Paradigm Lost: The Rise of U6

[DrMrLordX]

If a person is older or untrainable and unable to keep up with the pace of economic change via re-education, lives in a country where X amount is required to stay alive and you invent a machine that makes his labor worthless, or you send his work to a place where X is a high wage, and thus you deprive him of his capacity to stay alive, does he have the right to kill you for his murder? I think he will think so and as things go further down hill I think he will.

It is absolutely essential for those who are displaced to understand why they are displaced, so hopefully their anger will give way to despair, and then acceptance. Perhaps they will founder, fail, and die from lack of ability to keep up with the shifting world economy, or perhaps they will find some way to survive and maybe, just maybe, even find a way to avoid being a burden upon someone's social welfare program.

People will have to find new ways to deliver value to the community and/or the world at large. Monetizing that effort may be difficult, if not impossible . . . I've had ideas about that, though they may seem a bit crazy by modern standards.

To personalize what I am saying here, I acknowledge that my own skillset has been more-or-less obliterated by progress, and that I am not worth the $13/hr I was just a year-and-a-half ago. Right now I'm worth $7.25 per hour (actually less, my employer is cutting hours because they're really quite angry about payroll), and that value will only stay where it is because it is propped up by the federal government. Barring attempts at self-education, the situation will likely not improve. Murdering someone won't fix that. Everyone in my position needs to understand that point, at the very least.

When the labor market says that you're worthless, it's right, but only in its ability to judge you as a unit of labor. It's time for humans to stop being units of labor. Or, at least, it's getting very close to that time.

. Remember, you can't design a machine that improves life because it will take money and that money will just rot there in the machine. Just give the money to the poor directly. Hehe

Actually, I think you can, but . . . it hasn't quite been done yet.

And a lot of people out there who own a great deal of machinery are getting a lot of money out of them as we speak. We would do well to learn from what they have accomplished, for good or for ill.

Forcing people to consider their future, even if just for one week in school, might help significantly.

Indeed. I think you are absolutely correct, and that was sort of the point of starting this thread. There is a quickening, of a sort, in which only the most hyper-competitive continue to establish their own worth within the world labor market. I know I haven't, not really . . . part of thinking about our future must entail thinking about what we will do with the dreaded growth of U6 from a policiy level AND at a personal level.

What do you do with yourself when nobody will ever pay you to do anything, ever again? Subsist? Die? Revolt? How shall we live?

But the internets are evil technology! The telegraph made all of those poor Pony Express riders unemployed... Just think what the internets have done do the rest of us!!!1! Technology is evil, communism is good, and we're all better off breaking our backs doing manual labor to avoid change. Oh, and I am the one who is a poor stupid imbecilic brain dead idiot. Got it. :thumbsup:

Ah, the buggy-whip manufacturers. You know, the point is completely valid, but it does lead one to wonder what we will do, when we are all in the same boat as the buggy-whip manufacturers.

And most of us will be, someday.

 

[theevilsharpie]

Really? Most of the time, in measures of economic health, generally about half of Europe seems to whip most of the world.

Europe is just as beholden to their megacorps as we are to ours, so I fail to see why your example is relevant.

In addition, I would hardly consider today's Europe as a shining beacon of economic prosperity. You speak of strikes and riots, but in case you haven't noticed, Europe's had quite a few riots lately due to their long-term unemployment problem.

 

[DrMrLordX]

The problem (for the Middle Class, anyway) is that as a nation, we embraced the Free Trade Religion and gave up millions of good, middle class jobs in favor of shitty Wal-mart jobs, more social service spending, and cheap Chinese made crap. And now the Free Trade Gods and their followers tell us that this the way it ought to be. Sad.

In many ways, I think the effects of the "Free Trade Religion" are more due to overall human progress than the "Free Trade Religion" itself. More protectionism and less trade would result in an isolated market where internal stresses (mostly from localized wage inflation) leading to a need to automate would, eventually, create the situation we're seeing today (expanding U6 numbers, flagging circulation of capital, etc).

Or, to put another spin on it, if we walled ourselves off with trade barriers, foreign countries currently eating our lunch would have found ways to become competitive in foreign markets on their own (without the aggressive, "Free Trade Religion" investments in developing markets), lowballed us with cheap goods and services, and chased our protectionist butts out of nearly every foreign market imaginable. It would've been a brutal trade war, one we would've lost, at the cost of many foreign trade partners.

Free trade isn't as bad a thing as people make it out to be, but the fun is over when you can no longer earn as much through trade as you lose in jobs that move overseas. It is important to remember, however, that when jobs move overseas, usually it is happening due to shifts in technology and logistics, not just because some corporate fat cat is evil. The evil-ness of said fat cat, be it perceived or manifest, is little more than symptomatic of the greater forces in play.

So what is your solution? You think if you stick your head in the sand that progress will just stop? That, all of a sudden, our uneducated population of idiots will continue to drive the economic growth that makes their standard of living sustainable, despite being replaceable by a machine? You are arguing with reality, which is an argument you'll lose every time. You seem to think that my pointing this out is the same as my causing it or supporting it.

