Socialism Is Inevitable

[Dragon]

The problem with the "where are the jobs going to come from?" question is that the answer is simply unknowable. If you'd asked that question 50 years ago, and you said "The information technology industry, an industry where people are going to order their food off the Internet," people would have looked at you like you were nuts.

I don't mind an answer that will make people look at me as if I were nuts. I want an answer that makes logical sense.

Let's look at it another way besides the agriculture/manufacturing/services division. All jobs exist to satisfy human needs or wants. Human needs or wants fall into only a few categories: necessities of life, tools, toys, and entertainment. (In the "toys and entertainment" category fall all those frivolous things that have allowed continued employment since producing necessities and tools became highly efficient.)

We already know that we can produce necessities and tools without full employment. Can we do that with toys and entertainment as well?

As society has become richer, we are able to produce more with less, i.e. greater outputs for lesser inputs. The evolution of the economy from an agarian to industrial to services is merely a manifestation of humanity harnessing greater outputs from lesser inputs through specialization. As long as this continues in the future - and there is no reason why it shouldn't - then we will continue to grow richer.

In terms of technology and the production of wealth, that's so, but in terms of distribution of wealth -- which is just as important as production -- it may not be.

What I mean is this. Before industrialization, there was a great deal of potential demand for manufactured goods. It was not actual, manifest demand because manufactured goods were too expensive and scarce to allow the kind of luxury in them that we now enjoy. Since we could not automate the farms without improved methods of industrial production, the automation of the farms merely freed up a labor pool that could be used in conjunction with those improved methods to lower the price of manufactured goods and manifest that potential demand.

Something similar happened with respect to services. We could not have automated manufacturing without developing computer technology that increased the availability of services which could not previously have been delivered. There was an untapped/untappable potential demand for these services which allowed the service sector to expand to take up the slack.

Any jobs that people do will be ones that meet a need or want and that cannot be met profitably by automation. It seems to me that only two areas of service work absolutely meet this criterion: work that involves human-to-human contact that would seriously suffer if the customer isn't dealing with another person, and work that is so cheap it isn't worth automating even though that is entirely possible. (An example of the latter is fast-food service. Machines could certainly do this simple work, but they would cost enough that it is more cost effective to hire low-paid workers. An example of the former is prostitution.) With less lofty technology, we can add in the most advanced and difficult and talent-demanding work in art, science, and other creative professions; while I don't believe those should be absolutely excluded they are exempt in the near future.

Consider the work I'm doing now, writing articles, stories, and technical pieces for clients. There is software on the market right now that can do all of that. It can't write a novel or a poem, but there is no inherent reason why it could not be modified to do so eventually. The same is true of musical creativity, or art, or really anything else. Acting cannot yet be fully automated, but we are on the way there; already a lot of "extras" in a movie are replaced by computer animation. Anything in legal services except actual appearance by the lawyer in court can be automated -- legal assistants/paralegals and associate attorneys are on the way to extinction. A good bit of medicine can be automated.

Any future demands that cannot now be foreseen will still fall into one of those basic categories of non-automatable work: something that pays so little it isn't worth automating; something that involves human-to-human contact; or something highly demanding in terms of talent and skill for which the technology to automate it is extremely difficult to create.

I submit that there is an inherent ceiling on demand for high talent and skill services, and that human-contact services are mostly available for free from friends and family members. (Or for payment in return of the same services.) Since these will be the only remaining "good jobs" in a high-automation world, we will face the same distribution problems and the same intractable depression if we have no jobs or if most of us are low-paid menials.

As pertaining to the distribution of this wealth creation, that is an interesting question. One when looks at the global economy, one must understand that the world has experienced a seismic shock of unprecedented proportions, matched perhaps only by the opening of America in the 19th century. And that is the inclusion of China into the global economy. China has shifted cost curves down in an incredible way. This has benefited the global economy in aggregate, but the distribution of losses - there are always losers in the economy - has fallen heavily on the uneducated in the rich world as corporations have shifted low productivity activities offshore. This will not last forever, but Western societies must be careful in that while the brunt of the shift has fallen hardest on the lower socioeconomic classes, as China becomes richer and more educated, the pressure will start to be felt by the educated middle and upper classes.

I have a problem with this "wealth drained away to China" premise. It seems to me that the only jobs which have been lost to third-world countries are relatively low-skill manufacturing jobs, and these have been largely replaced by comparably-skilled service jobs. The problem has been that these service jobs were typically non-union, and government hostility to organized labor has made it difficult to change that status. (Manufacturing paid shit wages prior to the unionization of the workplace in the 1930s, too.) If you look at growth in per capita GDP over the last three decades, while it has slowed down compared to the four post-1940 decades it has certainly not stopped; U.S. per capita GDP is nearly double what it was in 1980. So we haven't actually lost any wealth to China or any other country. We have, rather, seen massive maldistribution of wealth here, and while outsourcing has played a part in that, by itself it could not have been the cause of it.

But what I'm playing with here is the idea that we will be able to satisfy all human needs and wants without much in the way of labor at all. The dirt-cheap foreign labor that is replacing expensive American labor could in fact be replaced by automation, and that would be cheaper than the expensive American labor but more expensive than the cheap foreign labor, which is why it's not done. I think those jobs would have been lost without outsourcing.

 

[Avorysuds]

Here is one of the innate flaws with socialism and why it will never work.

