The Great Decoupling
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The market for most types of human labor is soft in advanced economies, and getting softer. We don't grow the economy by assembling a huge workforce to do/build something, we grow it when (relatively) tiny teams build a new tool, create a new market or disrupt an existing industry.
One could argue that there are lots of projects out there that could use people to do physical labor. My response to that is that it has become extremely expensive to employ workers in physical jobs in the US, due to declining health of the general population (obesity, etc) and the overhead of things like disability insurance/worker's compensation. Since the US has essentially no social safety net to speak of, the primary source of welfare ends up being workplace injury-related benefits. This produces a powerful secondary-gain situation that incentivizes injury for those who work physical jobs.
I don't think people intentionally get hurt of course, but rather when they do sustain an injury it becomes economically advantageous to prolong it as much as possible since the job is hard and their pay for working is so low. Usually it's the only way for menial laborers to get a paid vacation, and (sadly) getting permanent disability benefits is like early retirement.
I'm not advocating for getting rid of those benefits, but rather changing the incentives so that working pays more, everybody gets some form of paid vacation, and that there are safety nets/alternatives for the poor. We need to recognize that our economy simply needs fewer people working to function (I don't know if the basic income is the right solution, but it could be).
It also correlates closely with the decline of labor unions.
The US was very strange at the time in that most people viewed themselves as upper middle class. Of course they weren't but the idea let many people look down on union members as an undeserving underclass. That in turn was used by capital owners to create support for legislation outlawing activities by upstart union members against the more deserving mid and upper classes.
Not at all. Bizarre is the need to immediately jump to such invective.
I stand by the phrase bizarre.
Speaking with disdain doesn't make your position any stronger or more correct.
You've already revised your position, to one that I think is still overly broad and simplistic, but one that I think is common and thus not bizarre.
If I were to describe my thoughts on the particular point in history its that Reagan's action was an effect of the decline of labor unions, that occurred because in many ways they had accomplished a lot of their stated and most approachable goals. The only reason he could get away with it was because the unions had lost so much of their sway. They didn't lose their sway because he fired striking workers.
You also see that it was not confined to the US as Thatcher was doing similar things in the UK.
Bear in mind that improves is present-tense for a reason.
Want to join the Industrial Workers of the World?
Imagine being SEOA (Software Engineer Association of America) Level 1 certified and never having to do Fizz Buzz at an interview again. Or a Glassdoor-like employer database that gives you a clue what you might be walking into. Independent health insurance coverage, etc. There could be lots of great ways it would improve the average engineer's life.
That's also what guilds do.
"The recruiters accepted our exemptions because they were going after bigger fish: the engineers. The computer engineers who work as W-2 contractors are generally earning $100-300/hr and often work 60-80 hours per week. The recruiters were afraid that if such workers were entitled to overtime pay, the companies may cut overtime work, and therefore the recruiters would lose their 30-50% share of that money (this can be much as $6,000 per week to a recruiter for a single worker.)
Engineers have always refused to organize or even to be aware of their interests: they think recruiters are their friends. One engineer said to me: "Engineers think they're so smart that no one could do such a thing to them. Wow. They got really screwed." The law is an annual loss of as much as $50-75,000 dollars per each engineer. Yep, it's legal. The recuiters wrote a law to take away their money. Silicon Valley engineers were plundered by their "friends"."
I have a friend who is a private investigator. His typical day is following a person like this around, filming from a distance, eventually gathering up enough evidence to prove the fraud. Business is booming apparently.
As hip as this statement sounds, what quantitative evidence do we have for it? I'd blame financialization before I'd blame computerization, simply because high-tech products and services simply don't account for that large a portion of GDP.
On the other hand, the mechanization thesis does seem to suit something like what happened in manufacturing: output stayed the same or went up, but employment dropped consistently or was shifted to cheap-labor countries. There, at least, experts have examined numbers.
But again, the other big set of examined numbers is about financialization, which has showed that as the portion of the economy devoted to finance went up, and the "output" of the financial sector went up, the productivity and output of the non-asset economy stagnated.
Until you know exactly how Google is a real company, it doesn't much look like one. And my experience is that explaining this can be a challenge.
But, say, a textile worker in the 1950s had about as much marginal production as they do now. So the textile work goes to where that's good enough - for now. Eventually, it gets automated.
