Monday, April 4, 2011

What Are People Good For? (part 5)

5. The Jobless Recovery

Currently we are in the midst of what is euphemistically termed a "jobless recovery." It has mystified people how companies continue to enjoy record their profits year after year while creating no new jobs. Automation is no doubt big part of this, yet it is steadfastly ignored by both politicians and the mainstream media, who pretend that some magical period of full employment and prosperity is around the corner once the recession ends and things "get back to normal." The problem with the U.S. economy currently is not so much the number of jobs destroyed, but the lack of new jobs being created for entrants into the workforce, even as output continues to increase. Right now, just 64.2 percent of adults are actively involved in the work force, meaning they are either in a job or actively looking for one. That is the lowest participation rate in 25 years. By some accounts, despite record corporate profits, unemployment is as bad as the Great Depression. Even college graduates with advanced degrees cannot find suitable employment. Real wages for college graduates have been flat or even declining since 2000.

We’ve seen that the "service economy" is pure baloney. If anything service jobs are the easiest to automate, since they are repetitive, pre-defined interactions involving cash transactions, and consumers can easily perform these tasks for themselves. Today I got cash from the ATM, filled my gas tank right at the pump, checked myself out at the grocery, and came home and bought a book on Amazon, shipped right to my door. Wal-Mart is already experimenting with automation. Robotic distribution is already here. What will happen when the "service economy" is completely automated? Besides, we cannot run a modern economy just by providing services to each other. It is like an economy where everyone just makes money by taking in their neighbor’s laundry.

Two greatly-hyped fields are health care and education. In fact, health care can be automated. Computers, like doctors, merely analyze data and draw conclusions based on stored information and past knowledge. Computers can already analyze medical data. The large amount of medical information on the Internet allows people to diagnose their own diseases often better than doctors. Biosensors built into PDA’s might allow people to perform quick and easy diagnostic tests themselves. Pills are currently dispensed by automatic machines, who never dispense the wrong amount or sell them for cash. Even surgery is just a set series of procedures. As Martin Ford points out, a radiologist’s job is even easier to automate that a housekeeper’s:

Contrast the housekeeping robot's complex visual recognition challenge with the task of automating the radiologist's job. A medical scan is, by definition, precise in terms of its scale and orientation: you know exactly what you are looking at. You don't need to worry about dealing with unknown objects oriented in different ways. In fact, the entire point may be simply to locate something out of the ordinary, such as a tumor. It is also much easier and more profitable to partially automate the radiologist's job. There would be little point to building a housekeeping robot that could only clear up some of the clutter in a home. On the other hand, if you can automate 20 percent of the radiologist's more routine work, then you can immediately eliminate one out of five radiology jobs.

And where is the money going to come from to pay the healthcare workers if those needing care cannot earn it? The sick and dying do not earn an income. The only other way is to tax productive workers to pay for those needing care (as is currently done in developed countries outside the United States, and in the U.S. via Medicare). If there are no productive workers, who is going to be taxed to pay for health care? Are the wealthy going to allow themselves to be taxed just to provide healthcare for the rest of us? Don't bet on it. Medicare is already under assault in the United States.

As for education, there is always a drive to get more computers in the classroom. Why not just have the computers teach? They know everything and never make an error. If you had a computer like Watson, you could even ask it questions. Thanks to the Internet, online education may soon completely replace the need for brick-and-mortar schools, as computers allow you to learn from your own home.

And what use is education if the jobs we are educating for do not exist? We only need a small degree of truly educated workers. Primary education is paid for by the government, and as we're already seeing, schools are being closed left and right. Where is the money going to come from in the future as the incomes to support the school taxes fail to materialize? Higher education is paid for in the U.S. by taking out a loan to mortgage one's future earnings. What if those earnings fail to materialize? How will the debts be repaid? Again, the owners of the machines are not going to allow themselves to be taxed to educate a workforce they no longer need. This is already happening, as business owners realize they can just as easily get educated workers from all over the world rather than just America. Why should American companies pay taxes to educate American workers when they can get more than enough Indians, Brazilians, Europeans, Canadians, Australians, Chinese, etc., to fill necessary managerial positions, and at lower rates of pay to boot?

