- Economies have been automating for 250 years since the Industrial Revolution.
- Job losses have been mostly due to automation, not trade.
- However, since the mid-2000s, productivity gains have been modest, meaning that automation has been lacking.
- A declining rate of productivity growth might be part of a tendency for developed economies to have a decelerating rate of growth.
- The Japanese model of fighting stagnation is all screwed up and the world has been imitating it.
- A new model promotes competition, productivity and equality.
- In a fully developed economy, stagnant growth might be a good thing.
- How can we increase stagnation? Four modest proposals:
- increase savings radically (reduce consumption)
- pursue high-end manufacturing
- invest heavily in education and basic research
- focus on crushing inflation and forget full employment
- Do rates of societal evolution actually decrease over time?
- One example is found in contemporary information technology.
- Another example is IT revolutions in human evolution.
- Historical economic revolutions are less revolutionary than any previous transformation.
- A scientific revolution is less profound than any previous scientific revolution.
Economies have been automating for 250 years since the Industrial Revolution.
Every type of job eventually becomes obsolete in the modern worldThe strike at GM is really all about the switch to electric vehicles, which require fewer workers to build.
On the one hand, for workers, the move to electric vehicles means the loss of well-paying jobs on a vast scale.
On the other hand, from the point of view of management, if the American automobile industry does not transition to electric vehicles immediately, in the future there will be no American automobile industry.
It's not difficult to see why American workers don't understand the perspective of management on the need to switch to EVs.
Currently in the USA, the only real interest in electric vehicles is that of affluent tech workers who are smitten with Tesla.
In Europe and Asia, in contrast, citizens and governments are pushing hard for the transition from internal-combustion engines to electric vehicles.
EVs will become cheaper than internal-combustion engine vehicles by 2025, and begin to outsell ICE vehicles by 2030.
The aftermath may be like the switch to quality compact cars from Japan in the wake of the oil crises of 1973 and 1978.
https://www.marketwatch.com/story/the-gm-strike-is-really-about-the-switch-to-electric-cars-2019-10-05
The airline industry faces its own technological transformation with the automation of aircraft guidance.
Airline pilots would then become relatively obsolete.
This is not an unprecedented development in aviation history.
Prior to the 1960s, a flight engineer assisted the pilot and copilot.
New technology made that job redundant.
A pilotless aircraft would still have a official pilot who would serve as a human backup system in case something went wrong.
Flights would also be supervised by distant ground crews in order to help troubleshoot problems.
Nevertheless, this single pilot would be paid much less and have less training and experience than current pilots and copilots.
http://www.bbc.com/future/story/20191003-the-three-things-that-could-kill-the-pilotless-airliner
This trend is largely driven by the boom in low-budget travel in the developing world.
In this context, extensive pilot training is neither cost-effective nor regarded as necessary.
https://www.nytimes.com/2019/09/18/magazine/boeing-737-max-crashes.html
Automation has been an reality for about 250 years.
The transition to this kind of economy was known as the "Industrial Revolution".
https://en.wikipedia.org/wiki/Industrial_Revolution
The Industrial Revolution, now also known as the First Industrial Revolution, was the transition to new manufacturing processes in Europe and the United States, in the period from about 1760 to sometime between 1820 and 1840. This transition included going from hand production methods to machines, new chemical manufacturing and iron production processes, the increasing use of steam power and water power, the development of machine tools and the rise of the mechanized factory system. The Industrial Revolution also led to an unprecedented rise in the rate of population growth.
Textiles were the dominant industry of the Industrial Revolution in terms of employment, value of output and capital invested. The textile industry was also the first to use modern production methods.
Is automation accelerating?
It is said that about 87% of job losses are related to automation rather than trade.In the 25 years following the signing of NAFTA, American manufacturing output doubled.
So the problem is not trade.
https://fred.stlouisfed.org/series/INDPRO
Productivity is when you can do more with less, including with fewer workers.
Productivity gains have been mediocre since the mid-2000s.
Americans have not been losing their jobs to machines.
https://www.nytimes.com/2019/03/14/opinion/robots-jobs.html
This leads to a different question.
Does economic growth naturally decelerate?
When countries develop, their growth rate gradually declines.The USA enjoyed a "long boom" from the end of WW2 to the oil shocks of the 1970s.
From the 1970s on, the American economy continued to grow, but not at the same pace as earlier.
https://en.wikipedia.org/wiki/Post%E2%80%93World_War_II_economic_expansion
Japan's economy experienced double-digit growth until the 1970s, then growth rates fell to less than 5%.
Since 1990, the growth rate has hovered at around zero.
https://www.macrotrends.net/countries/JPN/japan/gdp-growth-rate
South Korea had a double-digit growth rate beginning in 1970, but since 2000, growth in South Korea has been under 5%.