I think what's really decoupling is price and value-as-utility. My Dad, born in the 1930s, had three shirts, two pairs of pants and at most two pairs of shoes until he went in the the military. That wasn't unusual. Now, I can buy a decent shirt for what I make in minutes.
I think it was Megan McCardle who noticed that in the "Little House on the Prairie" books, they could not afford a third tin cup for Carrie, the baby. Yet the Ingalls were middle class for their time and place. That time was right before the big productivity boom in farming - from mechanization.
the wealth of the economy as a whole didn't grow much, but the number of shares in that economy did and were taken by one sector - massively devaluing everyone else's share.
1) Women entering the workplace. This increased the supply of workers without increasing demand, which drives down prices.
2) Global trade. Post WWI it was the US >> Western Europe >> Everyone else. By the 1980's Japan was resurgent and the third world started opening up factories. Unskilled factory workers had been solidly middle class, but now they have to compete with someone in the third world making dollars a day.
3) Growth of financial sector that doesn't employ nearly as many people as the GDP it creates.
Women earning salaries led to higher consumption.
I don't think people intentionally get hurt of course, but rather when they do sustain an injury it becomes economically advantageous to prolong it as much as possible since the job is hard and their pay for working is so low. Usually it's the only way for menial laborers to get a paid vacation, and (sadly) getting permanent disability benefits is like early retirement.
Well put. This was a topic explored in detail by This American Life (with Planet Money) in the episode Trends With Benefits:
http://www.thisamericanlife.org/radio-archives/episode/490/t...
You've articulated nicely the conclusion I drew listening there (and, well, I'm sure they articulated pretty well themselves.)
I would argue it's not unions, it's not just computers, it's not globalization, it's not physical jobs being expensive to hire in the US, it's that you just need fewer people to do the same stuff period.
Across the economy you have examples where low to medium skilled labor is being replaced. First it was manufacturing, next it will be low skilled white collar and so on. Where do those people with low to medium skill jobs go?
The fundamental question is whether the information tech revolution is going to have the same effect as the industrial revolution, where eventually everyone ends up better off, and we create broad prosperity. And even if we can build that society, change is happening pretty fast so we may not have the time to create it.
It's pretty easy to see a dystopic future where you've only got high education/skill engineering/AI/whatever people at the top, and a large mass of low to medium skilled labor that have been entirely displaced by the inventions of the former. It's not clear how we avoid that, and I'm not convinced the solutions the authors advance are effective.
Something I have only recently been realizing is just how much of a business transaction is not automated yet. There are still many, many jobs that involve updating Excel spreadsheets.
I think people tend to equate "manual labor" with physical labor. There are a ton of business/cubeville jobs that will get automated in the next 20 years.
It will take that long because businesses can still make money with manual business processes, they just can't scale. And it takes a special kind of business owner to care, to want to grow beyond a successful business to a billion dollar enterprise.
We also had the big China buildout which idled a lot of factory labor. I'd be willing to expect that to reverse course over the next decade.
In the near past, this focus improved the economy, but now I think we're in a stage of overoptimization of short term profits over real value. You can see where real GDP is now beginning to tail off in the charts - it happens later than the salary drop but it's there. Company lifetimes are getting shorter (showing misallocation of risk & R&D, and less buffer to weather mistakes & downturns), general numbers of new business starts are lower (suspect this is a side effect of less time & salary for workers).
Worker salaries are hit as a big side effect too.. how you do quantify long term value of a worker - it's easier to quantify short term worker outputs as shallow primary effects and ignore the longer term secondary effects of retention and experience. Now compare fuzzy secondary effects against the calculation of short term profit projections. You can see how jobs are easily slashed, or moved overseas... even if three to five years down the line you lose some efficiency (it's not quantified so it doesn't exist in a cost-benefit trade off).
Couldn't the other solution be less greed on the part of business owners? It seems like the bigger issue is that they just aren't paying their people enough.
Actually solving this crisis necessarily involves widening the Overton Window to include things like "strengthen labor in its bargaining position against capital" and "reduce the economic rents charged on land, natural resources, and intellectual 'property'".
Greed has very little to do with the problem. If one business pays their employees slightly less, and gains an edge over the competition by doing so, it forces their competitors to either adopt the same lowered pay rates, or slowly be defeated in the market. Only one "bad" actor has to be 'greedy' to force the entire market to chase lower wages. Often this can become a self-perpetuating system, driving down wages.