Well, I think the problem here is that the anti-supply-siders realize that supply-side policies will have to metamorphose into something else once you've got an "uneducated population of idiots". There is a standard of living to be maintained, after all. If it isn't, the tax base goes south, and then the military tanks, and . . . yeah you get the idea.

We've got a U6 Unemployment rate sitting over 16% right now. 16%.

http://portalseven.com/employment/unemployment_rate_u6.jsp

Ouch.

It's a wonder we haven't already fallen into the ocean, really. Anyway, that number is only going to grow until we can find something better for them to do, at least in a general sense. Because 16% of the American people just aren't needed for anything even vaguely resembling employment anymore. Simply stating that this is reality and then folding up our arms and doing nothing about it is . . . perhaps, unwise.

The U6 cadre, themselves, must remain calm and perhaps upbeat about being a part of a brave new world, or something or other. Getting all pissed off about it, or getting distracted by class warfare rhetoric, is just going to make things ugly

Offshoring and the decline of the American Middle Class is progress? Reducing the United States to a small group of absurdly wealthy aristocrats and an army of impoverished rabble is progress?

That is not, in and of itself, progress. Those are the symptoms of progress. As a species, we can do more than we could before, which is good. As a species, we are having problems opening up the benefits of this progress to as many individuals of our species as possible, which is a problem.

My solution is for our Government to put Americans first for a change. Make a thriving Middle Class the top priority. Make manufacturing in the United States the perferred choice for goods sold to American customers. Make things like foreign technical support a very expensive proposition for companies looking to do business here. Make companies with foreign manufacturing pay for access to American markets.

It's a nice idea, but you're only moving the problems facing Americans today into other markets if you're successful. If the upward economic trends in India and China peter out (and they will, perhaps very soon), the consequences . . . oh, the consequences.

Furthermore, I'm sorry to say that there will be a post-Industrial revolution in the United States (in my opinion), but that the number of jobs it will create will be VERY small. Local chambers of commerce and local governments will forfeit billions in dollars of tax write-offs and other incentives to create a paltry sum of jobs for which very few Americans are qualified. A few extra "token" jobs will be created so that politicians will be able to puff themselves up and say, "Look! I created jobs!", but those jobs won't last very long.

In fact, one could argue that that is already happening now.

 

[BigDH01]

So you admit that you knowingly lied about the methods by which Germany is prospering? As long as you're willing to admit that now, we'll let it slide.

If the prosperity of an economy is directly proportional to its freedom (real or perceived) then this discussion would be quite simple. There are organizations (specifically promoting Libertarianism) that measure these sorts of things.

http://www.heritage.org/index/ranking.aspx

US is number #8 and Germany is #23. You can compare their labor and government restrictions to our's in an easy-to-read format. It is quite readily apparent that government spending accounts for a larger percentage of their GDP than it does here. Labor freedom is far higher here than in Germany where rages remain relatively high. Tax rates are far lower here than in Germany. You readily admit they are prosperous, so do you admit that the American economy can be even less free than it is now and still prosper?

China is taking the path of the Asian tigers. They enact policies designed to kill domestic demand and increase exports. The reason why the US has a particularly heinous trade deficit is not because of minimum wage or selfish Americans, it's because the most labor rich country in the world has tied their currency to the dollar and artificially deflated their relative costs. You're promoting a free market system of economics when our greatest competitor (#140 on the economic freedom list, btw) has enacted a system of economics designed to destroy American labor. Nothing is going to save American labor until China's currency floats and the trade deficit does what should be done in any model of international trade. It's not rocket science, it's not profound, it's not Socialism, it's a country's government controlling its currency to our detriment. The correction will ultimately mean we won't be buying as much cheap Chinese crap as we do now but we'll be better able to compete.

With regards to your other thoughts, labor mobility is not perfect. Learning new skills, demonstrably, entails a substantial investment (such as the one you made). If the millions of Americans currently without jobs decided to attend university to learn these new skills then the cost of attaining those skills increases. If they do it anyway, the value of those skills decreases.

Let's look at your job, for example. In a market with perfect mobility, individuals in risky positions would see your position and desire it. Working under the assumption that doing so requires no cost, your wages decrease to equilibrium rather quickly, as do all wages above the mean. If you move to another, even better paying, position, others follow ad infinitum. Of course, a perfectly efficient free market never exists in the real world and neither does perfect factor mobility. Perhaps you work in a position that most people are incapable of attaining due to inherent ability. Of course this leaves us where we are now, a certain group of people can't find employment and lack the skillset (and perhaps physical or cognitive ability) to find employment as prestigious as your's. What do we do with them?

 

[DrMrLordX]

If we want to improve our situation, we, as a workforce, need to increase our productivity or decrease our costs. The US is no longer an industrial monopoly, and we can no longer afford to be uncompetitive with other nations.

I think that most Americans have done this, on both fronts. We work 50 hour weeks on average, and productivity numbers for American workers have been going up, up, up for years.