As for some magical "innovation" suddenly coming about and employing the masses, don’t bet on it. The thing is, the new innovative technologies of the future simply don’t employ that many people. Blogger Charles Hugh Smith has written some of the most perceptive articles on why mass employment is not coming back:

Preferring fantasies over reality is a severely weak component of U.S. society. One last example: Twitter (200 employees), Facebook (1,200 employees) and Farmville (a few dozen?) --those bright, shining beacons of Social Media--will "save" the 139 million-worker U.S. economy with their incredible "growth opportunities."

Reality intrusion: games and amusements will not employ tens of millions of residents. 


Charles has written on this subject numerous times:

http://www.oftwominds.com/blogdec08/cascading-jobs12-08.html
http://www.oftwominds.com/blogjan09/endgame-work01-09.html

The industries of the future are not actually "industries" at all. So-called digital "industries" like Google and Facebook have funding models that are highly questionable. They require few employees and no new infrastructure. Yet the media still promote the idea that some sort of epoch-making idea like Google will save the day. The automobile industry employed literally millions of workers at its height. Can anyone answer what new industry will do that today? Even Google employs a relatively scant 23,000 people (and even it has suffered layoffs). Future innovations are just as likely to eliminate the need for workers as stimulate the need for them, especially in the long run, as the history of the Internet shows.

In his much-discussed book, The Great Stagnation, Tyler Cowen points out that the low hanging fruit of innovation has already been harvested. The truly revolutionary inventions have already been thoroughly absorbed and integrated into everyday life. The discoveries between 1850 and 1950 were transformative: harnessing electricity (Siemens and Wheatstone dynamo, 1867), railroads, dams and bridges (the Hoover Dam 1935), harnessing oil (Edwin Drake’s first well, 1859), building an automotive industry from scratch (Ford’s Model T, 1913), interstate highways, telecommunications (telegraph, 1837, telephone 1876, radio 1895, television, 1935), radar, electric lights, recorded sound, powered human flight (1903, jet engine, 1942), the internal combustion engine, penicillin (1928), X-Rays (1895), submarines, basic computers, synthetic materials and plastics, artificial fertilizers, mass education, and on and on. All we’ve really done since then is perfect these inventions. What has transformed life since 1950 to that extent? Most would say computers. We really still do the same jobs, just with computers. We still drive cars with internal combustion engines, work in heated and air-conditioned offices, and watch television, just like we did in 1950. The Internet and cell phones seem transformative, but it’s really just fundamentally based on the same telecommunications principles as the telegraph, TV and radio. Cramming ever-more functions into our cell phones is hardly as transformative as the laying of the first Transatlantic cable (1866), the Transcontinental Railroad (1869), the first radio broadcast (1895), or the Interstate Highway System (1950’s).

And the few truly innovative industries of the next century will employ a scant portion of the available labor force. Biotech industries employ a few people who require years and years of expensive, highly technical scientific education. To reduce unemployment by a single percentage point would require the overnight creation of something like eleven biotech industries. The same applies to nanotechnology and pharmaceuticals. In all honesty, only a relatively small number of people have the cognitive abilities for these positions. "Green jobs" are theoretically zero-sum, since they replace workers in "dirty" industries (solar panel installers in place of oil-drillers). None of these industries will produce the hundreds of thousands of jobs needed every single month just to keep unemployment for rising. No one has yet proposed a realistic "industry" that will provide employment for millions of displaced workers, not to mention the millions that are entering the workforce after being displaced from subsistence agriculture in India, Brazil, China, Indonesia, Africa, Central America and the Middle East. People just refer to some sort of future "innovation" that will magically solve the problem, yet no one can articulate what it is. Cowen’s book makes a powerful case against that idea. As Marshall Brain points out, no single technology has threatened half the labor pool at the same time the way autonomous robots do. As Charles Hugh Smith points out, what we really need is an innovation of our institutions.

