Published at Shakespir
Copyright 2017 Donald R. Miklich
More than sixty years ago, when I was a horny virgin teenager, I saw a collection of pornographic pictures. I don’t remember how they came into my hands. They weren’t mine, of that I’m sure, so they must have been lent to me by some other horny teenage boy. They were not bound, but were a set of several separate drawings of a couple copulating. I can’t remember any of the pictures, but I do remember that every one depicted the couple in a different position. Exactly how many drawings (and sexual positions) were in the set is something I also do not remember. However, there were quite a few, two dozen or more.
While I don’t remember these drawings, I do remember that to my great disappointment they were not erotically arousing. They were not because even a horny teenager could see it was all hype. The different positions were contrived, trivial and silly. A few were utterly preposterous. These ridiculous drawings made it obvious that there aren’t two dozen or more different sexual positions. Really there fundamentally is only one. Clearly, the unlimited variety of sexual delights I had been expecting to be my adult lot were not to be.
Looking back across the decades I am pleased to report that my teenage disappointment itself was disappointed. A happy marriage, it turns out, is quite fulfilling and satisfying with only one sexual position.
And that’s the point I want to make. No one really wants, and certainly no one needs 1001 sex positions. Such abundance is superfluous nonsense because human needs and desires are not unlimited. In fact they are quite modest.
I first realized this a bit more than a decade later when I was a graduate student studying social psychology. One of my earliest courses was a seminar on motivation, and the professor began by enumerating human needs. I was quite surprised at how few there are. My undergraduate studies were in history and the social sciences, including economics. And the latter discipline, I had been taught, consists of theories built by logical deduction from presumably self-evident axioms or assumptions. (An explanation of the problems and uncertainties of this methodology is provided in the Appendix.) I was further taught that there are two fundamental self-evident assumptions: First, there are only limited amounts of goods and services available, and Second, humans have unlimited needs and desires for those limited goods and services. But the list of human needs is actually quite small: Air, water, food, and a benign environment in which to live, or sufficient clothing and shelter to make a hostile one survivable.
Some of my motivation seminar classmates, persuaded no doubt by a titillating addiction to Freudian mythology, thought sex should be added to the human needs list. I disagreed, arguing that while survival of the human species requires sex, individual people don’t need it. Nobody dies from being horny. (Unless, perhaps, a viewer of my boyhood pornography choked to death from laughing at some of the absurdly contorted positions.) However, even if we accede to the Freudians and add sex, the list of human needs is quite short.
While I recall being taught that economic theory is based on an axiom of unlimited human desires, I now find this assumption so implausible I wonder if I’m suffering a memory lapse. Have I confused ideas studied sixty years ago but seldom considered since? Or did I not correctly understand at the time? Certainly I am not wrong about economic theory being a rational, deductive construct rather than an empirically based one. Abstract, usually mathematical models, build on what economists themselves concede are often totally unrealistic assumptions, are the pride of the profession (Rodrik, 2015; Schlefer, 2012). But could I be wrong about the unlimited wants axiom? Perhaps, but I doubt it, for I can not understand why economists could have come to some of the conclusions they do unless they so assumed, at least implicitly. Therefore, this essay is written as if my recollection is correct. It is important to emphasize, however, even if economists never so assumed, this essay is correct to point out that in fact human desires are not unlimited, and that this fact has vital, far-reaching implications for economics.
[This is an essay, an op-ed piece, not an economics history. Treat it as such, and get your economics history elsewhere, from an appropriate scholarly source. I suggest you start with the excellent work The Assumptions Economists Make by Jonathan Schlefer (2012). I recommend it at least partly defensively because Schlefer clearly documents how economic theorists themselves are often as confused about their assumptions as I.]
My surprise at the small number of human needs is not something I can be proud of, for a little thought should have told me this is exactly what is to be expected. After all, protohumans and even biologically modern ones existed for millennia before the development of technology. In that primitive circumstance it would have been impossible ever to satisfy unlimited needs. If our ancestors had had any such, they could not have survived to sire us.
But of course, when economists speak of unlimited desires they include much more than biological needs. However, even a list of unnecessary desiderata is finite, far short of unlimited. Consider: One becomes happy and content when one’s needs and wants are satisfied, and in a modern economy wealth is the means of doing this. Contrary to economists’ unlimited premise, wealth’s relationship with happiness has repeatedly been shown to have a plateau effect. At zero wealth there understandably is very little satisfaction. As it increases, so too does satisfaction. However, a point is reached where further wealth produces no greater happiness. Satisfaction plateaus. In fact, in a couple of the reports I have seen it actually declined a bit with further wealth increases. Not significantly, to be sure, and one can only speculate why. But plainly, beyond the plateau point greater wealth did not increase satisfaction.
I won’t bother to dig out and present any of these studies. In part because I’m lazy, but mainly because if you doubt them you can easily check it out for yourself. Just Google something like “What is the relationship between wealth and happiness?” and you will find an abundance of research on this question. I certainly haven’t read it all, or even much of it. But a glance at the summaries shows they all come to the same conclusion: viz., humans have a finite set of needs and wants which can be, and sometimes are fully satisfied.
But there’s an even more fundamental reason why I do not dig out and present any of these studies. There is something inescapably present in every modern American’s life which to me proves beyond any possible doubt that human desires are not unlimited: Advertising.
Advertising does two things. It informs people of the availability of goods and services, and it motivates them to buy. American advertising does only the bare minimum of the former, focusing by far the greatest amount of its efforts on getting people to buy, using cons, hyperbole, bombast, hype and, not infrequently, shameless lies to do so.