The point is that once you increase productivity to a certain point, further increases in productivity drives worker value down, not up, until you reach a point of absurdity in which a small cadre of workers are doing everything anyone could ever possibly want or need them to do.

Then everyone is worth about $0/hr, except for that small minority.

More replies later, forum comment overload.

 

[Cerb]

Europe is just as beholden to their megacorps as we are to ours, so I fail to see why your example is relevant.

Access to medical care, general happiness, rates of chronic disease, states actually being willing to occasionally do what the populous thinks is right (not because the politicians care, but because they have to, to be reelected), etc.. I very much do not them as beholden as we are, though some are trying hard to be. They are willing to tell them no, and our government is not.

Again, I think you're making this out like as though I'm saying we can reach a libertarian or communist dream land. Taking control of our economy is not going to kill Dupont, or Bayer, or ConAgra. It probably wouldn't even kill BP, or Monsanto. It could allow us to regulate their activities in the US, rather than the current situation of them being able to buy laws written expressly for their needs, and curb their ability to ensure that government officials which must oversee them are people that used to work for them (it's worst, IMO, in agriculture and banking).

In addition, I would hardly consider today's Europe as a shining beacon of economic prosperity.

I don't bring any shining beacons of hope with me. Even for the examples that I might use, which would be more along the lines of Finland, than Greece.

Economic prosperity, as we once knew it, is dead. We've been taking too much--all developed nations count, here. In the process, the standard of living for the serfs has increased, and it is slowly flattening out the standards for the rest of the world, as those developing nations grow (many, like China, have plans to guide and curb the growth, over time, too, so as not to repeat our mistakes). Nothing like the 50s-60s will ever be seen again. We need stability, and the ability to support ourselves. We currently lack both.

We do not have the infrastructure to support ourselves. In our current state, we cannot live within our means. Our nation owes more than it has value. However, since the world took to bastardized capitalism, we do have a chance to take things that we have, of lesser value, and turn them into things of greater value, that we may begin to get out this hole.

You speak of strikes and riots, but in case you haven't noticed, Europe's had quite a few riots lately due to their long-term unemployment problem.

I don't see that as a bad sign, even among the 'bad half' (seems the more North you go, the better they get). A nation's people should be willing to act out of turn, when those they give trust to betray them. Greece and Spain made similar unbalancing mistakes to the US, and I think it's sad that their people are willing to get in an uproar about it, while we are so passive that we are content to just elect someone from the other major political party, who serves the same masters as the one who was kicked out. We only seem to be capable, as a nation, of using tactics that are known not to work, such as supporting the "opposing" political party, when things are bad.

 

[daishi5]

You may want to avoid a "diatlectic of the Hegelian sort" but this is the inexorable direction of your thinking. Your analysis points to inevitable class warfare. Yet it is important to realize that Marx's predictions of worldwide class warfare were made false by the development of welfare capitalism which he did not foresee. Yet in the longrun, even welfare capitalism is transitional; technology, not economic theory or structure, will guide the future of human materiality.

By way of explaining my prior post, let me first state that I can't find much fault in your analysis, insofar as it purports to explain current economics and problems that will continue to grow for the foreseeable future. However, where technology allows a tiny few the capability of producing super-adequate resources for the masses while still allowing the tiny few massive wealth, one way or another sufficient resources will be distributed to meet everyone's needs. Be it by way of socialist redistributionism, backed by popular demand, by way of forcible restribution through mob violence, or largess born of necessity to avoid either of the above. I don't think the mass of humanity will tolerate a situation where .1% of the population controls 99% of the wealth, not for long, not in a situation where we are well capable of providing for all and still have a wealthy class. When we can genetically engineer crops and livestock to provide well in excess of the food humanity requires, at relatively low per unit cost and with minimal arable land required, I don't see the bulk of humanity starving. One way or another, by hook or by crook, whatever "stuff" is needed for basic subsistence will find its way to whoever needs it. And "entertainment" will be cheap for the masses - the forerunner of it is sitting right there on your desktop.

But that is long, long term, big picture stuff. A lot will happen before technology has matured to the point where this becomes inevitable, and not all of it will be good. For example, I think in the next century we'll see a modestly declining standard of living in the developed world, while the less developed world plays catch up. Eventually wages will rise in the developing world to the point where outsourcing is no longer an issue. As for technology and automation, it will cost some jobs and create some jobs. Ultimately, however, it's going to make economic theories, which are all about HOW resoures are distributed, quite moot. I would estimate we are 200-500 years away from this, the broad range reflecting the difficulty of predicting the pace and specifics of technological advancement.

Am I certain about this sort of outcome? Assuming that we don't destroy ourselves with WMD's or get hit by an asteroid, I'd say "somewhat." Predicting the future is, of course, far from an exact science.