Socialism tries to extract greed from the equation. That is why it fails. Greed is in our nature, greed is in every single animals nature, so to deny greed by creating a structure controlled by few you get one of the worst kinds situations you would ever want greed in, power… True power, not “I have a lot of money and I’m a greedy dick power, real fucking “we kill you and your whole family and just call you an enemy of the Government/people” power. Bad people will always find their way to the top and burn the country down.

Greed is what makes humans great, we demand better products for a lower cost… That is what greed does for us, if we didn’t care for a better product at a better cost you would go bankrupt paying for a banana and believe it was perfectly fine… then you would die. Greed makes people stockpile in planning for the future. Greed is what makes people competitive, greed can be a great asset as it put us on top of the food chain.

Socialism is great on paper, it kills millions in real life.

 

[Dragon]

Here is one of the innate flaws with socialism and why it will never work.

Socialism tries to extract greed from the equation. That is why it fails.

I think I probably made a mistake with the title of this thread. It invites comments like this which have nothing to do with the thread topic.

 

[Avorysuds]

Here is one of the innate flaws with socialism and why it will never work.

Socialism tries to extract greed from the equation. That is why it fails.

I think I probably made a mistake with the title of this thread. It invites comments like this which have nothing to do with the thread topic.

Uhh ok.... You're right, let’s all just give up and agree with the OP that machines kill jobs and so we need socialism to pay people to be stupid and pay companies to not make better products.

The question I have for you "oh great one," is do we keep the job killing machines we have today or do we eliminate them and go back to living in caves so we can have 100% employment?

Who decides what machines and products are ok for the future in your crazy ass power hungry world?

 

[Dragon]

Uhh ok.... You're right, let’s all just give up and agree with the OP that machines kill jobs and so we need socialism to pay people to be stupid and pay companies to not make better products.

You don't have to do that. I would love to be wrong about this, in fact. I think that Toro, above, presented some ideas that made me think about this some more. But what you said in your last post isn't even addressing that premise; it's just giving us your own personal distaste for what you mean by socialism.

Which is why I think I probably made a mistake in the title. I should have titled this thread differently.

 

[Avorysuds]

Uhh ok.... You're right, let’s all just give up and agree with the OP that machines kill jobs and so we need socialism to pay people to be stupid and pay companies to not make better products.

You don't have to do that. I would love to be wrong about this, in fact. I think that Toro, above, presented some ideas that made me think about this some more. But what you said in your last post isn't even addressing that premise; it's just giving us your own personal distaste for what you mean by socialism.

Which is why I think I probably made a mistake in the title. I should have titled this thread differently.

This entire time Toro and I have done nothing but agree as far as I can tell.

I did not tell you my distaste for socialism, I told you why socialism won't produce what you claim it will, that in fact it has and always will end up destroying whatever country uses to much socialism if they don't dismantle it first.

You are more or less are arguing that being productive and creating tools to make a higher quality item/service will destroy a society, yet here we are a super power of the world… You then claim all societies need to become socialists in order to literally block productive people from being productive by taking their tools away so you can create 100% employment though taking us back to the dark ages.

Here is a interesting thought. We today deal with far more regulations and taxes than at any point in American history. Taxes come in many forms, inflation being a huge one… Printing of money that devalues the dollar being another, not just taxes on products. With all these rules, with all these bail-outs and stimulus (Bush/Obama) the question is a strange one… Why are we lingering on a depression? The closer to socialism we get the more benchmarks we fail to meet, the more the rich get rich and the poor get poor… I believe life expectancy is predicted to go down for the first time in our countries history, weird how all of that works huh?

 

[Flopper]

By the end of the century, world population is projected to increase three fold which means we need to create 3 times the number of jobs we have today. Automation in factories and farms are increasing worker productivity thus reducing the need for more workers. Only if we see very strong economic growth are there going to be enough jobs in tomorrow's world. If we don't create the jobs, there will certainly be increases in the size of welfare states.

 

[Samson]

By the end of the century, world population is projected to increase three fold which means we need to create 3 times the number of jobs we have today. Automation in factories and farms are increasing worker productivity thus reducing the need for more workers. Only if we see very strong economic growth are there going to be enough jobs in tomorrow's world. If we don't create the jobs, there will certainly be increases in the size of welfare states.

Or the surplus population will die.

Historically, I'm betting on it.

 

[Toro]

I don't mind an answer that will make people look at me as if I were nuts. I want an answer that makes logical sense.

The answer that makes logical sense is "We don't know." We can't know. Humans are very poor at predicting the future.

Let's look at it another way besides the agriculture/manufacturing/services division. All jobs exist to satisfy human needs or wants. Human needs or wants fall into only a few categories: necessities of life, tools, toys, and entertainment. (In the "toys and entertainment" category fall all those frivolous things that have allowed continued employment since producing necessities and tools became highly efficient.)

We already know that we can produce necessities and tools without full employment. Can we do that with toys and entertainment as well?

The truth is, almost everything we produce is above the level of necessity. You don't need to eat steak and drink wine to survive, for example. You don't need 2000 square feet of living space either. But these are things we want and desire.

I have studied economics a great deal over the years, but the best definition of economics I have ever heard came from the first class I ever took in economics - my grade 11 high school class. My teacher defined economics as "The study of the distribution of scarce resources to meet unlimited wants." I would also include "and needs" at the end of that sentence, but my teacher did not, arguing that needs are, for the most part met. I would disagree on the technical definition of whether or not "needs" should be included in that definition, but I would generally agree with his sentiment - that for the most part, we are talking about what people want, not what people truly need to survive.