It is unnecessary to reference any study to substantiate this. We Americans are subjected to such an endless barrage of motivational ads no one could doubt it. But I can’t refrain from listing one particularly egregious example. It concerns a TV ad which repeatedly ran a while ago. It was selling a pickup, and it showed an attractive young woman getting into the truck. I was watching TV and, as we all do, when this ad came on I muted the sound, and paid only enough attention to the screen to tell when the ads finished. Suddenly I realized I was staring at the woman’s bottom. “Why you dirty old man!” I chided myself. Then I realized I wasn’t staring uncouthly and lecherously at any young woman. I was staring at a TV screen. It was the advertisers who were focusing on the lady’s bottom. In an effort to increase sales they were attempting to associate their truck with the sexual arousal a man would likely get from such a view. The fact that this is borderline immoral and totally uncivilized was something they considered subordinate to selling trucks. But if human needs and wants were unlimited, there would be no reason for these advertisers to shame and demean themselves this way. People would be eager to buy whatever were on sale.
The same conclusion applies to all motivational advertising, even when morally proper. If people had unlimited desires, there would be no need for anyone to persuade and motivate them to buy. And such persuasion is no little matter. US advertising expenditures exceeded one hundred and seventy-three billion dollars in 2015 and are projected to exceed one hundred and seventy-five billion in 2016.
[A note on numbers: The above figures are from a webpage I have no need to identify because the precise numbers are not relevant here. There is no reason to doubt the ones given, but even more so, there is no reason to treat them as definitive. All such figures necessarily are estimates which will change with different definitions and sources. For example, after writing the above I came across a reputable work which gave the total US advertising expenditures in 2004 as two hundred and sixty-four billion, almost a hundred billion more than the above quoted figures for 2015-16. I haven’t made any attempt to investigate why these two reports are so different. I suspect it is because the larger number is based on a much more inclusive definition of advertising. There are issues where this difference matters and must be considered, but the issue addressed at the moment is not one. Here the point is only that an enormous amount of money is spent on advertising. The precise amount is unimportant. In general, in this essay this principle will apply. Right now the interest is with approximate magnitudes, so I won’t bother to report sources. When a precise figure seems necessary or particularly important, a source will be given.]
For me, the enormous expenditures for motivational advertising settles the issue. After all, business people are devoted to maximizing profits, not infrequently even to the extent of blatant and hurtful dishonesty. For example, Volkswagen’s deliberate, environmentally damaging emissions rigging, or American investment bankers’ selling mortgage bonds they knew would fail. Why would people greedy enough to risk prosecution for fraud, greedy enough to totally dishonor themselves by such despicable, unprincipled acts, spend billions on motivational advertising if they didn’t have to? Greedy people hoard their money. They spend it only when absolutely necessary.
But, of course, defenders of economists’ unlimited desires presumption won’t agree. In defense of their premise some will likely dismiss my conclusion because, although I am a scientist, economics in not my discipline, and I’m certainly not a business expert. So let me buttress my case by considering the behavior of persons who are business experts, persons whose know-how concerning capitalist business is so vast their average annual pay for exercising that knowledge is in the tens of millions of dollars, the chief executive officers (CEOs) of major corporations.
Economists question whether anyone is worth an eight-figure income, and ethicists question the morality of persons, no matter their worth, grasping such large portions of humanity’s wealth. But no one questions these executives’ business acumen. They are the acknowledged experts in capitalism, using money to make more money. They take profits or the money of investors and banks, i.e., capital, and use it to make products and services to sell for more profit.
Now if human desires were essentially unlimited the only thing these CEOs would need would be capital. And indeed the so-called supply-siders continually, loudly and successfully insist that taxes on the wealthy be lowered so the rich will have abundant surplus money to invest as capital for business entrepreneurs to use to produce goods and services to satisfy some of humanity’s unlimited desires. And corporate executives would be eager to do this because it would preserve and enhance their multi-million dollar incomes.
However, that’s not what they’re doing. At the present time (mid 2016) corporations are sitting on vast amounts of cash, money which they could invest to produce more goods and services, but which they decline to do. The exact amount of such unused capital isn’t certain. I have heard various reports, the largest being three trillion dollars! That’s trillion, with a T and thirteen digits left of the decimal point. These reports are only estimates, of course, the amount could be less. But because privately held corporations do not have to publicly disclose such information, it also could be more. Whatever the exact figure, no one questions the fact that today corporations have hundreds of billions of dollars of cash which they could use (and capitalist theory says they should use) to increase their production of goods and services. Nevertheless, these business experts have decided not to put their capital to work.
This isn’t just an aberration of one or two CEOs. Today this idle capital phenomenon is widespread. There can be only one reason why so many capitalist experts refuse to practice capitalism. Their market studies must have told them that even billions of dollars of salacious advertising won’t increase sales of the goods and services they produce. In other words, even though the buying public has money (or at least credit cards) with which to buy, they are not so doing. Apparently, therefore, their needs and wants have been met.
Not only is corporations’ surplus capital not being productively used, for some it actually is an expense. Here’s why. In an effort to get businesses to borrow money and use it to produce, the US Federal Reserve and central banks around the world have reduced interest rates to unprecedented lows (El Erian, 2016). I recently heard a TV interview with an investor who claimed interest rates have never been so low in five millennia of human history. In fact, some current interest rates are negative. In these cases the lending institution actually pays the borrower to borrow! But few corporations are taking them up on the offer. Now, with interest rates so low, banks can make very little profit by lending. So instead, in a few cases they are charging corporations a fee for holding their surplus cash. Thus, these corporations not only can gain little or nothing from their enormous cash reserves, holding them is an expense. To escape this monetary dilemma many of these corporations have resorted to a practice which, to be honest and accurate, can only be considered incestuous. They have become capitalist cannibals. They buy back their own stock.
I submit to you: Any one of the above arguments casts serious doubt on the unlimited human desires premise. Taken together, they prove it false. I further submit that this conclusion is apparent and should always have been realized and acknowledged. So we must ask why any economist ever thought otherwise. Well, as a matter of fact, there is an excellent reason.