- wolf

There is one critical flaw in the analysis in the OP that I think has wormed its way into your assessment as well. A crucial part of the OPs analysis is that demand is finite. The total demand for goods and services is not finite, or if it is, we have not come close to seeing the limit. But, it is true that some markets are saturated, and have little room left to grow currently. It is all the time it takes from losing a job until some other employer finds a use for that worker that should make up the best parts of unemployment.

Take a step back and consider the current farming situation. It was not that long ago that over 50% of our workforce was needed to keep us fed. Now, we need less than 2%. The 48% of our workforce that was displaced from farming is not idle. In fact we have added more and more of our population to the workforce since that time.

As time has gone one we have added more and more of the population to the workplace. People keep saying it is to maintain the same standard of living, but I don't see wives going to work so the family can have one car and one small TV with only broadcast channels in their 2 bedroom home.

I am interested by the statement "Marx's predictions of worldwide class warfare were made false by the development of welfare capitalism" what do you mean by this? From what I know of marx (not much) his predictions included the assumption that a capitalist would capture all of the increased profits from automation and other improved production methods, while the workers would see no benefit. We know workers today are not making subsistence wages, but I have never seen this attributed to welfare capitalism.

 

[sandorski]

There is one critical flaw in the analysis in the OP that I think has wormed its way into your assessment as well. A crucial part of the OPs analysis is that demand is finite. The total demand for goods and services is not finite, or if it is, we have not come close to seeing the limit. But, it is true that some markets are saturated, and have little room left to grow currently. It is all the time it takes from losing a job until some other employer finds a use for that worker that should make up the best parts of unemployment.

Take a step back and consider the current farming situation. It was not that long ago that over 50% of our workforce was needed to keep us fed. Now, we need less than 2%. The 48% of our workforce that was displaced from farming is not idle. In fact we have added more and more of our population to the workforce since that time.

As time has gone one we have added more and more of the population to the workplace. People keep saying it is to maintain the same standard of living, but I don't see wives going to work so the family can have one car and one small TV with only broadcast channels in their 2 bedroom home.

I am interested by the statement "Marx's predictions of worldwide class warfare were made false by the development of welfare capitalism" what do you mean by this? From what I know of marx (not much) his predictions included the assumption that a capitalist would capture all of the increased profits from automation and other improved production methods, while the workers would see no benefit. We know workers today are not making subsistence wages, but I have never seen this attributed to welfare capitalism.

Result of Unions.

 

[daishi5]

Result of Unions.

In some labor markets yes, but only part of that increase can be attributed to unions.

 

[sandorski]

In some labor markets yes, but only part of that increase can be attributed to unions.

They were the Major catalyst. Once they had succeeded, their success spread in order to avoid further disruptions. Laws were also created due to their actions that further improved the plight of Workers. Businesses saw the benefit of better treatment of Workers, some were to avoid Unionization, others the increased Demand created by those with better Wages. Eventually the principles fought for by the early Unions have become entrenched in the Culture and Morality to the point that their affects live on.

 

[Cerb]

There is one critical flaw in the analysis in the OP that I think has wormed its way into your assessment as well. A crucial part of the OPs analysis is that demand is finite.

Demand can only be infinite if wealth is infinite. Both go up over the long term, but both are also finite.

 

[daishi5]

Demand can only be infinite if wealth is infinite. Both go up over the long term, but both are also finite.

I think you are confusing the quantity demanded and demand. The quantity demanded is finite, and is limited by wealth. But demand is the term that describes the entire curve of the amount of goods and services that are demanded at different price levels. As the prices of goods and services approach zero, the quantity demanded approaches infinity.

To put it another way, if demand is finite, that means that at some point, we will reach a stage where no one wants to have any more stuff, or anything nicer than what they currently have. What we currently consume is the quantity demanded at current price levels, but if prices were lower, we would all buy more stuff of some type.

 

[daishi5]

They were the Major catalyst. Once they had succeeded, their success spread in order to avoid further disruptions. Laws were also created due to their actions that further improved the plight of Workers. Businesses saw the benefit of better treatment of Workers, some were to avoid Unionization, others the increased Demand created by those with better Wages. Eventually the principles fought for by the early Unions have become entrenched in the Culture and Morality to the point that their affects live on.

The labor market is a very complex thing. You are falling prey to simplistic reasoning, like right wing politicians and tax cuts. For example, the modern middle class started in the middle ages with skilled craftsmen and artisans, as a class of people who were obviously between the upper class and the lower class. They were one of the first groups of people working for a wage well above subsistence. Unions were part of the process that brought us to our modern day wage levels, but it is hard to believe that they were the major catalyst for workers being able to receive more than subsistence wages when we can see that skilled labor began to command high wages hundres of years before the first unions.

 

[BoberFett]

The labor market is a very complex thing. You are falling prey to simplistic reasoning, like right wing politicians and tax cuts. For example, the modern middle class started in the middle ages with skilled craftsmen and artisans, as a class of people who were obviously between the upper class and the lower class. They were one of the first groups of people working for a wage well above subsistence. Unions were part of the process that brought us to our modern day wage levels, but it is hard to believe that they were the major catalyst for workers being able to receive more than subsistence wages when we can see that skilled labor began to command high wages hundres of years before the first unions.