As society has become richer, we are able to produce more with less, i.e. greater outputs for lesser inputs. The evolution of the economy from an agarian to industrial to services is merely a manifestation of humanity harnessing greater outputs from lesser inputs through specialization. As long as this continues in the future - and there is no reason why it shouldn't - then we will continue to grow richer.

In terms of technology and the production of wealth, that's so, but in terms of distribution of wealth -- which is just as important as production -- it may not be.

Yes, I agree. In a closed economy with perfect competition, gains will accrue based on productivity. But America is not a closed economy so there could be a net negative affect. The world is a closed economy, so gains accrue as productivity grows. However, because it is not a perfectly competitive economy, and because those areas which have been accruing gains at a faster rate are even less open internally, gains may be skewed.

But ultimately, I think Ricardo is correct.

What I mean is this. Before industrialization, there was a great deal of potential demand for manufactured goods. It was not actual, manifest demand because manufactured goods were too expensive and scarce to allow the kind of luxury in them that we now enjoy. Since we could not automate the farms without improved methods of industrial production, the automation of the farms merely freed up a labor pool that could be used in conjunction with those improved methods to lower the price of manufactured goods and manifest that potential demand.

Something similar happened with respect to services. We could not have automated manufacturing without developing computer technology that increased the availability of services which could not previously have been delivered. There was an untapped/untappable potential demand for these services which allowed the service sector to expand to take up the slack.

But that's also true of the future as well. Nobody could foresee potential demand of new products in the past and no one can foresee potential demand of new products in the future.

I submit that there is an inherent ceiling on demand for high talent and skill services, and that human-contact services are mostly available for free from friends and family members. (Or for payment in return of the same services.) Since these will be the only remaining "good jobs" in a high-automation world, we will face the same distribution problems and the same intractable depression if we have no jobs or if most of us are low-paid menials.

Ultimately, people are paid based on productivity. (As an aside, I mentioned China earlier because the downward shift in cost curves because of China are separate from this question, and has probably skewed the payoffs that otherwise accrue in the capital/labour trade-off. For example, even though productivity has grown over the past 20 years, capital has captured the majority of these gains whereas labour has captured a disproportionately low level of gains. A big part of that is China, but others have argued it has at least something to do with legislation that has been passed favouring capital at the expense of labour during this time.) As an individual's productivity rises, they will be paid more. This has been the case over the past four decades as those with more education have captured the incremental gains from economic growth. Thus, the answer is to increase education which increases productivity, i.e. more education in the sciences and math and less in the arts.

I have a problem with this "wealth drained away to China" premise. It seems to me that the only jobs which have been lost to third-world countries are relatively low-skill manufacturing jobs, and these have been largely replaced by comparably-skilled service jobs. The problem has been that these service jobs were typically non-union, and government hostility to organized labor has made it difficult to change that status. (Manufacturing paid shit wages prior to the unionization of the workplace in the 1930s, too.) If you look at growth in per capita GDP over the last three decades, while it has slowed down compared to the four post-1940 decades it has certainly not stopped; U.S. per capita GDP is nearly double what it was in 1980. So we haven't actually lost any wealth to China or any other country. We have, rather, seen massive maldistribution of wealth here, and while outsourcing has played a part in that, by itself it could not have been the cause of it.

I think that's a fair point, and I do not think offshoring to China is the only reason. But it is a substantial one.

There is a fair amount of empirical research looking at the causes of rising inequality, which has been occurring for 30-40 years. The conclusion is that the primary cause has been due to the advent of technology, and that gains have accrued to those who have been best able to manipulate the new technology. If you are a typical worker for Google, for instance, you are paid more than a typical worker for Sysco. (Not "Cisco.") Why? Because the productivity offered by Google is greater than someone packing boxes in a warehouse to ship food to restaurants.

But what I'm playing with here is the idea that we will be able to satisfy all human needs and wants without much in the way of labor at all. The dirt-cheap foreign labor that is replacing expensive American labor could in fact be replaced by automation, and that would be cheaper than the expensive American labor but more expensive than the cheap foreign labor, which is why it's not done. I think those jobs would have been lost without outsourcing.

This relates to what we discussed above - generally, less productive jobs that can be substituted for capital, will. That has been the case for the past 200 years, and is a big reason why humanity has experienced economic growth unprecedented in human history over the past two centuries. So is there an ultimate end game when automation replaces all labour? I doubt it, for the reason pertaining to the definition proffered by my grade 11 economics teacher - because humanity has unlimited wants. And because it is impossible to automate for unknown future demand, there will always be labour to create products to meet unknown future demand.

 

[Wiseacre]

Seems odd to see an argument for socialism where prosperity is generated. I know of no such instance where that has occurred.

 

[Dragon]

I did not tell you my distaste for socialism, I told you why socialism won't produce what you claim it will, that in fact it has and always will end up destroying whatever country uses to much socialism if they don't dismantle it first.

This assumes a definition of "socialism" which I haven't given. Which is another indication that I may have made a mistake in titling this thread.