Economics concerns what a society does with its resources. What things should it make? Obviously, there will be no universal agreement on this. Different people will want different things. If economists were to select some particular products and services, we can be absolutely certain some other people would disagree, and the whole economic analysis would bog down in an endless argument over different values. Communist and other authoritarian states avoid this by fiat. There the party or state makes all these decisions, and the public can either like it or lump it. In capitalist economic theory, however, these decisions are made democratically.
The means for doing this is a free market in which everyone may buy whatever goods and services he or she wants, and anyone can venture to be an entrepreneur, to make and sell whatever he or she thinks may be profitable. If enough people buy its product to make a venture profitable, then we may plausibly conclude the public wants it. If the venture is not profitable, then either the public does not want its product, or the aspiring businessperson has not successfully solved all the problems associated with producing and selling it. In either case, there is no values issue to complicate and obfuscate the economic analysis, for no economist presumes to tell the public what it needs or wants. Instead, like good social scientists, they objectively measure a nation’s productivity, whatever it may include, and relate it to any other variables which may seem relevant. The assumption of essentially unlimited human desires justifies this values free approach, because if everyone always wants more, then increased productivity is always good, whatever is produced. And this is one reason why capitalist economists believe productivity is the essence of, and increases in it the solution to, every economic problem.
An excellent example of this belief in and devotion to productivity is contained in an op-ed piece recently published in The Washington Post. (I'm quoting from an 8-9-2016 reprint in The Denver Post.) The writer was Lawrence Summers, one time president of Harvard, and a distinguished economist whose expertise is universally acknowledged. Summers wrote about the extreme income inequality which has developed in recent decades in the US. For example, Brynjolfsson and McAfee (2014) report that in 2011-2012 the share of income going to the richest 0.01% of the population was 5.5%, 550 times more than proportionate. This inequality is an issue of deep concern to many economists. Some ( e.g., Atkinson, 2015; Frank, 2007; Reich, 2015; Stiglitz, 2012; 2016; Stiglitz, et al ., 2016) are concerned with its gross unfairness. But all must be concerned with its economy weakening potential (El Erian, 2016). Consumer spending constitutes 70% of the US economy. Thus the less income people have to spend, the weaker the economy necessarily will be. However, economist or other, everyone must be concerned with the social dysfunction which inequality causes. For example, both the wealthy as well as the poor in more unequal states and nations actually have shorter lifespans, and several socially dysfunctional conditions are in fact more frequent in less equal polities (Wilkinson & Pickett, 2009). But most concerning of all is the political instability inequality may provoke. Recently on a TV talk I heard a venture capitalist suggest the French Revolution with indiscriminate use of the guillotine as a model for what income inequality will lead to. Let us hope this ominous forecast is in error. But the fact that a well informed person considers it likely, explains why income inequality is a matter of grave concern.
The solution to the inequality problem, Summers said, is not to address it directly. Rather, and consistent with economists' overriding opinion, he instead recommended increasing productivity. A GDP growth of 3% per year, he concludes, would lead to enough additional economic activity to drive businesses to increase their workforces. Not only would this generate more jobs, but the tighter labor market created thereby would force wage increases. Both would reduce income inequality.
On the surface of it Summers’ recommendation, though completely consistent with economists’ productivity obsession, seems ill conceived. If one wants to change anything, logic and abundant human experience tell us, the most efficient and the most likely effective approach is to operate on it, not some distantly related thing. Consider: If a car’s performance is sluggish because the brakes are dragging, it’d be foolish to attempt to solve the problem by increasing the engine’s power. Every competent mechanic would repair the brakes. Summers defends an indirect approach to the inequality problem, however, by noting that the two decades in the last half century with the highest GDP growth rates “also saw the most rapid job growth and the most rapid increases in middle-class living standards.”
Summers speaks as a scientist. Unfortunately the scientific methods of economics makes such speech much less authoritative than most suppose. Rather than digress here to consider these problems, I refer you to the Appendix where this matter is considered. Here it suffices to note that when Summers says increased productivity will reduce income inequality, he is making an inference from the historical data he quoted about GDP growth and jobs. He may be right. But he may be wrong. Consider: Those CEOs sitting on all that capital might decide to use some of it to replace their workers with robots. Since robots can work 24/7, this could cause a considerable increase in productivity and GDP. But it would also reduce the number of jobs, weaken the labor market and reduce wages, thereby increasing income inequality. As this clearly shows, GDP growth will not necessarily cause increased jobs and reduced income inequality.
There's another, greater problem with Summers' recommendation. Even if income inequality could be solved by a sustained 3% GDP growth rate, many economists doubt if our economy can achieve it. For example both of two outstanding contemporary economic studies, Picketty (2014) and Gordon (2016), expect future growth to be only about half that. And though US GDP has grown appreciably recently, it has seldom met Summer's goal. Quarterly US GDP data (taken from a World Bank webpage) for twelve consecutive quarters beginning in July 2013 reached this level only once and exceeded it only once. The highest mean for any four consecutive quarters, i.e., the highest yearly figure, was just under Summers’ target at 2.83%, and the mean for the whole twelve quarters was only 2.23%.
Many investors carp that this growth is abysmally low and shows our economy to be massively dysfunctional. Usually these complainers blame government, though CEO's unused capital would seem to place the blame securely elsewhere. Nevertheless, some politicians claim they know how to cause growth to flourish. To my mind such claims are naive, if not ignorant, because 2% US GDP growth is neither insignificant nor different from what evidence and logic say is to be expected of our mature economy. True, one hears of much higher growth rates in some other economies, China and India, for example. However, these very examples cast serious doubt on the government faulting complaints, for in these nations government interference in business is much greater than in ours.
