Friday, October 30, 2015

Recommended Reading: "A Radically Beneficial World: Automation, Technology and Creating Jobs For All"

From Charles Hugh Smith's new book, "A Radically Beneficial World:  Automation, Technology and Creating Jobs For All"

There’s another driver of automation the conventional narrative misses: the rising costs of human labor.

Unlike a human worker, a robot doesn’t require healthcare insurance, worker’s compensation, 401K pension benefits, and all the other costs of labor overhead. A robot doesn’t go on strike for higher wages.

As socio-economist Immanuel Wallerstein has observed, the cost of labor is rising globally as a result of structural forces that are immune to productivity gains, recessions, tax credits or other factors:

1.    Urbanization
2.    External costs  (environmental damage, etc.) that must now be paid
3.    Rising payroll taxes as the public demands more services from the state

These trends are especially visible in China, which has seen wages soar, costs of pollution control soar and demands for state services soar.

So where does this leave us?

•    Technology no longer creates more jobs than it destroys.
•    Profits decline as automation commoditizes labor, goods and services globally.
•    Digital and robotic tools are falling in price while the cost of human labor inexorably rises.
•    As costs of automation plummet, barriers to entry fall and competition increases, pushing everyone into automation if they want to survive.

As profits fall and jobs are eliminated, the tax base narrows and the state collects less tax revenue. Even the state must automate to reduce costs.  

Put all these together and the conclusion is inescapable: the conventional narrative solutions (belief that more jobs will be created than destroyed, guaranteed income for all) are wishful thinking.

The same can be said of calls for the state to hire tens of millions of displaced workers in a supersized make work program—where is the money going to come from as tax revenues falter?

Yes, government can borrow money, but this is not a sustainable way to fund tens of millions of jobs. If profits and job growth aren’t coming back, borrowing money is a temporary stopgap, not a solution.

Kindle edition available here:

Monday, October 26, 2015

The Minimum Wage Fairy Tale - In Wonderland, demand curves don't slope downward

Via the Foundation for Economic Education . . .

I spend a lot of time talking and writing about the minimum wage. I do so because it sears my economist's soul to encounter a policy that is as popular with people as it is poorly understood by them.
Opinion polls consistently show that an overwhelming portion of Americans — about 75 percent — support raising the minimum wage. Yet there is no economic principle that is more solid than the one that explains that raising the cost of engaging in some activity (such as employing low-skilled workers) results in people engaging less in that activity.
Just as someone trying to sell a house knows that the higher the asking price, the fewer are the prospective buyers for the house, everyone shouldknow that the higher the wage that a worker charges for his labor services, the fewer the prospective employers for that worker.
This fact holds when the government — through minimum-wage legislation — forces the worker to raise the wage he charges.
Although it's obvious to me that artificially pushing wages up through minimum-wage legislation causes some low-skilled workers to lose their jobs (or to not be hired in the first place), it's clearly not obvious to most of my fellow Americans. So I ask, “Why not?”
Article here:

Tuesday, October 20, 2015

Goodbye Middle Class: 51 Percent Of All American Workers Make Less Than 30,000 Dollars A Year

We just got more evidence that the middle class in America is dying.  According to brand new numbers that were just released by the Social Security Administration, 51 percent of all workers in the United States make less than $30,000 a year.  Let that number sink in for a moment.  You can’t support a middle class family in America today on just $2,500 a month – especially after taxes are taken out.  And yet more than half of all workers in this country make less than that each month.  In order to have a thriving middle class, you have got to have an economy that produces lots of middle class jobs, and that simply is not happening in America today.
You can find the report that the Social Security Administration just released right here.  The following are some of the numbers that really stood out for me…
-38 percent of all American workers made less than $20,000 last year.
-51 percent of all American workers made less than $30,000 last year.
-62 percent of all American workers made less than $40,000 last year.
-71 percent of all American workers made less than $50,000 last year.
That first number is truly staggering.  The federal poverty level for a family of five is $28,410, and yet almost 40 percent of all American workers do not even bring in $20,000 a year.
If you worked a full-time job at $10 an hour all year long with two weeks off, you would make approximately $20,000.  This should tell you something about the quality of the jobs that our economy is producing at this point.
And of course the numbers above are only for those that are actually working.  As I discussed just recently, there are 7.9 million working age Americans that are “officially unemployed” right now and another 94.7 million working age Americans that are considered to be “not in the labor force”.  When you add those two numbers together, you get a grand total of 102.6 million working age Americans that do not have a job right now.
More here:

Sunday, October 11, 2015

"Why We Work" - A Review

Physicist David Bohm in his 1977 Berkeley lecture observed that “reality is what we take to be true. What we take to be true is what we believe… What we believe determines what we take to be true."