Look, forget the word "socialism," please. What I'm saying is that a system based on private ownership of the means of production with most people working for the owner class will only be sustainable for as long as full employment is required to produce wealth -- and then only if we have institutions such as labor unions and protection of workers' rights to counter the inherent tendency of a capitalist economy to depress wages. If we can produce all the wealth that the market demands -- all the crops, goods, and services anyone wants or needs and can pay for -- without full employment, then we will do so, and another means of distributing wealth will be required to replace and/or supplement pay for work. I used the word "socialism" to describe such a replacement economy, but I should either have used a different word or precisely defined what I mean.

You are more or less are arguing that being productive and creating tools to make a higher quality item/service will destroy a society

No, I am not. I am arguing that technological advances which allow the production of wealth without labor will destroy the basis of our economy. Translating that into "being productive and creating tools" is your own statement, not mine, and depends on an ideological position which I think is highly questionable.

 

[Dragon]

The truth is, almost everything we produce is above the level of necessity. You don't need to eat steak and drink wine to survive, for example. You don't need 2000 square feet of living space either. But these are things we want and desire.

True, but that doesn't really touch on the subject here. Let me go on, because you say something in the next paragraph that does, and that I think is a very common error.

I have studied economics a great deal over the years, but the best definition of economics I have ever heard came from the first class I ever took in economics - my grade 11 high school class. My teacher defined economics as "The study of the distribution of scarce resources to meet unlimited wants." I would also include "and needs" at the end of that sentence, but my teacher did not, arguing that needs are, for the most part met. I would disagree on the technical definition of whether or not "needs" should be included in that definition, but I would generally agree with his sentiment - that for the most part, we are talking about what people want, not what people truly need to survive.

You passed over, however, the one word that renders your 11th grade teacher's definition not a good one (IMO), and it is not the exclusion of "needs." It is "unlimited."

Wants are not unlimited. It's quite possible for a person to reach saturation point and not desire anything more in the way of consumer goods. This seldom happens among people of modest means, but it does happen among very wealthy people. In fact, that is what renders so-called "supply side economics" invalid.

The problem with supply side economics is that it ignores the key variable of demand, or (more precisely) assumes demand to be unlimited or equal to production in accordance with Say's Law. And that would actually be the case if desires were unlimited; as long as wealth is being produced, someone has the money to buy what is being produced. The problem, however, is that desire is not unlimited, and the people who hold the money in a highly-unequal society are disproportionately those who desires for consumer goods have been satiated. Demand is desire to buy plus ability to buy; when wealth is maldistributed, those who have the desire don't have the ability, and those who have the ability don't have the desire. And this may be considered a definition of "maldistribution" in economic terms.

Which brings me back to the question of creating more jobs as current jobs are automated. If desires were unlimited, there would be an unlimited potential of new jobs to meet new demand. But since desires are not unlimited, this may not be the case. At some point, with the ability to produce all of the goods and services that anyone wants or can pay for without full employment, we may reach a point where no new jobs are created because there is no demand for the goods or services to be produced by those jobs.

Yes, I agree. In a closed economy with perfect competition, gains will accrue based on productivity. But America is not a closed economy so there could be a net negative affect. The world is a closed economy, so gains accrue as productivity grows. However, because it is not a perfectly competitive economy, and because those areas which have been accruing gains at a faster rate are even less open internally, gains may be skewed.

But ultimately, I think Ricardo is correct.

I think so, too. I think that the problems we see in our economy today are internal to us, not a result of outsourcing to developing countries. I think that if the government had remained as labor-friendly in the 1980s and 1990s as it was in the 1950s and 1960s, the service industries which make up most of employment today would be unionized as manufacturing was unionized in the 1930s, and we would see no net loss of wages from the loss of manufacturing jobs; in fact, wages would have sharply increased as productivity increased.

Ultimately, people are paid based on productivity.

No, that's demonstrably untrue. People are paid based on the conditions of the labor market: supply, demand, and bargaining power of labor. Over the past thirty years, productivity has increased dramatically, but pay has not.

For example, even though productivity has grown over the past 20 years, capital has captured the majority of these gains whereas labour has captured a disproportionately low level of gains. A big part of that is China, but others have argued it has at least something to do with legislation that has been passed favouring capital at the expense of labour during this time.

I would say that all of it has to do with that legislation, and the shift in executive policy that has accompanied it. I don't think China is a significant factor, precisely because I am convinced comparative advantage still holds. We have not (until the last few years) seen high unemployment arising in conjunction with outsourcing to China and other countries; what we have seen is a change in the nature of employment from manufacturing to services. The manufacturing jobs were largely unionized, while the service jobs mostly aren't. This reduction in the bargaining power of labor has changed the market conditions. It is the ability to bargain collectively more than anything else that allows labor to demand a realistic share of the wealth gained by increased productivity; without that, capital holds all the cards and can claim all of the increased income, or nearly so.

As an individual's productivity rises, they will be paid more. This has been the case over the past four decades as those with more education have captured the incremental gains from economic growth. Thus, the answer is to increase education which increases productivity, i.e. more education in the sciences and math and less in the arts.

That does not follow. Please do not confuse a competitive advantage within an overall pay scale, with the pay scale as a whole. People do not get paid more because they have a better education; they get paid more because their education lets them compete effectively in the economy -- i.e., it lets them make more money than others, and that is its only significance. A degree in science provides that competitive advantage ONLY because most people don't have one. If everyone had a PhD in a science, the only result would be that we would have highly educated minimum-wage workers, janitors, burger-flippers, and unemployed people.