Past innovations such as the automobile also spawned a large number of subsidiary professions. You had auto mechanics, car dealers, and auto parts stores, just to name a few of a whole constellation of businesses related to the introduction of automobile manufacturing. New appliances created the need for appliance repairmen. The wages of these people supported other businesses: restaurants, diners, theaters, bowling alleys taverns, etc. creating a multiplier effect. When the factory work was automated, at least some of these auxiliary profession remained. In the future, when we will be able to order our own customized car via The Internet (God willing), fill it up at the pump with a credit card, go through the automated car wash, have it repaired by robot mechanics, and get parts in the store delivered to the checkout by robots, who will scan our credit cards, what will replace these jobs?* What about all the subsidiary jobs that rely on them - the theaters, restaurants, etc.? Here we see a key difference between the innovations of the past and those of the future. What allied professions will be produced by biotechnology? Or education? Or Facebook? Can they not be automated too? The machines themselves might need maintenance workers, but we can't all do that job. Even that may not be necessary - Marshall Brain believes that future robots will eventually learn to repair themselves. Martin Ford again:

"Historically, the job market has always looked like a pyramid in terms of worker skills and capabilities. At the top, a relatively small number of highly skilled professionals and entrepreneurs have been responsible for most creativity and innovation. The vast majority of the workforce has always been engaged in work that is fundamentally routine and repetitive. As various sectors have mechanized or automated, workers have transitioned from routine jobs in one sector to routine jobs in another. In many cases, skills have been upgraded, but the work has nonetheless remained routine in nature. So, historically, there has been a reasonable match between the types of work required by the economy and the capabilities of the available workforce."

"Now, as it becomes clear that automation is going to ultimately consume the entire base of the job skills pyramid, the conventional wisdom is that we are going to somehow cram everyone into the very top. And even if we somehow manage to do that, the jobs will be highly susceptible to offshoring, so we also have to require that the jobs be somehow anchored locally. I think this is somewhat analogous to having the agricultural sector mechanize and then expecting that everyone will get a job driving a tractor. The numbers don't work. The problem with the conventional wisdom is that it underestimates the long-term impact of automation, and it expects too much in the way of occupational acrobatics from the average worker."


It is essential to note that this problem is not confined to the United States. Unemployment is the global problem. As developing world economies are opened up to the larger global economy, mechanization, agricultural subsidies and land consolidation under agribusiness displace millions of agricultural workers, who often head to the world's major cities to look for wage work, ending up in vast slums. What are they to do? If the Pacific Rim is productive enough to be the world's factory floor, what need is there for these workers? Who will pay them? How will we invent jobs for these teeming multitudes to earn an income, with more and more needed every year thanks to runaway population growth? How are they to survive?

Unemployment has been an intractable problem for Europe as well, with rates even higher than in the U.S. In Spain, fully half of all workers under 30 cannot find stable employment. Similar numbers are reported in Ireland, Greece, Portugal and Italy. Unemployment of French youth was a proximate cause of urban riots in poor banelieus several years ago. And, as has been widely reported, mass unemployment of a burgeoning youth demographic has been an key factor in the revolutions and instability across the Middle East, which have already brought down two governments (so far), ignited a civil war, and now threatens to disrupt the global oil supply. The Japanese economy, one of the most innovative in the world with some of the world’s most advanced electronics companies has been stagnant for two decades. In Mexico, 50 percent of the population is unemployed or underemployed, driving millions to illegally migrate to the U.S. in search of work, and driving millions of others into the drug trade. Drug cartels are the de-facto government of many areas of Mexico.