In plain fact, government actions are not what is causing either our lesser, nor these nations’ greater GDP growth. These are developing economies, whereas by most measures ours is the world’s largest and most advanced. A developed economy must innovate to grow, and innovation is problematic, difficult, slow and expensive. New products and businesses often fail. Indeed, their keen awareness of this is one reason why CEOs sit on surplus capital rather then invest it. Also, innovation involves the destruction or abandonment of old products, plants or processes while further profits might still be wrung from them. Developing economies do not have these problems. They have few old industries which will be destroyed by the new. Nor do they need to innovate. They need only imitate what developed economies have already found will work. Therefore, to expect the US to achieve the growth rate of these developing economies is, as the cliché has it, to compare apples and oranges. Or perhaps to better represent the magnitude of the difference, cantaloupe and kiwifruit.
Whining investors and pandering politicians may be ignorant of such matters, but Summers certainly is not. He knows tax-cutting, corporate surplus cash, Federal Reserve lowering of interest rates and its increases in the money supply via so-called quantitative easing, have not produced enough investments to grow productivity at a 3% rate. Summers calls such attempts to stimulate the economy "bribes", bribes which have not succeeded in getting businesses to make investments they do not consider worthwhile. He thinks we do not need more bribes. Instead he recommends we increase demand. Then businesses will expand to supply it. And the means he suggests for increasing demand is the same one suggested repeatedly by many economists ( e.g., Krugman, 2012), raising public investments, so-called fiscal stimulus.
This is an inference based recommendation, and it therefore may or may not work. True, it apparently has worked in the past; brilliantly. All the econ and/or history classes and books I was ever exposed to convincingly claim that the depression of the 1930’s, although ameliorated by FDR’s New Deal, was not resolved by it. Rather, economists and historians agree, we were brought out of the Great Depression by the massive deficit public spending necessary to fight WWII. So Summers’ recommended fix well might work.
Certainly it would work if the increased public expenditures were used to hire those who are now unemployed. But this may not happen. After all, often these people are in the situation they are because they lack work skills. If the government were to undertake a public investment program, let us say to provide much needed repairs and improvements to our highways, this would require high skill workers, people such as heavy equipment operators and civil engineers. So only few of the unemployed would qualify. Under economists’ traditional unlimited desires assumption this is no problem. The increased demand for high skill workers would drive up their wages, and, given that they have essentially unlimited needs and wants, they would spend most of their additional income. Then all those whose income were in turn increased by this spending, also presumably being driven by unlimited desires, would themselves spend more. In this way the public expenditures would work through the economy, leading eventually to increased work and pay for all, including relatively unskilled workers. Thus under the conventional unlimited desires axiom, increased public spending would solve the problem.
But as I have argued, and I hope have shown, the unlimited desires axiom is wrong. People can and some do reach income levels where their needs and wants are essentially satisfied. What if a significant number of the skilled workers’ increased income put them at the particular plateau where this is true for them? In that case they will not spend more. They might try to invest, but as the capital holding CEOs could tell them, there are few good investment opportunities. So like these CEOs, these skilled workers might just sit on their increased cash. In that case public expenditures, no matter how great, while they may be worth making for their own sake (we could certainly use highway bridges that don’t fall down), will not solve the income inequality problem.
This kind of demand deadening may be one of the reasons why the US economy has been so sluggish in recovering from the 2007-09 recession, and why a 3% GDP growth rate is so hard to achieve. Indeed, some economists have suggested as much. Cowen (2011), for example, feels most of the products made possible by the technological discoveries which have driven our economy since the start of the Industrial Revolution have been realized. Our economy, he cleverly said, has eaten all the low-hanging fruit, thereby implying that while humans may have more desires, present technology can not satisfy them. In a much larger, indeed a masterful work Gordon (2016) reaches a conclusion much like the one taken here. He enumerates what he considers, quite reasonably, to be peoples' major desiderata, and presents abundant data showing the economy is already meeting them.
Therefore, it is distinctly possible that a significant number of the public is essentially satisfied. Though they have cash or credit with which to buy, they have no needs or wants leading them so to do, no unlimited desires pushing them to increase demand enough to drive economic growth. And if this is the case, if in fact there are a sufficient number of persons with sufficient wealth and income to put them at their personal satisfaction plateaus, then Summer’s recommended solution to the income inequality problem can not and will not work. We need to consider whether this situation, implausible though it may seem, might be the case.
Before addressing this question let me mention another justification for economists’ unlimited needs and wants axiom. Throughout the history of economics this assumption has in fact been accurate. For most of the past the bulk of the population has been in financial circumstances where they always could easily find something they needed or wanted, something to buy with any additional income they might get. Economists made no error in recognizing this. Where they went wrong was in assuming it to be a permanent, uncorrectable state. Needs and wants can be fulfilled. That is precisely what economic productivity does. So logic requires one to conclude that at least in principle it is possible for a nation’s economy to produce enough goods and services to essentially satisfy some, many or, eventually, all of its people. Thus we should not discard the unlimited desires axiom. Rather we should reformulate it as a characteristic of the early stages of an economy, something which, with sufficient development, can be and might be superceded.
I am no economics historian, so I simply do not know if in their more reflective moments economists have admitted that an economy might grow so large that further growth is superfluous. I do know at least one who has. In his 1942 work Capitalism, Socialism, and Democracy, the early Twentieth Century American (ne Austrian) economic theorist Joseph Schumpeter at one place mentioned the unlimited desires premise. When he did he also noted that conceivably it could be wrong, that economic productivity conceivably might suffice to essentially satisfy most peoples’ needs and wants. But he rejected any contemporary relevance of this possibility with the observation that at the time he was writing such a circumstance clearly did not exist nor would it in the foreseeable future. His forecast was perfectly reasonable, for in 1942 no one could have predicted the immense US productivity growth that occurred during and for about three decades after WWII.