It is probably impossible to prevent this sort of behavior. The incentives to avoid chasing lower wages do not exist, or are very weak. Also consider that higher wages increases incentives for businesses to automate labor. Even if you create a higher minimum wage, the pace of automation will increase.
The fact of the matter is that the supply of jobs now no longer matches the number of employable people, and the supply will continue to shrink, indefinitely.
> It is probably impossible to prevent this sort of behavior.
> The fact of the matter is that the supply of jobs now no longer matches the number of employable people, and the supply will continue to shrink, indefinitely.
Hence why you tax productivity, and provide a strong social safety net with it (we will eventually need to go so far as a basic income, I'm sure of it). This graph from the BLS illustrates where those gains we're taxing come from (hint: software/automation productivity gains).
Regulation is the only solution to enable a fair playing field for all, citizens and corporations alike.
in my company, we pay our most-senior engineers above-market wages, for a variety of reasons including retention, schedule demands, etc. for example, we pay a senior remote sysadmin in the south/midwest $150k. we are based in southern california where that salary would still be above-market.
the truth of the matter is even if we paid him 200 grand, his real income would probably not be as good as it was 30 years ago. our local california engineers can't afford houses+family no matter how much we pay them (within reason - assuming single income). i know people from the previous generation who own multiple houses on what were modest single incomes.
something fundamental is driving the cost component of everything through the fucking roof, without a corresponding increase in purchasing power. employers/managers can be only so generous - the dollar just isn't going as far.
in other words, the actual purchasing power is accruing at the very very top in an entirely different class of ultra-rich people. small biz owners, middle managers and employees are getting shafted even though everyone is trying their hardest to keep things on an even keel.
a) House prices are correlated to what the maximum monthly mortgage a household is willing to pay in a geographic area. For most of developed world, the average household now has two income earners.
b) The previous generation benefited greatly from the suburbanization of cities. Cheap land was converted into reasonably priced housing (subsidized by highway expansion). We've reached the point where this cheap land is now so far from the city center that the downsides (commute, job opportunities) exceed the cost savings.
c) We are seeing large economic network effects in agglomerating around fewer large metros (ex: NYC, LA, Bay Area, Chicago, Houston, DFW, Atlanta, DC). These metros have not responded with sufficient housing construction or transportation infrastructure despite the continued growth in population.
If I had to guess, the "something" is the conversion of capital gluts at the top of the economy, boosted by cheap borrowing rates, to drive speculative bubbles in all available "assets" -- things you can invest in to get a capital gain. Since most of the world doesn't tax land values, land values have soaked up much of the speculation, making real-estate unnaturally, uselessly expensive across most of the civilized world.
I've always wondered what the best way to prevent this would be... if non-residents were prevented from buying more than a single small property in a country, would that help at all?
Land-value tax is what experts generally recommend.
You'd make the U.S. more like Europe, basically.
It's the difference between describing what you'll do and what you want to happen. Too many people simply state the latter and then declare victory. "Why don't we just solve global warming by producing less CO2?" To me, "less greed" is solidly in that category.
http://en.wikipedia.org/wiki/Nixon_Shock
Association of course does not prove causation, as a graph of murders and IE usage will demonstrate. But it is suggestive. I wonder if the unlimited leverage that the financial system had access to after the gold window closed allowed them to suck out more and more of the productivity gains.
This graph suggests that this might be so:
http://www.yesmagazine.org/blogs/david-korten/images/financi...
Rather than needing to use leverage, as you suggest, they just directly filtered the increased productivity gains to the top of the company.
Also, I'm not really sure that your graph shows anything except that the financial industry has been growing since the 40s.
A lot of things happened at once, I think.
The last one, in the 1920s, was caused by ill-managed prosperity, I would argue. You had sudden gains in agricultural productivity, which led to crashing commodity prices, which eventually led to rural poverty. One might have "expected" farmers to move into the cities and become the new middle class, and some did, but that doesn't work out so well when thousands or millions of poor, hungry people are doing the same thing. What was just "rural poverty" (of course, half the country was still rural) in 1925 became more widespread by 1927-28 (noticeable slipping demand for consumer products) and finally was recognized as a Great Depression after it tanked the stock market in 1929-32.