Unions actually existed back then in the form of guilds. Granted, it's not quite so simple because guild members were generally the owners of their business and so it was more like a trade association. But the effect was still the same, the point was to keep their skills rewarded by not allowing cutthroat practitioners to drive the market down.

 

[daishi5]

Unions actually existed back then in the form of guilds. Granted, it's not quite so simple because guild members were generally the owners of their business and so it was more like a trade association. But the effect was still the same, the point was to keep their skills rewarded by not allowing cutthroat practitioners to drive the market down.

Guilds are similar, but at the same time very different. Guilds worked to control the number of people working in a skilled craft, and pretend to be protecting the quality of the craft, like the AMA. Unions were groups of unskilled labor bargaining collectively with their employer. These days, things like the pipefitters union and electrical union really function as the guilds used to. The union movement for labor rights (what I was refering to when I mentioned unions) was based around groups more like the garment workers unions and mine workers unions.

The skilled union members naturally make more than a subsistence wage (the original statement) naturally. They are both groups of workers trying to improve their situation, the Guilds try to limit membership to reduce competition, the Unions try to gather everyone under their banner because everyone is competition.

I assume Sandorski was referring to the Union movement and not the skilled unions.

 

[werepossum]

Guilds are similar, but at the same time very different. Guilds worked to control the number of people working in a skilled craft, and pretend to be protecting the quality of the craft, like the AMA. Unions were groups of unskilled labor bargaining collectively with their employer. These days, things like the pipefitters union and electrical union really function as the guilds used to. The union movement for labor rights (what I was refering to when I mentioned unions) was based around groups more like the garment workers unions and mine workers unions.

The skilled union members naturally make more than a subsistence wage (the original statement) naturally. They are both groups of workers trying to improve their situation, the Guilds try to limit membership to reduce competition, the Unions try to gather everyone under their banner because everyone is competition.

I assume Sandorski was referring to the Union movement and not the skilled unions.

Trade Guilds were VERY different, as the members were masters whose intention was to keep wages low, to limit competition, and to prevent cheaply made goods from undercutting those same masters. A journeyman in most trades earned less than twice what an unskilled laborer would earn, and apprentices' families often actually paid the master. Trade unions today try to limit competition by forcing union-only rules and minimum qualifications, but the membership and (at least on a local level) leadership are masters and journeymen, so trade unions try to keep wages high and the apprentices earn a decent wage even while learning. Trade unions are in my mind a very good thing as they raise workmanship and training standards as well as wages.

Incidentally in Medieval times there were also guilds in villages, towns and even within cities that functioned much like today's unskilled labor unions - they existed to multiply the bargaining power of those without much power and to provide mutual aid such as short-term disability and unemployment benefits. As these things have today been subsumed by government, I think unskilled labor unions are on balance a bad thing, raising wages without adding value, except perhaps as a force to maintain wages against the natural lowering effect of immigration. But then that only works until the company goes out of business or goes offshore.

 

[nonlnear]

Trade Guilds were VERY different, as the members were masters whose intention was to keep wages low, to limit competition, and to prevent cheaply made goods from undercutting those same masters. A journeyman in most trades earned less than twice what an unskilled laborer would earn, and apprentices' families often actually paid the master. Trade unions today try to limit competition by forcing union-only rules and minimum qualifications, but the membership and (at least on a local level) leadership are masters and journeymen, so trade unions try to keep wages high and the apprentices earn a decent wage even while learning. Trade unions are in my mind a very good thing as they raise workmanship and training standards as well as wages.

The closest remaining professional structure to the guilds of old would be academia. Oddly enough there remains a very similar pay structure for apprentices (students), journeymen (post-docs, and tenure track faculty), and the masters (tenured profs). It's also no coincidence that the system is in the process of radically changing (tenure is a dying institution) in the face of massive oversupply of apprentices and journeymen.

Great post BTW. It's sad that all unions often get lumped together in political rhetoric. I agree with your sentiments about skilled/unskilled unions, as well as your reasons. I would add one important note to the broad distinction you made between skilled and unskilled unions. There are some skilled unions which are more similar in their political effect to unskilled unions due to the fact that they have managed to legislate mandatory membership. Teachers come to mind as the most visible example of this.

 

[CycloWizard]

If the prosperity of an economy is directly proportional to its freedom (real or perceived) then this discussion would be quite simple. There are organizations (specifically promoting Libertarianism) that measure these sorts of things.

http://www.heritage.org/index/ranking.aspx

US is number #8 and Germany is #23. You can compare their labor and government restrictions to our's in an easy-to-read format. It is quite readily apparent that government spending accounts for a larger percentage of their GDP than it does here. Labor freedom is far higher here than in Germany where rages remain relatively high. Tax rates are far lower here than in Germany. You readily admit they are prosperous, so do you admit that the American economy can be even less free than it is now and still prosper?

