2012 May 07 Monday
Total Factor Productivity And Stagnant Living Standards
Many of you are too young to have experienced the era when it was normal for living standards to go up ever year for the vast majority of workers. Rising productivity was once expected to translate into continuously rising living standards (really). In a Technology Review blog post Christopher Mims considers why hourly worker compensation has been flat since the mid 1970s while productivity per hour has gone up by about a factor of 2.5.
Here's how I would interpret the odd coincidence of these two trends: in a perfectly capitalist system, increased profit produced by automation flows to the owners of the business. Worker compensation stagnates because, while automation makes each worker more productive, it doesn't make them any more valuable. While all these machines and IT infrastructure do require a quasi-elite caste of Mandarins to keep them running, on the whole, the skill required of individual laborers has actually gone down.
It is telling that in the US manufacturing employment has dropped by about a third since the late 1970s while the total value of manufactured goods has gone up by about 50% over the same time period. With greater automation a few things have happened at once:
- Demand for manufacturing labor has dropped. Demand drops usually cause price drops. Why should labor be an exception? In fact, manufacturing labor rates have dropped sharply.
- The demand drop has been especially sharp for higher skilled manufacturing workers. Machines do more of the most difficult steps. Why? Automation raises quality. It makes sense to automate the most demanding steps because those steps are most prone to error and quality problems.
- The supply of less skilled workers has soared due to an immigration policy that favored the less skilled over the most skilled.
I do not see a reason why this trend will reverse in the foreseeable future. The capitalists will use more machines that do not need human operators. A resurgence of political support for unions will just drive more factories abroad and increase incentives for even faster development of robots. Lights-out factories with only robotic workers will make poor targets for union strikes.
My advice: Take a hard look at your job and estimate the odds of it being automated out of existence. If your risks of job skill obsolescence are high then start working on a strategy to get yourself ahead of macroeconomic trends. Even if you've been lucky in your career so far that does not mean your luck will hold out until retirement. Step up your game and try to get ahead of coming changes.
It's not merely assembly line jobs that are disappearing. Many, perhaps most, jobs involving information handling and analysis are ripe for automation. Back in the 1960s, engineering companies had numerous recently graduated engineers doing all sorts of grunt calculations with slide rules, log tables and mechanical adding machines. (A top of the line Frieden cost a couple of thousand dollars then.) All these jobs are gone. In the 1970s, I watched a small civil engineering company embrace computers. First, the secretaries and bookkeepers mostly disappeared. Then the drafters, and finally the junior engineers. Nowadays, a boundary survey can be done by one person, and the data collected plotted as a map by a computer with little or no human intervention. In 1960, that required at least three and often four people.
Even the financial industry has actually lost jobs due to computerization of trades. In 1960, all the transactions occurred on the trading floor. And now, intelligent scanning programs are replacing junior lawyers.
The real problem facing our economy is, How to distribute the wealth produced by the machines?
Not a clue.
in a perfectly capitalist system, increased profit produced by automation flows to the owners of the business.
Well he is completely off on that comment. In a ' perfectly capitalist system' there is no profit. The owners of the business would earn a little extra for the management effort of installing the automation equipment, but their real reward is in being able to stay in business as their competitors automate. The savings from automation would accrue to consumers and the equipment manufacturers mostly.
>"The real problem facing our economy is, How to distribute the wealth produced by the machines?"
>"In a 'perfectly capitalist system' there is no profit."
Then a 'perfectly capitalist system' sounds remarkably like a perfectly socialist system.
Of course the entire point of a capitalist system IS profit. Not goods and services, not a nice standard of living for the masses, not efficiency, not competition, but profit. In an imaginary perfectly capitalist system, profit would trend towards infinity, not zero.
>"their real reward is in being able to stay in business as their competitors automate"
You're confusing capitalism with the free market system. Capitalists are as much the enemy of free markets as any Soviet commissar.
>"Of course the entire point of a capitalist system IS profit."
Well, sounds like something we have to get rid of. What the hell are we doing feeding a system like that?
>"You're confusing capitalism with the free market system."
Interesting. Could you please clarify the difference. Thanks.
From Innate Social Aptitudes of Man by W. D. Hamilton:
The incursions of barbaric pastoralists seem to do civilizations less harm in the long run than one might expect. Indeed, two dark ages and renaissances in Europe suggest a recurring pattern in which a renaissance follows an incursion by about 800 years. It may even be suggested that certain genes or traditions of pastoralists revitalize the conquered people with an ingredient of progress which tends to die out in a large panmictic population for the reasons already discussed. I have in mind altruism itself, or the part of the altruism which is perhaps better described as self-sacrificial daring. By the time of the renaissance it may be that the mixing of genes and cultures (or of cultures alone if these are the only vehicles, which I doubt) has continued long enough to bring the old mercantile thoughtfulness and the infused daring into conjunction in a few individuals who then find courage for all kinds of inventive innovation against the resistance of established thought and practice. Often, however, the cost in fitness of such altruism and sublimated pugnacity to the individuals concerned is by no means metaphorical, and the benefits to fitness, such as they are, go to a mass of individuals whose genetic correlation with the innovator must be slight indeed. Thus civilization probably slowly reduces its altruism of all kinds, including the kinds needed for cultural creativity (see also Eshel 1972).