There is a fair amount of empirical research looking at the causes of rising inequality, which has been occurring for 30-40 years. The conclusion is that the primary cause has been due to the advent of technology, and that gains have accrued to those who have been best able to manipulate the new technology. If you are a typical worker for Google, for instance, you are paid more than a typical worker for Sysco. (Not "Cisco.") Why? Because the productivity offered by Google is greater than someone packing boxes in a warehouse to ship food to restaurants.

Again, you cannot understand why wages overall have declined or stagnated by asking questions about who in the economy makes more than others. These are the wrong questions, and so the answers to them are the wrong answers.

So is there an ultimate end game when automation replaces all labour? I doubt it, for the reason pertaining to the definition proffered by my grade 11 economics teacher - because humanity has unlimited wants.

And I believe that to be untrue: that humanity's wants are not unlimited at all.

 

[California Girl]

Seems odd to see an argument for socialism where prosperity is generated. I know of no such instance where that has occurred.

Dragon is a self confessed communist. He lives in LaLaLand. And he can stay there.

 

[SigTurner]

A simple thought, set out in numbered points.

1) An industrial economy requires broadly dispersed wealth in order to generate the consumer demand necessary for prosperity. Without that, inventory cannot be sold, and the economy breaks down.

2) The main method used in a capitalist economy to distribute wealth is wages paid for work. Although some wealth is dispersed by other methods, wages for work is the way that the vast majority of wealth distribution takes place.

3) As long as production requires full employment, and as long as wages are kept high through such means as labor unions and worker protection laws, distribution of wealth in a capitalist economy works reasonably well.

4) However, over time a capitalist economy shows a trend of replacing labor with automation. We have seen this happen in both the agricultural and manufacturing sectors. As agriculture was mechanized, displaced farm workers moved into the factories. As manufacturing has been mechanized (and outsourced), displaced factory workers have moved into the service industries.

5) With advanced computer and artificial-information technologies, it becomes increasingly possible to automate service industries, too. Already many sales clerks, grocery clerks, legal assistants, typists, bank tellers, and customer-service telephone agents have been replaced by computerized, automated services.

6) If all three sectors of the economy, farming, manufacturing, and services, become highly automated, we will see a permanent reduction in the number of paid jobs. Those three sectors are all of the economy there is. While there will certainly be some jobs that cannot be automated or aren't worth automating, the number of remaining jobs will be drastically reduced.

7) See point number 3. A capitalist economy's way of distributing wealth, wages for work, depends on full employment. If we no longer have full employment due to automation, a capitalist economy will break down in a permanent depression.

8) The only way to restore prosperity under those circumstances when labor has become far less necessary to create wealth, and so no longer serves to distribute wealth, is to render today's privately-owned publicly-traded corporations into publicly-owned operations, and distribute the profits to the people as an owner's share.

Thus: socialism is inevitable.

Good points.

We are rapidly approaching an age when even doctors, lawyers, and accountants will be replaced by software and robotics. We need to prepare for the inevitable.

 

[whitehall]

If nothing else you gotta admire the nerve of people who promote the failed concept of socialism. Barry is their last chance and they know it and that's why they are dropping the camouflage and actually saying it. Socialism fails every time it's tried. Sometimes socialist revolutionaries try murder and pillage and other times they starve the people into submission. Europe's standard of living has been far below the US because they experimented in mild forms of socialism after the US capitalist technology saved their sorry asses in WW's one and two. It's good to have an honest debate about socialism and get it out in the open instead of trying to fool the union educated public into believing the administration is on the level. The coward in the White House isn't fooling many people when he refers to the US Chamber of Commerce as a "sinister tool of the lap dogs in the republican party" and he isn't fooling anyone when he appoints a communist who once led an arson and looting rampage to his "green jobs board". Say it Barry, Americans want to know that you intend to reduce America's wealth and standard of living to 3rd world status under socialism. Honesty would be refreshing.

 

[Si modo]

Those who continue to do the same things expecting different results are fucking insane.

Forgive the editorial on a famous quote.







Socialism fails.

 

[Toro]

You passed over, however, the one word that renders your 11th grade teacher's definition not a good one (IMO), and it is not the exclusion of "needs." It is "unlimited."

Wants are not unlimited. It's quite possible for a person to reach saturation point and not desire anything more in the way of consumer goods. This seldom happens among people of modest means, but it does happen among very wealthy people. ...

Let me make a personal observation - I work with extraordinarily wealthy people. As one very wealthy person once said "Once you've made $100 million, it's all charity after that." It seems that at some level, people don't necessarily want more stuff, but that doesn't mean they don't want more. For example, would that very rich person be happy listening to music on vinyl, keeping a record collection in his basement with thousands of records and an old turntable? Or is he more likely to put them in his iPod where 5,000 songs can be at his finger tips? Wanting more isn't just more stuff. Wanting more is also more convenience. I don't know anyone who doesn't want more convenience.

In fact, that is what renders so-called "supply side economics" invalid.

The problem with supply side economics is that it ignores the key variable of demand, or (more precisely) assumes demand to be unlimited or equal to production in accordance with Say's Law. And that would actually be the case if desires were unlimited; as long as wealth is being produced, someone has the money to buy what is being produced. The problem, however, is that desire is not unlimited, and the people who hold the money in a highly-unequal society are disproportionately those who desires for consumer goods have been satiated. Demand is desire to buy plus ability to buy; when wealth is maldistributed, those who have the desire don't have the ability, and those who have the ability don't have the desire. And this may be considered a definition of "maldistribution" in economic terms.