China is taking the path of the Asian tigers. They enact policies designed to kill domestic demand and increase exports. The reason why the US has a particularly heinous trade deficit is not because of minimum wage or selfish Americans, it's because the most labor rich country in the world has tied their currency to the dollar and artificially deflated their relative costs. You're promoting a free market system of economics when our greatest competitor (#140 on the economic freedom list, btw) has enacted a system of economics designed to destroy American labor. Nothing is going to save American labor until China's currency floats and the trade deficit does what should be done in any model of international trade. It's not rocket science, it's not profound, it's not Socialism, it's a country's government controlling its currency to our detriment. The correction will ultimately mean we won't be buying as much cheap Chinese crap as we do now but we'll be better able to compete.

With regards to your other thoughts, labor mobility is not perfect. Learning new skills, demonstrably, entails a substantial investment (such as the one you made). If the millions of Americans currently without jobs decided to attend university to learn these new skills then the cost of attaining those skills increases. If they do it anyway, the value of those skills decreases.

Let's look at your job, for example. In a market with perfect mobility, individuals in risky positions would see your position and desire it. Working under the assumption that doing so requires no cost, your wages decrease to equilibrium rather quickly, as do all wages above the mean. If you move to another, even better paying, position, others follow ad infinitum. Of course, a perfectly efficient free market never exists in the real world and neither does perfect factor mobility. Perhaps you work in a position that most people are incapable of attaining due to inherent ability. Of course this leaves us where we are now, a certain group of people can't find employment and lack the skillset (and perhaps physical or cognitive ability) to find employment as prestigious as your's. What do we do with them?

I'm not an economist, so I'll go out on a limb here and propose how I see it. The economy is never in equilibrium: it is always in a transient state. The people, companies, and nations who thrive economically are the ones who see where everything is going and are the first ones to make headway in that direction.

This explains all of the mega-rich people/companies I can think of: Microsoft, major oil companies, railroad tycoons - all made their money by making an educated guess on where things were going and making a substantial investment in that direction. I doubt MS's growth is anywhere near what it was in the initial stages. Oil companies, who were a bit fortunate when their "useless byproduct" from kerosene distillation (gasoline) suddenly was needed due to the invention of the automobile, dumped a ton of money and effort into securing rights and building wells to supply the energy need of the day. Part of this was due to changes regarding the use of whale oil, among other things. While the equilibrium might be as you say, the problem with the US is that it's settling into that equilibrium rather than moving ahead.

The one industry in the US that is actually doing record business is higher education. Despite charging more and more every year, the demand is higher and higher every year. The product being turned out is still better than anywhere else in the world, so more and more foreigners are coming here to be educated. Schools (at least in engineering) are completely revamping themselves to maintain forward-thinking curricula and research programs which will continuously supply what will be needed for the next generation of engineers. I've been a part of that guessing game, and it's not easy (will company X hire someone if we give them a degree called y?), but risks have to be taken if you want to maintain your edge in the market.

The knowledge I have and developments I make will probably be worth nothing in 50 years when it is common knowledge to all engineers. That's how the propagation of knowledge works. Thus, for me to keep making money at what I do, I have to continually improve myself. When I stop learning, I'll quickly be sucked back into the pack and my value will decline very rapidly. If I instead keep reading 10 journal articles a day and performing innovative experiments based on a synthesis of knowledge from disparate fields, then I might be able to take my cut from the bleeding edge before I get swallowed up. No one said it was going to be easy, but that's how I see it.

 

[DrMrLordX]

Reducing costs is really all that matters from the businesses' POV, but your assertion that no jobs are created due to offshoring is inaccurate. There are plenty of consultant firms and staff positions created to manage overseas labour.

While this may be true, there are also plenty of American jobs lost related to the management of domestic labor. Perhaps it takes a larger HR crew to keep your outsourced labor in India properly trained and in line, but still . . .

Also, who says that it'll be U.S. jobs that are created to design, build and maintain automation systems?

To the best of my knowledge, Japan is still a leader in industrial automation. Odds are that they will benefit the most from the continued industrial automation, at least from a product supplier point-of-view.

And when you go into heavy student debt for all that education to bring yourself above the person in Bangladesh along comes someone from China or India able to do your highly skilled job for much less, but look at the bright side at least you made your educators and the government richer through all that money you spent getting educated.

Student debt scares the hell out of me. I've had three cracks at higher education without debt (thanks Mom & Dad) and have nothing to show for it aside from a horribly-dated WinNT 4.0 administration certificate from a trade school. You can guess how many jobs that's gotten me.

Any future forays into higher education will involve student debt, which is the most horrifying sort of debt you can have. Do not want.

I was about $85k in debt from undergrad loans + interest accumulated during grad school (since I wasn't cool enough to have my education subsidized by the government). I make right around $100k now. Seems like a pretty good ROI to me. Oh, and I made my skillset unique enough that no one else in the world can do what I do.

Seems like you picked the right degree(s) then, and cared enough to follow through on it. Not everybody makes the right decisions . . . hell, not everybody even cares much about what they see staring back at them in the mirror.