Will South Korea's economy become like Japan's in 2020?
https://www.macrotrends.net/countries/KOR/south-korea/gdp-growth-rate
China has had double-digit growth as recently as 2010.
Will 2020 usher in a 20-year period of growth under 5% in China, followed by anemic growth like Japan's?
https://www.macrotrends.net/countries/CHN/china/gdp-growth-rate
There could be a tendency for economies to stagnate in the long term.
https://en.wikipedia.org/wiki/Secular_stagnation
In economics, secular stagnation is a condition when there is negligible or no economic growth in a market-based economy.[1] In this context, the term secular means long-term, and is used in contrast to cyclical or short-term. It suggests a change of fundamental dynamics which would play out only in its own time. The concept was originally put forth by Alvin Hansen in 1938. According to The Economist, it was used to "describe what he feared was the fate of the American economy following the Great Depression of the early 1930s: a check to economic progress as investment opportunities were stunted by the closing of the frontier and the collapse of immigration".[2][3] Warnings of impending secular stagnation have been issued after all deep recessions since the Great Depression, but the hypothesis has remained controversial.As noted, the theory of long-term stagnation becomes popular just after recessions and depressions, when growth remains stubbornly anemic.
When growth eventually picks up, the theory is dismissed.
However, long-term stagnation could be a "crisis trend".
Crises like war both reveal and accelerate long-term trends.
In some cases, the crisis trend could briefly reveal a long-term tendency -- for example, Americans buying smaller homes soon after the Great Recession -- that is reversed and soon put out of mind as the situation normalizes.
The prospect of long-term stagnation puts a spotlight on potential remedies for Japan's economic predicament.
The Japanese model of fighting stagnation is all screwed up and the world has been imitating it
A Japanese economist argues that Japan went about fighting stagnation in the wrong way.Rather than reinflate the economy through borrowing, Japan should have increased its workforce (immigration?) and raised productivity.
https://asia.nikkei.com/Opinion/World-has-learned-wrong-lessons-from-Japanification
This is a troubling analysis because since 2009 the rest of the world has imitated Japan in:
- maintaining mediocre productivity gains
- having fewer children and turning against immigration
- taking on massive debt
- crack down hard on the banks
- flood the market with liquidity (make money available)
- avoid long-term infrastructure projects
There had been the sense that the long-term consequences of the crisis might be worse than the crisis, and Japan was evidence for this.
Timothy Geithner is not an economist, his training is in Asian Studies, and he was stationed by the State Department in Japan when its economy unraveled in the 1990s.
Geithner was elevated to Treasury Secretary supposedly in order to avoid the mistakes of the Japanese, yet the those mistakes were replicated on his watch.
(TARP was originally intended for homeowners to avoid foreclosure, but the TARP bailouts were instead hijacked to bail out banks on the strict condition that the banks lend out that government money, which the banks did not do.)
So it turns out that the so-called lessons of Japan -- which the Americans themselves ignored -- are themselves inadequate.
A new model promotes competition, productivity and equality
Here is a radical rethink of what has gone so terribly wrong.This analysis comes from the heart of the establishment itself.
https://www.ft.com/content/5a8ab27e-d470-11e9-8367-807ebd53ab77
The problem is:
- monopoly and weak competition
- low productivity growth
- tax evasion and inequality
Aristocrats are "rentiers" who passively collect revenues from their vast estates.
The contemporary economy represents a kind of pseudo-capitalism in which real competition has secretly vanished behind a facade of corporate profitability.
https://en.wikipedia.org/wiki/Rentier_capitalism
Rentier capitalism is a term currently used to describe the belief in economic practices of monopolization of access to any (physical, financial, intellectual, etc.) kind of property, and gaining significant amounts of profit without contribution to society.
Current usage of the term 'rentier capitalism' describes the gaining of 'rentier' income from ownership or control of assets rather than from capital or labour used for production in a 'free' competitive market[7]. Rentier capitalism has become predominant in capitalistic economies since the 1980s.[8] The term rentier state is mainly used not in its original meaning, as an imperialistic state thriving on labor of other countries and colonies, but as a state which derives all or a substantial portion of its national revenues from the rent of indigenous resources to external clients.The relationship between the rise of rentier capitalism and long-term stagnation is intriguing.
Even without rentier capitalism, long-term stagnation might be expected to exist.
This leads to a normative question about the economic policy.
Is low growth actually a good thing?
At least in a fully developed society like Japan or the USA, is low growth beneficial compared to high growth?American lifespans have been shrinking for three reasons:
- rise in drug overdoses
- increased liver disease
- rise in suicide rates
The typical American response to problems in public policy is that "We need to give people more stuff".
Across the American political spectrum, the goal is to give Americans more money.
The problem could be too much money.
Like unhappy rich kids, Americans are indulging in too much alcohol, drugs and self-pity.