In all due respect, I think you've got your economics all wrong.

Supply-side economics does not assume unlimited demand. Supply-side economics argues that you can create wealth by shifting supply curves. It depends on the slope of the demand curve, but demand curves can be fixed and you can still have a better outcome with a shift in the demand curve.

This is absolutely correct. The debate is over the policies to shift the supply curve, i.e. does cutting taxes increase total government revenues?

I think so, too. I think that the problems we see in our economy today are internal to us, not a result of outsourcing to developing countries. I think that if the government had remained as labor-friendly in the 1980s and 1990s as it was in the 1950s and 1960s, the service industries which make up most of employment today would be unionized as manufacturing was unionized in the 1930s, and we would see no net loss of wages from the loss of manufacturing jobs; in fact, wages would have sharply increased as productivity increased.

It's debatable.

Europe has more restrictive labour laws and a higher level of unionization, and their labour market is far less dynamic and has, over the past 30 years, created far fewer jobs than ours.

No, that's demonstrably untrue. People are paid based on the conditions of the labor market: supply, demand, and bargaining power of labor. Over the past thirty years, productivity has increased dramatically, but pay has not.

Well, if it were demonstrably untrue, then we would not have seen a rise in income for the most educated.

I would say that all of it has to do with that legislation, and the shift in executive policy that has accompanied it. I don't think China is a significant factor, precisely because I am convinced comparative advantage still holds. We have not (until the last few years) seen high unemployment arising in conjunction with outsourcing to China and other countries; what we have seen is a change in the nature of employment from manufacturing to services. The manufacturing jobs were largely unionized, while the service jobs mostly aren't. This reduction in the bargaining power of labor has changed the market conditions. It is the ability to bargain collectively more than anything else that allows labor to demand a realistic share of the wealth gained by increased productivity; without that, capital holds all the cards and can claim all of the increased income, or nearly so.

It is probably true that the reduction in union power has skewed the allocation of gains to capital, but it does not account for the increase in aggregate profitability that occurred since ~2000.

This rise in profit margins is not entirely due to China - a big part of it was both the Tech and Housing Bubbles - but there has been a discernible upward shift in margins that has occurred over the past decade or so. Part of the structural shift is due to interest payments, but part of it is also due to a shift in operating expenses as companies have shifted more production overseas.

That does not follow. Please do not confuse a competitive advantage within an overall pay scale, with the pay scale as a whole. People do not get paid more because they have a better education; they get paid more because their education lets them compete effectively in the economy -- i.e., it lets them make more money than others, and that is its only significance. A degree in science provides that competitive advantage ONLY because most people don't have one. If everyone had a PhD in a science, the only result would be that we would have highly educated minimum-wage workers, janitors, burger-flippers, and unemployed people.

That is true. However, there has been a correlation between between higher wage gains and higher pay over the past several decades. Though it is true that some PhDs are worthless outside of academia - who cares if one has a doctorate in British naval history? - generally, more educated people have gone into more productive fields, and their pay has risen faster than the economy as a whole.

Again, you cannot understand why wages overall have declined or stagnated by asking questions about who in the economy makes more than others. These are the wrong questions, and so the answers to them are the wrong answers.

The OP is about the mechanization of labour and the effects on wages. It is an issue that has been around since the Luddites. The answer to the question - which is my main point - is that the capital/labour substitution effect benefits those who are best able to manipulate the technology, and that new jobs arise whenever there are technological shifts, future jobs that are often impossible to discern in the present.

 

[Dragon]

Let me make a personal observation - I work with extraordinarily wealthy people. As one very wealthy person once said "Once you've made $100 million, it's all charity after that." It seems that at some level, people don't necessarily want more stuff, but that doesn't mean they don't want more. For example, would that very rich person be happy listening to music on vinyl, keeping a record collection in his basement with thousands of records and an old turntable? Or is he more likely to put them in his iPod where 5,000 songs can be at his finger tips? Wanting more isn't just more stuff. Wanting more is also more convenience. I don't know anyone who doesn't want more convenience.

The fact remains that it can be demonstrated that consumption does not rise proportionally with income. That is, rich people do spend more money than poor ones, but they don't spend as big a percentage of their income. If desire (for consumer goods) were in fact unlimited, that would not be so.

In all due respect, I think you've got your economics all wrong.

Supply-side economics does not assume unlimited demand. Supply-side economics argues that you can create wealth by shifting supply curves. It depends on the slope of the demand curve, but demand curves can be fixed and you can still have a better outcome with a shift in the demand curve.

This is absolutely correct. The debate is over the policies to shift the supply curve, i.e. does cutting taxes increase total government revenues?

Supply-side economics is broader than the Laffer Curve and involves more than just taxes. It is based on the belief that the supply side of the supply-demand equation is the important one; that by maximizing capital formation, keeping wages low, and removing regulatory barriers, more wealth will be produced. It contrasts with demand-side economics, which argues that the important thing is to concentrate on maintaining consumer demand through narrowed income gaps, keeping wages high, discouraging excessive concentration of wealth, and trusting capital formation to take care of itself.