Apparently I'm one of twelve Americans left that realizes that the world doesn't owe me anything and if I want a stable job, I have to do something which will allow me to maintain a stable job in the face of competition.

I think a lot of people, myself included, understand that. What I (and hopefully others) understand is that, when there's a competition involved, it is possible to lose despite one's best intentions.

There was an age in the US of A when people who were impoverished were viewed by many as feckless, lazy, worthless, and not deserving of a helping hand. Now that we've got a lot of hardworking people drowning in debt, suffering in lousy jobs. or just flat-out unemployed, we're seeing a lot of people who would have earned the esteem of their peers as being industrious and self-sufficient in days of yore floundering and failing.

It used to be that an industrious soul could get by, or even thrive, but today, there is less guarantee of that. You've really got to be industrious, clever, and sufficiently self-absorbed to really care about your career all of the time (or most of the time anyway). Many can't manage the clever bit, and others commit the crime of being dispassionate about personal monetary success. You really can't just "get by" anymore, you've got to succeed, and not everyone can actually do that. So what do you do when what used to be wheat is now turning up chaff?

Why would you expect job security if your only skill is attaching one nut to one bolt all day every day?

Well, problem is, plenty of local governments/school systems sort of sold this idea for years in the United States. The local city school system, which is now non-existent, used to exist for little reason other than to crank out mill workers. Then the mills (and leather factory, and cement factory, and later steel foundries) closed, and the school system went to hell before the city just decided to defund it and put it out of its misery, at which point the county school system was forced to take it over and rehabilitate it due to somewhat-arcane state law.

A hell of a lot of people here were sold a false bill of goods by shortsighted people that wanted to cultivate a cheap, local workforce. That cheap, local workforce was left holding the bag after the mills closed.

It doesn't mean that protectionism would have stopped that, per se, or that it could help rebuild manufacturing in the United States now . . . it's just that some people aren't going to make it in today's environment. The potential might be there, but the potential for failure also exists.

 

[DrMrLordX]

Really? Most of the time, in measures of economic health, generally about half of Europe seems to whip most of the world.

Yeah, but what about the other half? Look at Greece. Oh, the agony.

As I've said above, I think most "soft" socialist regimes will run into a lot of trouble from flagging capital distribution due to the effects I've outlined.

There is one critical flaw in the analysis in the OP that I think has wormed its way into your assessment as well. A crucial part of the OPs analysis is that demand is finite. The total demand for goods and services is not finite, or if it is, we have not come close to seeing the limit. But, it is true that some markets are saturated, and have little room left to grow currently. It is all the time it takes from losing a job until some other employer finds a use for that worker that should make up the best parts of unemployment.

As I stated in the OP, demand is in flux, but right now demand relative to supply is declining. That was sort of the crux of my entire argument. Automation kills jobs universally, killing demand, which in turn leads to the death of a few more jobs . . . things settle out, and the norm is a higher unemployment/underemployment rate.

This continues through multiple boom/bust cylces, and U6 slowly creeps higher and higher as time goes by.

Take a step back and consider the current farming situation. It was not that long ago that over 50% of our workforce was needed to keep us fed. Now, we need less than 2%. The 48% of our workforce that was displaced from farming is not idle. In fact we have added more and more of our population to the workforce since that time.

Right, but those displaced from agriculture had somewhere to go: cities, where they engaged in manufacturing and in activities fed by the growth of the manufacturing sector(s). Where do they go now, is the question? Back to school? That's the most common answer, and I think we can all see where that's going.

 

[Cerb]

Yeah, but what about the other half? Look at Greece. Oh, the agony.

As I've said above, I think most "soft" socialist regimes will run into a lot of trouble from flagging capital distribution due to the effects I've outlined.

Any regime that spends significantly more than it can make will have these problems. Extra spending can be helpful in smoothing downturns, and also getting a head start when things turn around, but too many organizations (both public and private) do not get even on their debt after it starts to gets good--they'll do that later, when things are even better! As such, they promise to produce later (debts and deficits), but as time goes on, they don't make any attempt to follow through on that promise.


Quagmira has a budget of 100 giggities. Things turn south, so they have to borrow 20 giggities, to keep it from going all Great Depression. Loan, creating a deficit--doesn't matter, here. Now, things turn up, so they want to jump-start everything, and borrow another 30 giggities.

Now, not even counting interest, Quagmira owes half of what it could make before the downturn. But, it's got enough IOUs to help make up for it. So, everything is good, now. *drumroll* But, it's not quite good enough, you know? So Quagmira borrows another 100 giggities over the next ten years, but still doesn't bother to pay off the original 20 giggities. They can do that when their industries are making more. The excess must get put towards what is owed, eventually. If not, all it will take is one little bust, for just one major creditor to call in, to begin a downhill slide.

The soft socialist states that do this over and over again will have it worse sooner, but every country that does it is going to get theirs, at some point. Also, AFAIK, every developed nation has done this to some degree, but some of them wizened up and started fixing it...well, we did that, too. Some of them did that, and then didn't stop doing it.