We have, in 2015, a lot of ill-managed prosperity. We have a culture in Silicon Valley that glorifies ill-managed prosperity. (What else do you call funding Clinkle?) And the same thing that happened to food prices in 1900-30 (slow at first, accelerating toward the end) is happening to almost all human labor in 1985-2015.
It may not end well. Including the damage brought by the war, I'd argue that most of Europe didn't get out of the Depression (manifest somewhat differently over there, especially in the fascist countries) until the late 1950s.
No one really knows the exact trigger, but a popular opinion seems to be that the Smoot–Hawley Tariff Act made it worse -although even that is debated.
The stock market crash lead to margin calls and the sudden evaporation of millions of dollars of wealth and that probably triggered a cascade effect, as business obligations could not be met due to the sudden loss of wealth.
One-day crashes make headlines but aren't that damaging to the underlying economy unless it's already very brittle.
Who do you propose manage it? That seems overbearing, to assume that some entity can do a better job managing the wealth of those who earned it. Wealth inequality will always be with us, just as it has all throughout history. In a free market, bad decisions are punished through the loss of wealth.
certainly an adorable point of view, but most wealth being transferred internationally these days is captured through exploiting natural resources (hundreds of millionaire Saudi Princes) or outright bribery/graft (many chinese political officers buying up California, many russian political and corporate officers buying up London and NYC).
There's a reason middle eastern and russian rich people buying up Manhattan real estate insist on installing 3 bullet proof panic rooms throughout their apartments. Stealing resources and exploiting people grows your enemies list considerably.
Not all wealth comes about because a 28 year old IPO'd their billion dollar social flimflam startup.
> bad decisions are punished through the loss of wealth.
We've lost that ability in any meaningful capacity.
Lumber Liquidators stock fell 80% on the management's bad decision to use crappy Chinese flooring, so that is one example of bad decisions leading to loss of wealth.
Wake me up when HSBC sees meaningful fines or when Putin has his $70 billion in illegally acquired wealth confiscated.
People in the Hacker News sphere both exaggerate the proportion of rich people who got there in decent ways (in reality, it might be 10% in the U.S. and 2% globally) and the degree to which Silicon Valley is an exception.
Not all wealth comes about because a 28 year old IPO'd their billion dollar social flimflam startup.
Worse yet, most of the 28-year-olds who are able to get the introductions and press support necessary to make a flimflam unicorn are the offspring of those resource extractors and corrupt officials and health insurance lobbyists. It's like money laundering, but with social assets (connections, pedigree) rather than financial ones.
Jobs aren't fixed, such that reducing the number of people will align people with jobs. Reducing people will reduce jobs, so if you commit to that method of trying to get them in alignment, you'll end up tail-chasing with more and more aggressive population reduction efforts until you recognize that the approach doesn't work.
More specifically, lets say it takes 10,000 people to meet the needs of 12,000 people. You might then think it takes 20,000 to support 24,000, but you'd be wrong. Increasing production does not scale that way, there is a sort of viable minimum after which scaling is easier. So 5000 people would not be able to serve 6000 because there isn't the critical mass needed to do everything (these number are purely fictional of course).
It's like mining. It takes a lot of people to dig and move earth, but once society gets advanced enough we can have bulldozers and dump trucks, and as you need more mining you just use bigger machinery rather than more machinery with more operators - or you make them autonomous so there fewer operators.
TL;DR the number of people it takes to provide for a society is not directly proportional to the size of the population.
IMHO, people are falling behind because of low IQs and the winner-take-all economy that enriches some, but doesn't leave a whole lot for everyone else. Today’s hyper-meritocracy is amplifying the socioeconomic ramifications of individual cognitive differences such that a person with an IQ >110 is much more likely to succeed than someone with an IQ <90, whereas decades ago the disparity wasn't so obvious.
The solution, on the other hand, -I don't know. No one really knows, and that's why this is such a big debate. So many people realize that this is one of the most pressing issues of the 21st century. How are we going to develop a compromise or solution that handles automation-related jobs loss and inequality. Some propose a basic income; others want redistribution; others wants more spending on education, and so on...
From students fresh out of college and in debt, to people looking for jobs, or people who have been laid-off, we're all a part of this debate. Economics is not just for economists - now more than ever we all experience it in our everyday lives.