Meanwhile, in a Japan mired in economic stagnation, lifespans just keep getting longer.
https://www.nippon.com/en/features/h00250/life-expectancy-for-japanese-men-and-women-at-new-record-high.html
A low-growth economy could be the way to go for the USA.
But there would be resistance to the model of low economic growth as a path to national well-being.
One thing to keep in mind is that decision makers in developed countries have tended to be older people who remember an age of more rapid economic growth.
They think that high rates of economic growth are normal, so they create speculative bubbles to bring back the illusion of "robust" growth.
This gives them celebrity status (Alan Greenspan).
Moreover, ten percent of people are aggressively competitive by nature, and ordinary life is not good enough for them.
Such over-achievers present themselves as the model for the rest of us to imitate, and they tend to move into positions of leadership.
They want rampant growth the way political leaders desire war as a path to glory.
https://www.nytimes.com/2019/10/17/style/rich-people-things.html
[Gore Vidal on his buddy President John Kennedy's vainglory]
By any credible measure of progress -- length of lifespans, educational attainment, minimization of crime and violence -- Japan is superior to the USA.
How can we increase stagnation?
Let us assume that economic stagnation should be the goal of macroeconomic policy in the developed world.How do we get there?
A few modest proposals:
- high national savings rate. Increased savings would help to discourage consumption, which drives the economy. Singapore has a savings rate of 50%. The USA would alter economic policy to encourage a savings rate of 66%. Americans would downsize drastically. Unfortunately, savings are channeled into investment and innovation, so this would have the effect of improving the economy in the long-term. The good news is that the productivity gains might help to increase unemployment.
- high-end manufacturing economy (e.g., making iPhones). The goal would not be to increase the number of jobs in manufacturing, which is impossible because new manufacturing plants are more automated. (The unemployment created by new automated factories is actually a good thing.) The goal is to absorb all the investment created by a high rate of savings. The money would have to go somewhere, and it would be better to go into cutting edge manufacturing rather than consumption. Technological innovation would facilitate the advancement of science.
- massive public expenditures on science and education, especially vocational training. The goal here would be to take a large chunk of the population and remove them from productive activity by putting them in a classroom. This would also soak up a lot of the money in the economy that would otherwise go to consumption. The vast majority of people do not want to study abstract topics like the liberal arts, they want something concrete and practical. Also, student debt makes people depressed, so this vocational training would be "free" (paid by taxes). The risk of this policy is that it might just lead to solid economic growth.
- monetary policy would be concern only with inflation. End the dual mission of the Federal Reserve to keep both inflation and unemployment rates low. Instead, just focus on squelching inflation.
https://www.macrotrends.net/countries/DEU/germany/gdp-growth-rate
So the policies meant to stimulate long-term economic stagnation might backfire and mire the USA in robust economic growth.
Nevertheless, prosperity might not entirely be a bad thing.
After all, one must remember that the proper goal of society is ultimately to support the arts and sciences, not to give people more stuff (which in a developed society, kills people).
The conventional goal of public policy is to fund scientific research in order to create new technologies, which in turn fuels economic growth.
This is getting it completely backwards.
A proper understanding of public policy would be that some measure of economic flourishing is necessary in order to develop technology which is useful to science.
But too much economic growth is not good for anybody.
Hopefully, however, long-term stagnation will become a reality.
Every economy in the world will one day fully develop and then permanently stagnate.
But until then, it is just a theory.
In the meantime, with the lonely exception of Japan, the developed world is a mess.
There is one obvious problem with asserting that Japan's economic stagnation should be a model worth emulating.
The problem is that the Japanese themselves don't want stagnation.
Japan desperately wants to escape the economic rut that it finds itself in.
Nevertheless, long-term stagnation could be the fate of all economies.
This raises a theoretical question about the trajectory of societal change in general.
Do rates of societal evolution actually decrease over time?
At the individual level, it might feel like societal change is accelerating.In particular, the older people are, the more they complain that things have never been worse and that change is happening too fast.
From a historical perspective, this is not a sure thing.
One example is found in contemporary information technology.
Progress in information technology tends to be less fundamental over time.That is, the real breakthroughs in IT are in the more primitive technologies, like email and text messages.
The more sophisticated the IT, the less information is actually conveyed.
The golden age of the internet was the 1990s, when the internet was simple and only scientists used the internet.
In subsequent years, as the internet became more popular, it also became more sophisticated and oriented itself toward (dubious) mass entertainment -- gaming, porn, social media.
The advent of 5G cellular network technology therefore represents a giant step backward in terms of information, although it would be a huge advance for entertainment.
In the world of IT, "progress" signifies the eclipsing of information by entertainment.
That is, as IT has evolved, there has been a diminution in the amount of information being transmitted and conveyed via communication in relation to the growth of entertainment.