It may, perhaps, be argued that tribal consanguinity allowed enough genetic correlation with the inventors that there was, on balance, an increase in cultural creativity. But anyone who thinks technology transfer (ie: the transfer of "the benefits to fitness") is not a very real threat to the organic foundation of technological civilization is, at best, an optimist.
>"Then a 'perfectly capitalist system' sounds remarkably like a perfectly socialist system."
Unfortunately, the words Socialism and Marxism carry with them such a strong emotional load that it is difficult to discuss these topics calmly. For many persons these words are linked to "materialism", "atheism", "killings" and all sorts of harmful things. When such emotional load is present we can always expect the decay of rational and objective thinking that so much pervades these days.
The irrational reaction that the words bring about becomes reinforced by a great ignorance on behalf of those who suffer from hysteric seizures when they hear these words. Despite the fact that all of Marx and other socialists' works are available for everybody to read, the majority of those who encourage the strongest sentiments against marxism and socialism have never read a word of Marx.
RE Check It Out "Could you please clarify the difference [between capitalism and a free market]"
See http://en.wikipedia.org/wiki/Capitalism#Free-market_capitalism and following for differences in forms of capitalism, not all of which assume a free market.
Living Standards will continue stagnant and decaying. No recovery in sight.
Automation is only one aspect of labor arbitrage. Off shoring, part-timing, contract project work, legal immigration for salary arbitrage, illegal immigration. The goal of all of these is to liquidate labor and concentrate wealth in the hands of capital. It has worked pretty well for 40 years. The result was supposed to be a New Economy of bright, shiny, better service jobs. This was and is a fantasy. People don't need 6 years of college to say, "Do you want fries with that?". CAPITAL is fine with liquidating labor and hoarding wealth. They have no need to do anything else.
The economy needs to be, in order of importance: local, regional, national, global. Small is better than big. Local is better than global. No small business taxes. Tax labor arbitrage when it is a net loss to labor. Balance trade. Only Americans build our own military-industrial complex, including all electronics and computers. Exploit all natural resources with sensitivity to the environment in a common sense manner.
Multinational Globalization is a man-made construct. If the results are not adequate make another system.
Great quote from Bill Hamilton and great observation by yourself.
I am reminded of Gregory Clark's A Farewell To Alms. Probably the biggest long term harmful effect of our exit from the Malthusian Trap is the loss (really, the reverse) of selective pressures for the genetic variations that helped make the industrial revolution and scientific advances possible.
Will the trend away from genetic variations useful for civilization maintenance continue? We are approaching the point (probably beginning in this decade) where people will start using genetic testing to do embryo selection. Then in the next decade or the following on we will gain the ability to do chromosome selection and large scale gene therapy to embryos. At that point the rate of selection will skyrocket. But in which directions? But before then the selection against IQ, altruism, low discount rates, and the like will continue.
To truly understand how economics translates into quality of life issues we need better metrics, particularly ones that honestly measure the impact of negative activity. Crime, immigration, obesity, bastard children, and shiftlessness cost all of us, even the hyper-productive, and yet they all could be viewed as neutral or a net-positive because how they show up in the GDP. Simply measuring productivity and per capita income belies the amount of energy and resources spent simply to counteract anti-social behavior while not adding one iota to our real well-being.
I am at a stage in my life where most of my “needs” have already been met so the way I improve my life is by reducing or eliminating or the things I want less of. I don’t need another car, home, family, etc., so all of the things that would really make my life better either give me more time or a better environment to enjoy those things. The problem is that this becomes much harder to do on a societal level. A good example is crime. Put simply, my standard of living would improve if there were no criminals. It would free me up to go where and whenever I want while liberating resources that are currently wasted to be spent elsewhere. But how do you eliminate crime and criminals? Not easily. This explains in part why rich people want to immigrate here. You can be a billionaire in Haiti, but what is the point? If you have to use an ever increasing portion of your wealth to insulate yourself from the have-nots then you gain little.
Saul Alinsky’s entire playbook was based on this principle. It is simply extorting money from productive members of society by using thinly veiled threats of blackmail. At its core, leftism is parasitic. A large portion of whose activity is simply collecting and redistributing to the rent seeking bandits and Mafioso. Rather than use physical force, although they will do that too, their real threat is to foul up your environment unless you acquiesce to their demands. In the end it becomes a simple cost benefit analysis of whether to pay, not pay, or fight.
Its good advice. I imagine those who can work on such equipment will be in demand (those quasi-elite-mandarins). Im looking into something like that myself right now. Im glad Ive got everything paid off, house included. I dont think floor leaders and supervision will be all that much of necessity in the coming decades myself, as the equipment speaks to the company's main computer and can tell them where bottlenecks are, etc.
"My advice: Take a hard look at your job and estimate the odds of it being automated out of existence."
I wonder how many graduates will be able to adapt to a different job and perform well.
Makes me wonder if going to college and specializing in one thing is worth the trouble at all. Every species that specializes too much becomes extinct. The survivers are usually the adaptable jacks of all trades.