The Laffer Curve -- the idea that cutting taxes can increase government revenues -- could be wrong and supply-side economics aside from that still be right. However, it is not. Maximizing capital formation does not stimulate the economy, because capital will only be invested in real wealth production (i.e., production of goods and services as opposed to financial shell-games) to the extent that consumer demand justifies such investment; any capital accumulated over this limit will be wasted, not productively invested. It's not hard to demonstrate this by reference to economic history, but I'll skip that for now in this thread.

Again: supply-side economics depends on the idea that desire for consumer goods and services is unlimited. This isn't stated, but it follows logically. If this were true, then it wouldn't matter how much wealth is concentrated into a few hands for purposes of economic stimulation; if one person in a group of ten buys $1 million in consumer goods, that's no worse (macroeconomically speaking) than ten people each buying $100,000 worth. But the reality is that desires are limited, and thus overconcentration of wealth results in slack consumer demand and an underperforming economy.

The same factor underlies my reasoning here. Because desire is limited, so might be the growth in jobs, if all needs and desires can be met with a minimum of human labor.

Europe has more restrictive labour laws and a higher level of unionization, and their labour market is far less dynamic and has, over the past 30 years, created far fewer jobs than ours.

I suggest you look at the data again. This is not correct, particularly if you normalize U.S. unemployment rates by including our prison population.

Well, if it were demonstrably untrue, then we would not have seen a rise in income for the most educated.

No, that doesn't follow. Again, don't confuse a competitive advantage WITHIN an economy with something demonstrating a principle for the economy overall.

It is probably true that the reduction in union power has skewed the allocation of gains to capital, but it does not account for the increase in aggregate profitability that occurred since ~2000.

Perhaps not that, but try since 1980. That's how long the process has been ongoing.

This rise in profit margins is not entirely due to China - a big part of it was both the Tech and Housing Bubbles - but there has been a discernible upward shift in margins that has occurred over the past decade or so. Part of the structural shift is due to interest payments, but part of it is also due to a shift in operating expenses as companies have shifted more production overseas.

But what I'm saying is that something close to that would have happened anyway. If anything, outsourcing is slowing the advance of automation within manufacturing, since foreign labor is available that is cheaper than robotics. But the robots would still be cheaper than high-paid American labor. As foreign labor rises in price (which I think we both agree it will -- that's already happening in China for example), the attractiveness of automation will increase.

We still had full employment as manufacturing jobs were lost. The problem has been that the new jobs haven't paid as well as the old ones. And that, I contend, is due to the loss of union power more than any other factor.

That is true. However, there has been a correlation between between higher wage gains and higher pay over the past several decades. Though it is true that some PhDs are worthless outside of academia - who cares if one has a doctorate in British naval history? - generally, more educated people have gone into more productive fields, and their pay has risen faster than the economy as a whole.

Right, but again, that's not really relevant. It will ALWAYS be true that those with more competitive skills and abilities will make more money than those with less. The question is, how much is everyone making at every point in the scale? We should ASSUME that those with higher education in high-demand fields will be paid well relative to those with only a high-school diploma. That's not the question. The question is, how much does the person with the advanced degree make, compared to how much he would make in a full-employment high-wage economy, and the same question for the high-school graduate.

The education of the person with an advanced degree does not create the job he works in. It merely makes him qualified to hold it.

The OP is about the mechanization of labour and the effects on wages. It is an issue that has been around since the Luddites. The answer to the question - which is my main point - is that the capital/labour substitution effect benefits those who are best able to manipulate the technology, and that new jobs arise whenever there are technological shifts, future jobs that are often impossible to discern in the present.

What I'm saying is that while that has happened in the past, we should not assume that it can continue without limit. If desire is not unlimited, and I believe that to be the case, most likely it can't.

 

[Toro]

The fact remains that it can be demonstrated that consumption does not rise proportionally with income. That is, rich people do spend more money than poor ones, but they don't spend as big a percentage of their income. If desire (for consumer goods) were in fact unlimited, that would not be so.

It is true that consumption to income falls as income rises, but that doesn't mean that wants are unlimited for two reasons.

First, individuals make a trade-off between consumption and savings. There is a positive non-linear relationship between consumption and income. All things being equal, consumption does not fall when income rises. Consumption rises at a lower rate of income growth. But consumption rises. This is what economists call "diminishing marginal utility." But it isn't negative.

Second, the discussion pertains to the aggregate, not individual specific. If it were true what you were saying, we would see zero growth for per capita consumption. That has not happened.

Supply-side economics is broader than the Laffer Curve and involves more than just taxes. It is based on the belief that the supply side of the supply-demand equation is the important one; that by maximizing capital formation, keeping wages low, and removing regulatory barriers, more wealth will be produced. It contrasts with demand-side economics, which argues that the important thing is to concentrate on maintaining consumer demand through narrowed income gaps, keeping wages high, discouraging excessive concentration of wealth, and trusting capital formation to take care of itself.

I'm sorry but again, your economics are incorrect. Supply side economics does NOT assume wages are kept low and capital formation is "maximized." Shifting supply curves does not mean wages are kept low. In fact, it is assumed that wages will rise. Capital is not maximized. Capital is optimized. There is a big difference. Supply-side economics does not mean you increase supply at all costs, which is what "maximizing" supply means. When supply curves are shifted downward, the point of equilibrium is where supply meets demand along the demand curve, and where the cost of capital equals the return on capital, which equals the growth rate of capital over the long-run. It is assumed by supply-siders that supply is restricted in markets by government fiat, keeping prices higher than they otherwise would be, creating inefficiencies, waste and dead-weight losses. Getting rid of government policies that create this waste is the goal of supply-side economics, which means getting the supply curve down to its optimal position. Maximizing supply creates mal-investment and excess capacity, which destabilizes an economy.