So the first thing to do is determine if our economy is in or is approaching a stage where it provides a significant number of persons with most of what they want. Has the phenomenal productivity of the 1940 to 1970 period and the slower but not insignificant subsequent growth brought our economy to a point where the unlimited desires premise is loosing its relevance? We can get a first approximation answer by calculating the US per capita GDP. This is not to suggest GDP should be equally distributed. The purpose is only to see if the nation as a whole has enough income so a significant portion of our population could have reached their particular satisfaction plateaus. For example, if per capita GDP is in the poverty range, then clearly it’s not reasonable to so conclude.
Our population is about three hundred and twenty million. As I write in late 2016 a World Bank webpage projects this year’s US GDP will come in at about eighteen trillion dollars. Another source, however, places it at sixteen trillion. Let’s be conservative and use the lower figure. This gives us three hundred and twenty million divided into sixteen trillion for our estimate of today’s US per capita GDP. That comes out to exactly $50,000/year. This figure is up to 10% smaller than some other estimates I have seen. Should they be more accurate, it only makes the following argument more compelling and convincing.
Recent economic reports use a three person family as the contemporary norm. Doing the same, we get an annual family per capita income of $150,000. I know it is not a values free conclusion, but I firmly believe any contemporary three person family could live comfortably on such an income. So I think the US GDP in fact is large enough to provide significant numbers of our people with incomes sufficient to produce satisfaction.
But does it do so? Per capita GDP is a mean, an unrepresentative average pulled up by the very wealthy very few at the top of the income distribution. Most incomes are well below this figure. The income inequality issue mentioned above leads many to think only a tiny fraction of the population, usually 1%, gets almost all of the US GDP. If that's the case, then the number of families who have reached a satisfaction plateau can only be small. But while the distribution of our nation's income is far from proportionate, this 1% conclusion is inaccurate. In fact, a rather large number of the nation's people are capturing a significant share of our GDP. For though the US economic middle class is shrinking quite remarkably, the Pew Research Center (a "nonpartisan fact tank" whose reports can be found on the web) has recently shown the biggest cause of this is not families falling into the lower class, though some are. Rather, the biggest cause is the movement of a larger number of middle class families into higher classes.
A recent study by Steven Rose of the nonpartisan Urban Institute defined this growing upper middle class as those with a three person family annual income between one and four hundred thousand dollars. Again, I know it isn’t a values free conclusion, but I submit that most families with $100,000 or more income will be able to satisfy most of their economic needs and wants. What makes Rose’s study compelling evidence that our economy has reached a maturity where the relevance of the unlimited desires premise is rapidly diminishing, is his finding that almost a third of US families (31.15%) are at or above this level. (I’ve taken these figures from a 7-17-16 Denver Post report of this study. You can find the original by Googling “Steven Rose at the Urban Institute”.)
But $100,000+ income is only part of the story, and perhaps not the most significant. Today, computer based technologies, especially the internet, have created a great deal of what futurists Alvin and Heidi Toffler (2006) call "free lunch", products and services which now are free but which in earlier times were not, if they were available at all. These technologies have increased many persons' satisfaction levels without any increase in their wealth or income. And there is every reason to expect with further development this free lunch phenomenon will grow. Economists are well aware of this. For example, Brynjolfsson and McAfee (2014) consider some of the research in this area. But as they note, it is difficult to put a precise figure on this free lunch because there are no financial records to measure and quantify it. This difficulty notwithstanding, some economists have used other means to estimate this income independent source of needs and wants satisfaction. Though they can not put a precise dollar figure on it, they nonetheless conclude it definitely is large, significant and growing.
So all told, the desires of a rather sizeable fraction of US denizens, their needs and wants, seem to be reasonably well satisfied, and economists’ unlimited desires axiom is loosing its relevance. Before concluding this, however, I must consider an economic theory which appears on casual inspection to be contradictory.
Frank (2007) theorizes that one’s consumption is stimulated by peers’ consumption. This is something like the Keeping-Up-With-The-Joneses phenomenon which many bemoan. But Frank says the process he suggests is not envy, but rather results when there is an absence of absolute values. In their absence, people unthinkingly judge the products which socially equivalent persons have to be necessary for themselves as well. To the extent this relativity is the case, it seems inconsistent with the possibility of anyone ever reaching a satisfaction plateau, for whenever one person buys any additional thing, his/her peers will be motivated to do the same. But this is only partly so, for while the phenomenon Frank considers definitely does exist, so too do satisfaction plateaus. There’s abundant evidence for both. There are because many people do have absolute values, and, as Frank discusses in some detail, not all products’ values are affected by this relativism.
Thus, it is reasonable to conclude that a not insignificant portion of the US population is effectively at economic satisfaction level. And it is not unreasonable to expect further economic growth well may eventually make the unlimited desires axiom completely immaterial.
The purpose of a nation’s economy is to produce enough goods and services to satisfy its people. The US economy clearly is doing this for many. Therefore, is it not now time to declare our economy a success, to sit back and enjoy a future of permanent prosperity and contentment? No. It is not. It is not because while the US economy is providing a satisfying sufficiency for many, it also provides a conspicuous insufficiency for many others. As already noted, there is a wide disparity of incomes and wealth in our population. In fact, by most reports (Stiglitz, 2016; Wilkinson & Pickett, 2009) the US is the most unequal of the world’s developed nations. Ethicists, I am sure, consider this a conspicuous failing. But for a nation founded upon the ideal of equality, which once was and has always considered itself to be the world’s most egalitarian, this is unconscionable.