Automation kills jobs universally, killing demand, which in turn leads to the death of a few more jobs . . . things settle out, and the norm is a higher unemployment/underemployment rate.

This continues through multiple boom/bust cylces, and U6 slowly creeps higher and higher as time goes by.

I think where you are right here is the actual amount that different classes in the US can have/spend. Daishi's argument that demand goes out infinitely in both directions is fine for price setting/checking, but when the wealth is going to (a) the rich, and (b) former colonial slaves, this added efficiency does not bring wealth back to the lower classes in the US, that were part of creating it (IoW, using those theoretical textbook definitions, you aren't really talking about supply and demand).

 

[werepossum]

The closest remaining professional structure to the guilds of old would be academia. Oddly enough there remains a very similar pay structure for apprentices (students), journeymen (post-docs, and tenure track faculty), and the masters (tenured profs). It's also no coincidence that the system is in the process of radically changing (tenure is a dying institution) in the face of massive oversupply of apprentices and journeymen.

Great post BTW. It's sad that all unions often get lumped together in political rhetoric. I agree with your sentiments about skilled/unskilled unions, as well as your reasons. I would add one important note to the broad distinction you made between skilled and unskilled unions. There are some skilled unions which are more similar in their political effect to unskilled unions due to the fact that they have managed to legislate mandatory membership. Teachers come to mind as the most visible example of this.

Good points, thanks.

 

[daishi5]

I think where you are right here is the actual amount that different classes in the US can have/spend. Daishi's argument that demand goes out infinitely in both directions is fine for price setting/checking, but when the wealth is going to (a) the rich, and (b) former colonial slaves, this added efficiency does not bring wealth back to the lower classes in the US, that were part of creating it (IoW, using those theoretical textbook definitions, you aren't really talking about supply and demand).

It depends on the argument being made. The idea that demand is finite, would be a new argument to me, but it looks like this is an idea that is as new as the wealth of nations. Unless I am wrong, this is just a new version of the "machines are taking our jobs and creating a permanent class of unemployed, while moving all the wealth to the rich" theory.

The idea that this is a new ground-shaking change in our economy is almost as old as automation itself. Supposedly, the combine, automatic loom, steam engine, assembly line, computer, and the robot where all changes in the way we work that were going to destroy the economic paradigm of Adam Smith. This goes back to my statement earlier about the total demand is infinite (as far as we know or care), but demand for each product is finite. The workers who are displaced by automation are not useless, and people still want more stuff that they could make. The problem is that we haven't found a use for them yet, and that is made much worse by the current economic client. As BigDH01 said, the labor mobility has costs, it takes time for workers to learn new skills, and I think over time that cost between jobs is going to continue to rise. But the automation and complexity that increases the training costs of moving between jobs also makes those jobs more useful and justifies the training costs. I would not be surprised if the normal rate of unemployment rises over time, but the industrial revolution is not new, and it is not destroying the way we work yet.

 

[piasabird]

Is this in English?

 

[Cerb]

As BigDH01 said, the labor mobility has costs, it takes time for workers to learn new skills, and I think over time that cost between jobs is going to continue to rise. But the automation and complexity that increases the training costs of moving between jobs also makes those jobs more useful and justifies the training costs. I would not be surprised if the normal rate of unemployment rises over time, but the industrial revolution is not new, and it is not destroying the way we work yet.

However, there is no magical place to go, or thing to learn. It's more than just automation. Someone above the displaced workers has to want to invest in said displaced workers, since basically every option involves spending money into making a worker for another field (while less so than dedicated training, on the job training still incurs such costs). If actual costs of living remain high enough, along with government impediments (new hires aren't exactly cheap), unemployment may continue to grow, despite a workforce being available. Much of the capital that upstarts could use to help fix the problem is going elsewhere. You could manage to find some market that might be good to produce things for, but still not have any way to serve it.

The workers who are displaced by automation are not useless, and people still want more stuff that they could make.

They did not become useless because of automation (Chinese workers are no more or less robots than US workers). They became useless because they were discarded as producers, but still left to be consumers of the same classes of goods they used to be part of producing. When technology makes things easier, you can produce and consume more, as long as the rewards for the production increases are reinvested back into the people that were displaced by it. That hasn't been happening for a few decades now, in the US. As long as it keeps not happening, the OP's vision of the future (the present, but worse) will be seen, until we get enough civil unrest to shake things up.

Instead of a new innovation creating a situation where those with capital are thinking, "what can we do to make money with this new potential workforce," they have been thinking, "what can we make cheaper in the third world, to sell at slightly lower prices, but also slightly higher margins, to these guys who are continually making less of any real value?" Meanwhile, as wages have been stagnant, but costs have been rising, the people have been thinking, "man, I wish I could get this cheaper," instead of, "why is this all getting to hard to pay for, these days?"

Compounding this, of course, we owe other countries, and our future selves (deficit), way too much, compared to what we actually offer anyone (including our future selves).