>"Then a 'perfectly capitalist system' sounds remarkably like a perfectly socialist system."
>"Capitalists are as much the enemy of free markets as any Soviet commissar."
I think you're confussing a social system (Socialism) with an economic one (Capitalism). It's a little like comparing a "Citizen" watch to a "Ford" truck.
Socialism is more like Democracy than Capitalism is. Socialism and Democracy have to do with Humanism, while Capitalism has to do with having more money than your neighbour.
>"I think you're confussing a social system (Socialism) with an economic one (Capitalism)."
Me and Milton Friedman, who also regarded businessmen as the enemies of the free enterprise system.
Come to think of it, Adam Smith had similar views.
Congratulations on still using the same name, btw.
No, only you. Milton Friedman -as you yourself type- regarded businessmen as the enemies of the free enterprise system, so he's talking about an economic system and not confusing systems types like you are. So don't make your ignorance extensive to Milton Friedman or Adam Smith. They are MILTON FRIEDMAN and ADAM SMITH, while your just,,,, well you're just solaris, right.
If you read Adam Smith carefully you'll see that he doesn't confuse an economic system with a social one. Maybe in your dreams or delusions you walk around like a peacock or share ideas with them at your sides.
Somebody has already called you a lier. Somebody else -or the same- has called you a narcissist. I'll just call you an angry coward.
Congratulations to you too on whatever. Fine. Great. Whatever.
I've read some of your posts and some of the harsh -but well deserved- repplies you've gotten from whoever, and I see that you really think that everybody who doesn't share your views is only one and the same person. A few posters have already put you in your place much better than I have and therefore for you the only and last refuge for your nakedness is to pretend. Do you ever consider the possibility that you could be wrong? Do you not see the kind of emotional nonsense you type? What kind of sad cartoon character are you?
I think you're confussing a social system (Socialism) with an economic one (Capitalism). That's all. No need to get all emotional. Hope you clear your thoughts. Go get a sandwich or something.
>"Milton Friedman -as you yourself type- regarded businessmen as the enemies of the free enterprise system"
Here, you simple-minded little fuckwit, allow me to quote his exact words.
"The two chief enemies of the free society or free enterprise are intellectuals on the one hand and businessmen on the other, for opposite reasons. Every intellectual believes in freedom for himself, but he’s opposed to freedom for others.…He thinks…there ought to be a central planning board that will establish social priorities.…The businessmen are just the opposite—every businessman is in favor of freedom for everybody else, but when it comes to himself that’s a different question. He’s always the special case. He ought to get special privileges from the government, a tariff, this, that, and the other thing…"
Of course the free enterprise system or "free society" is both a social AND economic system. The two cannot be separated from one another. I thought of asking you explain in your own words - without reference to any movies - what you think the difference is between an "economic system" and a "social system". Is communism a social system or an economic system? Was feudalism an economic system or a social system? But let's be honest here - in the whole wide world I doubt if there is even one person who gives a shit what you have to say on the matter.
"Every intellectual believes in freedom for himself, but he’s opposed to freedom for others"
Well I don't know much about Socialism but are you speaking from your own selfishness there solaris? If so, you can speak for yourself there buddy, cuz I just can't believe in freedom only for myself and no freedom for others. All due respect and shit, but seriously, are you a priest or something that you have so much faith in what you believe about yourself and about others?
"But let's be honest here - in the whole wide world I doubt if there is even one person who gives a shit what you have to say on the matter."
You are right about this one solaris, not many would really give a shit about what Check It Out has to say, but then again, how many people in the world do you think gives a shit about what you have to say or believe?
Really man, chill out already with all that sensitivity of yours. And enough already with the FBI or James Bond attitude about who uses what alias. Leave some room for those who want to contribute something here.
Look solaris, a social system is a lot more comprehensive than an economic one. That's all you couldn't understand. I see that you really like to use this site as your personal insulting fourm, so fuckwit yourself and the smelly cunt who gave birth to you. That is, if you were born and not thrown out through the anus in which case you were crapped out. I don't agree with you. If you consider that as a personal insult you are probably the regular narcissist solo-loving or divorced impotent fart.
Now, if you want to measure your balls against mine I'll be glad to eventually meet you and sort this matter out with the the big tough man your try to appear like. I now know that you're not only the coward I've called you, but also a mental midget in love with his own words.
It's a dare, pussy. So if you're not going to go for it, shut your snout. Or cowardly hide and dodge me behind more of your entertaining posts. Go fuck your mother. Or is it your father?
>"Well I don't know much about Socialism but are you speaking from your own selfishness there solaris?"
I was quoting Milton Friedman. Sorry if that was not immediately apparent.
>"how many people in the world do you think gives a shit about what you have to say or believe?"
Quite a few, actually. It helps if one knows what one is talking about.
>"chill out already with all that sensitivity of yours"
Being accused of sensitivity of something of a first for me. I'm not sure how to react.
>"Quite a few, actually. It helps if one knows what one is talking about."
Bla, bla, bla, bla, You bark too loud. For barking dogs like you a good kick on the snout does it. So fuck you, and you're welcome.