There is a great deal of current interest in this inequality (again I refer you to the works such as; Atkinson, 2015; Batra, 2015; El Erian, 2016; Frank, 2007; Reich, 2015; Stiglitz, 2012; 2016; Stiglitz, et al., 2016). Much of it is motivated by a concern with unfairness. But unfairness is not inequality’s only nor its most detrimental aspect. In fact, as the epidemiologists (scientists who study the demographic aspects of diseases) Richard Wilkinson and Kate Pickett (2009) have shown, inequality is correlated with and the probable cause of a multitude of adverse biological and social conditions. For example, life spans are shorter in more unequal societies, not only for their poorest, but even for their most prosperous members!
Income inequality is in part a cause of, and in part evidence of other factors which are damaging and tending to destroy our economy. As if this were not distressing enough, there is good evidence and reason showing it and one of its causes, unemployment, are worse than they appear, cannot be corrected by our current economic policies but will necessarily be worsened by them, and if not corrected could bring our whole economy crashing down. A good place to begin the explanation of how this can happen is by considering how the self-proclaimed most egalitarian nation on earth became the most unequal.
At the time of its founding the US was, outside the slave part of its economy, highly egalitarian. In the early part of the nineteenth century a learned French visitor, Alexis de Tocqueville, wrote a two volume book describing and praising this aspect of the new nation, a book which now is a classic all US historians study. The equality of those times arose because America then was, as Jefferson thought it would long remain, primarily a nation of small farmers who, though not wealthy, were self-sufficient because they owned their farms. But Jefferson could not know of the industrialization which would occur in the latter part of that century, an economic change which produced a large new class of employed workers, persons whose rights, income and living conditions were grossly inferior to those of many other Americans.
In the latter part of the nineteenth century populist progressive policies mitigated the severity of this inequality, however the Great Depression of the 1930’s renewed and worsened it by causing massive unemployment. But in the 1940’s, during the Second World War, things changed. They did because providing war materials created an abundance of well paid jobs. But also, and perhaps more importantly, because there arose during WWII a virtually universal egalitarian ethic, a sense of shared threat and shared sacrifice. Sons of the wealthy, men such as the elder George Bush, JFK and his elder brother, went to war, fought, suffered and sometimes died alongside the sons of the most socioeconomically undistinguished.
During WWII economic productivity in the US skyrocketed. Mainly it did so because, when the federal government concluded something was needed for the war effort, without regard for the debt so incurred it paid whatever was necessary to get it. One way it did this was with cost-plus contracts whereby the government paid corporations whatever it cost to make the needed product then added a percentage of this cost as a guaranteed profit. The national debt soared, but so too did productivity. The sacrifices of the fighting forces were indispensable, of course, but it was this astonishing US productivity which won the war. For example, second only to the atomic bomb, the Japanese kamikaze may reasonably be considered the most destructive single weapon in the war. (For those too young to know WWII history, these were single planes which were overloaded with bombs and fuel and then suicidally crashed into enemy targets.) A sole kamikaze could, and unfortunately many did, sink or cripple an entire US warship. Nevertheless, US productivity was so great it actually was building ships faster than the kamikaze could destroy or disable them.
Productivity continued after peace was achieved. More importantly, it continued growing, flooding the US with goods and services. Gordon (2016) provides an excellent history of this economic progress. For about three decades great productivity continued. The war’s egalitarianism also continued, and the increased wealth so created was shared equitably across the socioeconomic spectrum.
But around 1970 things changed. With unusual consistency the economists whom I’ve read say they are not certain why. One cause was other nations’ economic recovery from the war, a recovery the US supported and advanced through its efforts to prevent other nations from turning to Soviet communism. Immediately after the war the US economy was the only game in town, but with recovery elsewhere, competition reduced US profits. In response some US investors decided the problem was that US workers were overpaid, or at least they decided profitability could be maintained and even enhanced by reducing worker compensation. Either ignoring or forgetting the egalitarian values which characterized and helped win WWII, they decided a corporation’s main purpose is to provide income to its stockholders, i.e., themselves. With the leveraged power of borrowed money they took over many corporations and bullied others into adopting their “shareholders first” policy. A major tool they used in this was to augment the salaries of senior corporate officers with generous stock options, making it very much in these officers’ self interest to do everything to maximize stockholders’ returns.
Accepting the new “shareholders first” goal, the new breed of corporate officers set out to reduce costs, and workers bore the brunt of these efforts Many were simply laid off. Others lost their jobs when their employers relocated operations either to states whose laws provided fewer employee protections, or to developing nations where worker wages were substantially less and fringe benefits often nonexistent.
As a result of these efforts equity stopped. Productivity slowed but continued its growth. However, the increased wealth it created thereafter went overwhelmingly into the hands and pockets of the highest class. Frank (2007) provides two graphs which compellingly illustrate this. They show that before this time the gains of increased productivity were evenly distributed across each of the five quintiles of the nation’s economic spectrum. No quintile got a significantly larger percentage of the GDP growth than any other. In fact, the highest actually got the smallest. But after this time, the distribution changed to one in which the nation’s increased income was distributed in a stair-step pattern from the lowest to the highest quintile, each higher income level receiving a greater percentage than the one below it. Since then, although the pattern occasionally ameliorated, in general persons with the most wealth have been accumulating fabulous additional wealth while those at the bottom of the wealth spectrum have barely been holding their gains from the earlier, equitable era. Reich (2015) illustrates the same phenomenon with a different kind of graph. He plots the growth in US productivity since 1948 as well as workers’ hourly wages. They rise together until about 1972, after which productivity continues its climb but wages stagnate.
Implementing the policies which produced this profound change in workers’ share of the gains from increased productivity required dismantling the legal worker protections which had been built up during the Great Depression. In particular it required weakening and/or destroying unions. But as the political scientists Jacob Hacker and Paul Pierson (2010) have documented, with the enormous resources these investors and their captive corporations had they could employ the most skillful and capable, though often unscrupulous, people to do the job. With campaign contributions, lucrative jobs for ex public officials who had been cooperative, and armies of lobbyists, lawyers, accountants and all others who are serviceable for the purpose, the wealthy and their subservient corporations were able (and still are able) to manipulate government to their ends.