Even in "booming" China, unemployment keeps the Communist leaders awake at night. The reason the Chinese government engages in currency manipulation is simple: they need to keep their currency undervalued. If the value of Chinese currency rises (as it should), it will create inflation which will result in Chinese factory workers getting paid more. The whole reason the world manufactures all of its consumer goods in China is because the wages of Chinese workers are so low that it is cheaper than investing massive sums in automation. If that changes and Chinese workers’ wages start rising, that will no longer be the case. The pressure to reduce costs will shift the cost/benefit analysis in favor of automation, and Chinese factories will become automated as well (or move to even lower-wage countries like Vietnam and Thailand), resulting in mass unemployment for China’s massive labor force. The Chinese Communist Party’s legitimacy rests entirely on providing rising living standards for its people. Once the dragon of automation is unleashed, the Communist leadership knows that there is no realistic way to employ its billion-plus workforce. Thus, it has no choice but to game the system as long as possible to keep wages significantly lower than the Western economies, or else lose control. In fact, even educated workers re finding it extremely difficult to find employment, even in China’s permanently "booming" economy:

[…] But the supply of those trained in accounting, finance and computer programming now seems limitless, and their value has plunged. Between 2003 and 2009, the average starting salary for migrant laborers grew by nearly 80 percent; during the same period, starting pay for college graduates stayed the same, although their wages actually decreased if inflation is taken into account.

Chinese sociologists have come up with a new term for educated young people who move in search of work like Ms. Liu: the ant tribe. It is a reference to their immense numbers — at least 100,000 in Beijing alone — and to the fact that they often settle into crowded neighborhoods, toiling for wages that would give even low-paid factory workers pause.


So, finally then, what is the point of all this? The whole point of all the preceding words is merely to prepare you for my conclusion, which is so essential and important that I will utilize a larger font just to drive home the point that we’ve been hurdling towards this entire time. Are you ready? Here it is:

We need to stop pretending that there will be enough jobs for everybody. There will never be enough jobs for everybody.

Got it? Good. We’ve been inventing mechanical labor saving devices for two-hundred years now (in reality, much longer than that), yet we’ve got to keep finding things for our ever-increasing population to do. The result has been that most jobs are created merely to give people some way to earn wages, not because there is some essential need for them. Much of what we do is empty-paper shuffling and useless form-filling. Most jobs are boring and repetitive. The fact is, most of these jobs were not really needed in the first place. In fact, they should be automated. As I like to remind people, couples do not bear children expressly for the purposes of filling a job opening. Why do we assume population and job needs will always match? We are taught to believe that if anyone is doing a job, then by definition that job is important and necessary. In America, steeped in the traditions of Calvinism where work is considered sacred, to say otherwise is heresy even if it plainly obvious. For all of human history since the Neolithic revolution, the trend has been has been having less and less people producing for ever-larger populations. In 1850 a single farm worker produced enough food to feed four people. Today, in the U.S., a single farmer supplies enough to feed more than seventy-eight people. The sad fact is, most of our jobs are simply make-work, and are just not needed. In fact, many jobs are even socially destructive! If the entire advertising industry vanished tomorrow, the mental health of the population would actually improve. The idea that we need advertising to help us identify goods and services long ago became ridiculous; with the Internet I can easily seek out products and services that are useful to me without cajoling and manipulation. Advertising and marketing long ago stopped serving any useful function and now exists solely as a means of social control and blight. The same can be said of a huge amount of supposedly "essential" jobs in our society, including politicians.

Certain quarters say that all we need to do is to "create jobs," and all our problems would be solved. Yet jobs are not created ex nihilo, they are created only to fulfill some sort of organic demand. What if that demand is not there? Corporations do not exist in our society to create jobs for people, they exist to create profits, nothing else. If they can create profits without creating jobs, they will do it. In fact, their every incentive is to eliminate jobs. Labor is the single largest fixed cost of any corporation; it is destroying jobs, not creating them, that increases profits to shareholders. Giving tax subsidies to corporations, trotted out by conservative and liberal politicians alike, is asinine in the extreme. Why should we subsidize what corporations should, nay must do anyway? If there is truly a need for a job, a business will create it without any sort of subsidy; if that need is not there, no tax credit will prompt a business to create a job merely for the purposes of collecting it. What would that employee do all day? Tax credits for creating jobs sounds good to the masses, after all, who could be against "creating jobs?" But all they are is a smoke screen for tax reduction; they are merely subsidizing something that would and must take place even if the credit were not there. Yet we continue to decrease our tax revenue by giving these away, so scarce are our jobs, so desperate are we for any sort of "job creation."