In fact, even in the realm of entertainment, the observation that earlier innovations are more estimable than later ones might hold true.
One can compare films that are considered the best with films rich in CGI, like superhero movies.
The best films have elaborate cinematography, but not super-sophisticated technology.
https://en.wikipedia.org/wiki/List_of_films_considered_the_best
This is even true in terms of action movies, which have not gotten better over the years.
["The French Connection", 1971, car chase]
["The General", 1926, trailer]
["A Voyage to the Moon", 1902]
Another example is IT revolutions in human evolution.
Going back to an earlier period, the most profound revolution in IT was the emergence among humans of language (although the emergence of language might have itself piggybacked on the earlier development of a capacity for music).
The second great IT revolution was painting and sculpture, although it was less revolutionary than language, and it piggybacked on language.
The later development of writing was also a revolutionary development, but not as profound as the earlier rise of art.
Everything in IT subsequent to the invention of writing is a footnote.
So earlier innovations in IT have been more fundamental and profound than subsequent innovations.
Historical economic revolutions are less revolutionary than any previous transformation.
But it sure does not feel that way for those who are traumatized by unexpected disruption.The Agricultural Revolution was radical in its divergence from the hunter-gatherer way of life that preceded it.
Here are the Hadza of Tanzania, one of the few hunter-gatherers left in the world:
https://www.bbc.com/news/magazine-40686373
It is said of the Hadza that they are "always hungry but never starving".
Their constant state of physical activity and diverse diet make them remarkably strong and healthy.
The hunter-gatherer way of life is superior in this sense to an agricultural lifestyle.
But hunting and gathering can only sustain 10 million humans on Earth at best.
About 10,000 years ago, there were about 10 million humans on Earth, and the competition for territory drove some of them into agriculture.
That is, the move into agriculture was probably not based on the old notion that hunters and gathers made the accidental discovery that you could grow things and breed them into domestication, as this was perhaps already known (the wolf was domesticated perhaps 32,000 years ago).
The shift to agriculture is a move into a radically different kind of existence that would have been resisted until there was no alternative.
For example, in northern Australia, the folklore of the aborigines tells of colonists from what is now Indonesia settling on the coastal areas.
The aborigines and the colonists got along with each other at first.
Eventually, the aborigines reported told the newcomers that we like and respect you, but your way of life is so entirely different from our own that it comprises an existential threat.
The aborigines eventually sabotaged the colonies, burning the crops and the villages until the settlers left.
To a lesser degree, the same resistance to change is at work in rural America in the 21st century.
The jobs in manufacturing, resource extraction and agriculture in small-town America have been disappearing for generations, but many people there are reluctant to move because they cannot countenance separating themselves from their families and communities.
To make matters worse, they would otherwise be moving to suburbs where this is no sense of community.
If small-town Americans who drive around in Ford F-150s are so reluctant to move to the suburbs because it feels to alien a way of life, is it really so surprising that after thousands of years the Hadza are still so resistant to engage in farming?
The Industrial Revolution was likewise wrenching, but it was not as radical as the Agricultural Revolution.
In fact, industrialization was by comparison a mere modification of the agricultural way of life.
Likewise, the information revolution is also more of an acceleration of the status quo than a great transformation when compared to the earlier transformations that created agriculture and industry.
A scientific revolution is less profound than any previous scientific revolution.
It has been noted that Einstein's relativity theory was in some respects a reformation of the classical Newtonian worldview, not the radical departure suggested by the term "relativity".That is, Newton and Galileo were much more revolutionary than Einstein.
But an even more fundamental scientific revolution would be found in the philosophy of Aristotle that Newton sundered.
However, Aristotle's theory might be seen as a worldly adaption of Plato's theory (substance supplants essence), meaning that Plato was the more original thinker.
Presumably Socrates was even more boldly original than either of them in his invention of a method of questioning.
But even more radical than Socrates would be the pre-Socratic philosophy that diverged from the mythological understanding that had grounded communal life for thousands of years.
Most radical of all might be the poet Homer who preceded all these philosophers by centuries.
Homer's "Iliad" portrayed the Greeks at war as greedy pirates -- with the exception of Achilles, who was obsessed with attaining eternal glory.
After the killing of his best friend, Achilles was overcome with rage.
In the "The Odyssey", Homer presents a new kind of Greek hero: a clever, resourceful wanderer, not a warrior bent on plunder, fame and revenge.
Homer was engaging in the standard mythology just like a storyteller in any society.
Yet unlike a typical storyteller, Homer was radical in his implicit criticism of the status quo.
The philosophers might have known this.
https://en.wikipedia.org/wiki/Homer
The Homeric epics were the greatest influence on ancient Greek culture and education; to Plato, Homer was simply the one who "has taught Greece" – ten Hellada pepaideuken.