The above description is based on the analysis of Reich (2015) whose pro-worker bias is apparent. But the facts underlying his analysis are not in dispute. Batra (2015), for example, presents basically the same analysis. He says the wealthy “oligarchy” manipulated the political and economic systems to lower worker wages, thereby creating a wage gap which he shows damages the economy in many ways. Krugman (1990) discusses the arguments of both those economists who claim that corporate takeovers which reduced worker compensation increased efficiency and others who say it merely redistributed income from workers to stockholders. In a later work Krugman (2009) concludes that deregulation has been the principal cause of income inequality, and he acknowledges that, although supported by both political parties, deregulation was mainly due wealthy persons’ influence on the political process. Stiglitz (2012; 2016; Stiglitz, et al, 2016) agrees that income inequality resulted from the machinations of the wealthy, but he feels that rents, i.e., practices which take money from the economy without in any way improving its performance, was the principle means by which the wealthy increased income inequality. He is particularly insistent in claiming that, and pointing to evidence showing inequality significantly harms economic productivity. This opinion is widely shared. For example, El Erian (2016) says inequality “creates adverse economic feedback loops that make it much harder for the advanced countries to emerge from their generalized economic malaise.” Schlefer (2012) also carefully examined the causes of the rise in US income inequality. He does not consider the “maximize shareholder profit” issue. He does, however, carefully examine the explanations standard economic models offer to explain and excuse increasing inequality and shows them to be inadequate. He concludes: “There are good reasons to believe that political decisions, rather than just technology working its way through the production function, have powerfully worsened income inequality.”
In general, therefore, the picture is one of the wealthy exploiting workers, an ugly picture the wealthy might be expected to vigorously deny. Persons who hire armies of expensive professionals of various kinds to bend corporate and governmental policies to their own purposes clearly have the resources to hire an apologist or two. But while there are apologists (whether hired or not I do not know), remarkably they neither deny nor repudiate the selfish actions of the rich.
These apologists readily admit that corporations knowingly and deliberately acted to maximize profits at workers’ expense. But they insist this is in the long term best interests of the economy. Investors have been right to exploit workers because, the apologists unapologetically insist, when everyone is free to get all one can for one’s self, competition among self-seekers forces the economy to its optimum efficiency. Income inequality occurs, these apologists claim, because everyone in a capitalist economy gets what he is worth, the marginal increase in productivity provided by his/her participation in the economy. If workers earn less than they want, indeed if they earn less than necessary to support themselves, it is only because that’s all they are worth. It’s just the unfortunate way it is, and no one is to blame. Inequality has to happen in order for the economy to be optimized.
At this point I must confess to a lapse in scholarship, for I stopped studying the apologists’ argument. It is not only that their excuses based on economic theory have been considered and found wanting by careful scholars (e.g., see Schlefer, 2012; Stiglitz, et al., 2016), but the apologists seemed to be heading toward a conclusion that anyone concerned with inequality is a muddle headed do-gooder unable to face the cold, hard facts of economic reality, while they, the apologists for inequality, are not defenders of oppression but only hardheaded realists. I am not impressed by such ad hominem arguments so I stopped reading. But mainly I stopped because the apologists’ contention is a theoretical abstraction lacking empirical support.
Because economists themselves have diametrically opposing opinions on the matter, it is not at all clear that the policy of maximizing shareholder profits or any other income inequality causing practice can optimize the economy. Nor is it at all clear that the economy would not grow more, as economists such as Batra (2015), Stiglitz (2012; 2016) and El Erian (2016) claim, if more equitable policies were in effect. It is clear, however, that policies which depress wages and thereby increase income inequality must damage the economy. What the apologists do not acknowledge, either through ignorance or deceit, is that those whose income is reduced, whether to increase the riches of the wealthy or for any other reason, are also the main body of consumers whose purchases are the very source of profits, profits which are the very raison d’etre of a capitalist economy. Consumers constitute 70% of our economy. Overwhelmingly consumers rely on income from work to buy. Therefore, reducing workers' income necessarily and inescapably drives down consumers' purchasing ability, necessarily and inescapably damaging the economy. No matter how abundantly and efficiently goods and services may be supplied, it is all for naught if no one has the means to buy.
One is reminded of the dairy farmer who sought to reduce expenses by not buying fodder for his cows. He saved a bundle on feed. But his cows died. With consumers as with cows: If you’re going to milk them, you’ve got to feed them.
What income inequality creates is a tragedy of the commons, a circumstance where a resource available to everyone, a commons, is degraded or destroyed because, while everyone uses it, it is in no one’s immediate self interest to maintain it. The body of consumers in fact is a commons exploitable by everyone with anything to sell. Things which decrease the income of the general public, such as when a corporation reduces its employees and/or their compensation, necessarily impair this commons. The corporation realizes a short term gain, and considered alone, its effect upon the consumer commons will usually be minor. But when many other corporations do the same, and/or when government policies or any other things increase income inequality, the consumer commons is damaged, leading to long term losses for all.
At about the same time as the US economy shifted into inequitable income distribution, although productivity growth continued, it slowed from the extraordinary rate it had maintained since WWII (Gordon, 2016). The coincidence of these two events says they well may be related, and the fact that income inequality inevitably damages the consumer commons makes it hard not to believe that income inequality creating policies were at least a partial cause of the productivity growth decline.