No, that doesn't follow. Again, don't confuse a competitive advantage WITHIN an economy with something demonstrating a principle for the economy overall.

This is a phenomenon that has occurred globally, not just in America.

Perhaps not that, but try since 1980. That's how long the process has been ongoing.

Profit margins were relatively stable from 1980 through 2000. There was a structural upward shift in corporate profitability last decade.

Right, but again, that's not really relevant. It will ALWAYS be true that those with more competitive skills and abilities will make more money than those with less. The question is, how much is everyone making at every point in the scale? We should ASSUME that those with higher education in high-demand fields will be paid well relative to those with only a high-school diploma. That's not the question. The question is, how much does the person with the advanced degree make, compared to how much he would make in a full-employment high-wage economy, and the same question for the high-school graduate.

In the empirical literature, it has been the advent of new technologies which has caused the widening inequality. This effect has been ongoing since the 1960s.

 

[Dragon]

It is true that consumption to income falls as income rises, but that doesn't mean that wants are unlimited for two reasons.

I think you meant to say "limited" here rather than "unlimited." I'll take that as said.

First, individuals make a trade-off between consumption and savings. There is a positive non-linear relationship between consumption and income. All things being equal, consumption does not fall when income rises. Consumption rises at a lower rate of income growth. But consumption rises. This is what economists call "diminishing marginal utility." But it isn't negative.

Right, but that by itself suggests that the desire portion of demand is limited. If it were otherwise, then consumer demand would always trump savings, except in the form of short-term savings to purchase a big-ticket item (this type of saving being deferred consumption), and perhaps saving to meet needs down the road in an emergency or for retirement (this again being deferred consumption).

At some point, a person has taken care of all that and begins investing his income that he doesn't want to spend, and doesn't think he may need to spend down the road. This income is invested in stocks or securities or other instruments for no other purpose than to make more money. This is not deferred consumption, it is something to do with money when no further consumption is desired.

Second, the discussion pertains to the aggregate, not individual specific. If it were true what you were saying, we would see zero growth for per capita consumption. That has not happened.

No, that doesn't follow. If it were true what I am saying, then we would see less than one hundred percent match-up between growth in income and growth in consumption -- and we do.

I'm sorry but again, your economics are incorrect.

We are obviously using the terms differently. Let me cut through this linguistic knot and simply say that there is an economic philosophy that does aim to maximize capital formation on the theory that what limits economic growth and expansion is the availability of such capital rather than consumer demand, and this is the economic philosophy that has more or less governed America for the past thirty years. Whether it should be called "supply side economics" is not really important.

This is a phenomenon that has occurred globally, not just in America.

I was not suggesting otherwise. Do you consider that an important observation? If so, why?

Profit margins were relatively stable from 1980 through 2000. There was a structural upward shift in corporate profitability last decade.

Can you document this?

In the empirical literature, it has been the advent of new technologies which has caused the widening inequality. This effect has been ongoing since the 1960s.

New technologies represent a constant. In the 1950s and 1960s we saw the widespread introduction of plastics, television, power steering, stereo music recording, commercial jet planes, and many other inventions; in the 1980s and 1990s we saw the personal computer and the Internet. The earlier inventions did not correlate with widening inequality while the later ones did. Let me suggest that a non-consistent correlation argues against causation.

Here is something I consider a better explanation:

File:Illegal Union Firing 1952 - 2007.svg - Wikipedia, the free encyclopedia

This chart shows changes over time in the rate of illegal firings in union elections. Note how closely it corresponds to changes in presidential administration: a slight uptick with the change from Eisenhower to Kennedy, a big one with the advent of Jimmy Carter, and an even bigger one with that of Ronald Reagan. In the post-Reagan era it has followed party lines, with roughly 25% under Republicans and 16% (which is still terrible) under Bill Clinton. No data here for the Obama administration so far.

Now check this out:

Labor Market Reporter: US Trade Union Membership: 1900-2000

This shows private-sector trade-union membership as a percentage of the total workforce from 1900 to 2000. Note that in the same period as covered by the above-linked graph on illegal firings, union membership has declined as illegal firings have increased. The peak union strength was reached in 1958 at 39%. In 2000 it was down to 9%, lower than it had been since 1901.

What I take from this is that since the Carter years and more so since the Reagan years, the government's policy towards organized labor and the enforcement of labor rights has become dramatically less union-friendly, so that employers are encouraged to aggressively fight union formation and, when caught in use of illegal means to do so, simply pay the fines as a cost of doing business. As a result of which it has become increasingly difficult to form unions in non-union industries. At the same time, jobs in the unionized manufacturing sector have been lost, and because of this government hostility towards union formation the replacement jobs in the service sector have not been unionized. A decline in union strength directly correlates with loss of bargaining power and so the decline in the ratio of pay to productivity.

Union strength was never above 50%, of course, but there are studies to show that even non-union employees in the same industry as strong unions benefit; non-union employers must compete with union employers for the same workers, and must be concerned both with high turnover and with increased incentive to organize if they don't pay competitive scale.