"In a particularly palpable manifestation of this symbiotic dance, the rise of workaholism and the toxic mythology of work/life balance have warped our understanding of why we work, what meaningful labor means, and how we can avail ourselves of the true rewards of our vocation. That's what psychologist Barry Schwartz explores in Why We Work – an inquiry into the diverse sources of satisfaction in work, the demoralizing effect of incentives, and how we can reimagine work culture to enlarge the human spirit rather than contract it."

Schwartz, who has previously studied the paradox of choice and the moral machinery of practical wisdom – casts the issue against the staggering statistic that, according to a recent Gallup study of 230,000 full-time and part-time workers in 142 countries, only 13% of people feel engaged and fulfilled by their jobs. He writes:
"Work is more often a source of frustration than one of fulfillment for nearly 90 percent of the world’s workers. Think of the social, emotional, and perhaps even economic waste that this statistic represents. Ninety percent of adults spend half their waking lives doing things they would rather not be doing at places they would rather not be."
This, of course, is far from new – one need only look at that marvelous 1949 manifesto for avoiding work to appreciate that enduring frustration. But Schwartz's central point is that, far from a necessary sunk cost of making a living, this profound dissatisfaction with work is one of our own making – the product of how we've designed our institutions, how that design has shaped our core beliefs, and how those beliefs in turn shape who we become. 

From a review of Barry Schwartz' new book "Why We Work," which can be found here:

Friday, October 09, 2015

Do We Need to Raise the Minimum Wage so "People Who Work Full Time Don't Live in Poverty"?

From the Foundation For Economic Education:
Critics of the minimum wage used to be able to respond to arguments for raising it by stretching the logic to its extremes. If $10 is so great, why not $20 or $50 an hour? The reductio ad absurdum should cause even the staunchest minimum wage advocate to ponder the potential unintended consequences of their ideas.
Unfortunately, we now live in a world where caricatures have become reality. Sen. Elizabeth Warren wonders why we don’t have a $22 minimum wage (I explain why she doesn’t have much to ponder here), and Sen. Bernie Sanders has now joined the “Fight for Fifteen.”
For the moment, let’s set aside the economic debate over whether the minimum wage costs jobs. (The CBOmajority of economists, and majority of empirical studies pretty much say it all.)
Instead, let’s address Sanders and Warren's moral argument for hiking the minimum wage to such levels: that “no one who works full time should have to live in poverty.” 
Article here:

Sunday, October 04, 2015

When Work Is Punished: An Analysis Of Increased Minimum Wage And The Welfare Cliff

Wage growth - or a persistent lack thereof - has become something of a hot topic in America. 
Thanks to the nationwide push for a higher pay floor (personified by mobs of angry fry cooks demanding $15/hour and Democrats on Capitol Hill who are pushing hard for "$12 by ‘20") and wage growth’s role as an input in Janet Yellen’s mental "liftoff" model, everyone from Main Street to Wall Street feels compelled to weigh in. 
The standard criticism of hiking the minimum wage is that forcing employers to pay more will simply result in layoffs and/or a reduced propensity to hire, but as we saw with Dan Price and Gravity Payments, there are a whole lot of other things that can go wrong. For instance, higher paid employees may not understand why everyone under them in the corporate structure suddenly makes more money and if people who are higher up on the corporate ladder don’t receive raises that keep the hierarchy proportional they may simply quit. 
But while politicians, pundits, and economists run in circles perpetuating a debate that’s better suited for an undergrad introductory economics course than it is for the national stage (it’s really quite simple, as New York Burger King franchisee David Sutz made clear when he told CBS that "businesses are not going to pay $15 dollars an hour [because] the economics don't work in this industry [given that] there is a limit to what you're going to pay for a hamburger"), there’s a far more troubling situation unfolding behind the scenes and it harkens back to an issue we discussed at length almost three years ago. 
In short, the welfare system punishes work and incentivizes dependency. More concretely, the structure is such that rational actors will eschew hard work, because the more they earn, the poorer they will effectively be in terms of total resources (calculated as welfare benefits plus earnings). 
In the simplest possible terms: for many Americans, wage growth is a very, very bad thing.

Friday, October 02, 2015

Today's (Ficitional) Jobs Report

The 5.1 percent reported unemployment rate is inconsistent with the collapse of the labor force participation rate (which is at a 40 year low) and is "accurate" only because it includes not a single one of the millions of discouraged workers. The way BLS gets a low and comforting rate of unemployment is not to include most of the unemployed.
Were were the new jobs? If you can believe the numbers, despite the absence of retail sales growth, retail stores hired 23,700 new workers. Ambulatory health care services and hospitals hired 28,400, and 20,700 jobs were created for waitresses and bartenders. 
None of these jobs produce exportable goods and services.