The lack of jobs also allows corporations to play cities, states, and entire countries against each other. Since we are told that only private industry can create jobs, businesses have enormous leverage over government, rather than the other way around. They can extract enormous subsidies by essentially extorting governments, threatening to move someplace more "amenable" to their interests. Politicians who are unwilling to engage in corporate socialism soon find themselves with an unemployed and angry populace, and are soon replaced by those willing play ball so they can tell voters that they "created jobs." Governments are also entirely dependant on these corporations for tax revenue, and so must acquiesce to their demands as fewer and fewer corporations control the economy. Things are not better overseas, with foreign counties requiring work visas to protect their "precious" local jobs and keep their own people employed. News flash: things are only precious if they are rare.

The lack of jobs allows employers to drive down wages to increase their profits. It allows companies to pit workers against each other. Workers are so desperate for the jobs that remain, they are willing to forego any type of benefits, just to get an income. It’s obvious from the most basic laws of economics: supply and demand. If the supply of workers is vast and the demand for them decreases, they will be worth less and less. There are currently six workers for every job opening. Employees are now so desperate for the remaining jobs in our society that they are literally working for free!

Keep in mind, robot workers pay neither income taxes nor social security (FICA) taxes. How will government fund itself and provide necessary support for the displaced workers? Right now, certain quarters are promoting the idea that government benefits are actually hindering people from finding work. Conservative politicians are calling for the elimination of what threadbare benefits exist today, telling everyone that they must find a job "or else." Despite unprecedented wealth concentration in the United States, taxes on high earners, inheritances, capital gains and profits are being reduced or eliminated. Income and profits can easily be hidden offshore or sheltered using our baroque financial system.

What has been the effect of this? The world has 199 new billionaires this year, an increase of 20% from last year, for a record number of 1210. They control 25% more wealth than last year, for a sum total of wealth greater than the GDP of Germany, a nation of over seventy million people and the world’s largest net exporter. Even as governments around the world are taking "austerity measures" and making cuts in social development unprecedented since the end of the Second World War, the collective wealth of the world’s billionaires has actually increased to a record 4.5 trillion dollars. Ten percent of the wealth of the richest 400 Americans would balance every state budget in the country. These 400 Americans have more wealth than entire bottom fifty percent of American households – some 120 million people. The number of billionaires in the U.S. increased 8 percent in 2011. Despite all this, taxes paid to the Federal Government are at their lowest level since 1950!

 The truth is, there are already not enough jobs to go around anywhere in the world, and no one has any realistic idea of how to change that fact. The burning question really is, why are the technical marvels at our fingertips not leading to more leisure time? Why, in the age of mechanical devices, coal, oil, and computers, are we laboring more hours a year than medieval peasants? With unemployment so high, why are Americans still with jobs stressed out from overwork? Why do we work at least eight hours each day, plus commuting time, for fifty weeks a year? Why aren’t the machines working for us, instead of us for them? A handful of factories in China produce iPods for the whole world. Another single Chinese factory produces all the printers for both Epson and HP; all that changes is the plastic shell and the box they go into for shipping. If two percent of us can produce all our food and workers on Chinese factory floors can produce enough goods for the whole planet, what do the rest of us really need do? Why aren't we all on permanent vacation?

Please read Part 1 of this article

Please read part 2 of this article

Please read part 3 of this article

Please read part 4 of this article

Please read part 6 of this article

** If we do end up with electric cars, this will be even more likely. Electric motors are less prone to breakdown and simpler to repair, much like a "plug-and-play" computer. Microchips can be installed in every part for easy diagnosis of problems. They do not need oil changes. They can be 'filled' at home with an electrical socket. See General Motors’ 'skateboard' concept.

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