's the reality:

DOD = $689 billion
Medicare/MedicAid = 800 billion

SS/Medicare Part A - funded from FICA not income tax = 701 billion.

http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2007.png

The problem continues to be that folks confuse FICA Revenues with income tax revenues when discussing the budget.

The income tax generates about 1.3 trillion while FICA generates 865 trillion but that 865 trillion is totally dedicated to SS/Medicare Part A and cannot buy down the deficit on the general revenues side.

cutting SS / Medicare Part A benefits won't have any effect on the CURRENT general revenues budget. In fact if you cut SS/Medicare Part A benefits, you'll just end up with FICA generating a surplus again to add to the 2.1 trillion surplus it already has generated.

Ron Paul's 5 year plan or either of the two deficit commission proposals - ALL 3 recognize that FICA-funded SS does not contribute in any substantial way right now to the CURRENT budget and it is the current budget that has the 1.5 trillion ANNUAL deficit and the 14+ trillion debt.

so the reality here is that even if you could (politically) ZERO Medicare Part B and Medicaid, you'd STILL have a 800 trillion deficit.

the only way to really balance the budget is going to be to cut - across the board - on the income tax/general revenues budget about 40% including the military AND you're going to have to increase taxes if you want to pay down the 14 trillion debt.

and again, Ron Paul's proposal addressed that reality also.

 
At 8/21/2011 2:11 PM, Blogger Tim Schilling said...

The social structure outlined in the post was the background for a great science fiction short-story titled

Little Black Bag
http://en.wikipedia.org/wiki/The_Little_Black_Bag

It always makes an interesting starting point when discussing technological unemployment. How far can it go? And what do you do about those members of society who are displaced to keep them content and feeling like they're useful.

 

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