Yet, demand did not collapse. It did not because worker/consumers whose incomes were not keeping up did not meekly accept a lower standard of living. However, savings collapsed (Krugman, 1990), apparently because these people spent whatever they had put aside and stopped adding to it. In addition to sacrificing their savings, worker/consumers whose incomes stopped growing also resorted to borrowing. Schlefer (2012) quotes a source reporting that household debt doubled, reaching 130% of GDP Stiglitz, et al. (2016). report a similar figure. But precisely because their incomes were impaired, so too was their creditworthiness, and lending to them entailed a considerable default risk, something consumer credit companies and big bankers chose to ignore because such lending was highly profitable. Eventually, inevitably, this risk was realized, and large numbers of these borrowers defaulted, triggering the 2007-09 recession.
[The dates just mentioned, 2007-09, are the technical beginning and ending dates of the Great Recession in the US, where it began. Its deleterious effects took a while to spread, so in other countries the dates may differ slightly. Authors from the UK, for example, call it the 2008-09 recession. But while technically the recession has ended, no economist I have read believes its pernicious potential has. The consensus conclusion is that heroic actions by central banks, such as the US Federal Reserve, prevented a worldwide depression of probably unprecedented magnitude. But these actions only forestalled disaster, they have not resolved the recession’s causes. And unless governments address and solve these problems, such as income inequality, a worldwide economic disaster is likely (El Erian, 2016).]
Bad as the inequality problem is, there is ample reason to believe things are going to get much worse. The culprit is unemployment, an ultimate form of income inequality. It does not merely degrade a person’s purchasing power, unemployment destroys it. Many fear our economy is heading into an unemployment crisis worse than that of the 1930’s Great Depression when a quarter of the workforce had no jobs. And there is good reason for this fear.
Today, in the fall of 2016, the reported unemployment rates in southern Europe are appalling, ranging at 25% and higher for young adults. The situation in the US seems much better. Our official unemployment rate is about 5%. Supposedly this indicates full employment, but there is some serious illogic with this claim. Mathematically, 5% is certainly and significantly more than zero. But economists say there are always people exchanging jobs, and the 5% figure represents only these transitional workers, not those whom the economy cannot use. Perhaps. But this is a guess. Employee transition surely occurs. However, it should be directly measured, not guessed. Moreover, even if this guess is accurate, while they are in transition these 5% have little or no income or buying power, thereby negatively impacting the economy.
Even if we accept this "5% is essentially zero" claim, we can not trust this figure. The way our unemployment statistics are calculated guarantees it to be too low. Only persons without work who are actively seeking it are counted as unemployed. But many people who have no job and who would eagerly take one were it offered have given up trying to find one. After unsuccessfully trying to find work for some time, and after their unemployment benefits have run out, in frustration they have stopped looking for work. Thus our statistics do not count them as unemployed, though clearly they are. Also, Social Security disability compensation probably is hiding many such frustrated unemployed (at a not inconsiderable expense to this trust fund). After the 2007-09 recession the number of persons receiving these benefits increased. One of the sources I've seen says it doubled. It is hard not to conclude that some people who did not consider themselves disabled when they had a job, decided after unsuccessfully seeking one that they had no other income alternative.
Also our statistics consider persons with only part-time jobs to be employed, another error since many, if not most, part-time wages do not suffice to meet these persons’ minimal needs. Nor do our statistics make any allowance for the under-employed, persons such as university graduates who wait tables because they can find none of the better paying positions for which their educations prepared them (often at great expense).
Economists are well aware of these and other factors causing our official unemployment rate to be grossly underestimated. For example, recently I head an interview with the economist Joseph Stiglitz, economic advisor to President Clinton and winner of the Nobel Prize in Economics. He estimated true US unemployment to be about two-and-a-half times the official rate.
However, US unemployment is much worse even than economists like Stiglitz conclude. It is because our prisons overflow with far more convicts than any other nation on earth. More than 1% of the US population is in jail (Stiglitz, et al., 2016). Sociologists say this is not because Americans are particularly crime prone, but because over the past few decades we have decided to incarcerate much greater numbers of petty criminals that do other nations. The expense of this, of course, is enormous. In 2010 the yearly cost of imprisoning a person was $31,000 (Stiglitz, et al., 2016). But our excessive incarceration rate does provide a not insignificant number of jobs for guards, etc., jobs which otherwise would not exist. If our incarceration rate were more like other developed nations’, our taxes would be lighter, but our unemployment problem would be worse.
The number of prison jobs isn’t great. However, our bloated prison population is, and it hides many of our unemployed. (Our practice of incarcerating the mentally ill rather than providing appropriate institutions for them also significantly increases our prison population. But this does not hide unemployment. Their illness renders these people unsuitable for the workforce no matter where they are.) Probably the major part of our inmate excess occurs because, for the past several decades, our increasingly technological economy has been providing fewer and fewer jobs for those at the lower range of the human abilities spectrum. After all, today ditches are dug with backhoes, not picks and shovels. With nothing useful to occupy their time, these men, and mostly they are male, become criminals then convicts. They do because the same lack of personal resources displacing them from the labor market also leaves them incapable of filling their empty days with innocent activities. For example, they are unlikely to spend their jobless free time in the library reading because most of them read poorly. Indeed, many can barely read, and some cannot read at all. As the old saw so accurately says, “Idle hands are the devil’s playthings.” Having no wage paying, time occupying jobs, these people gravitate to crime, mostly illicit drug dealing. I leave it to others to determine whether they are basically immoral and irresponsible. They may be. But well established psychological principles strongly suggest that, were jobs available to employ them, most would not have become criminals and would not have been incarcerated.
The above paragraph will lead many economists to judge me an economics illiterate. They will because most economists believe unemployment due to worker skill deficiencies has been proven always to be temporary. They claim low skill felons eventually would have found work had they stayed out of prison. This argument has recently been applied to the 2007-09 recession. Reliable reports say many of the employees laid off when this recession hit were those whose work could be done at less cost by computers (Brynjolfsson and McAfee, 2014). To regain employment these workers had to either lower their living standards and accept lower paying jobs, or increase their skills enough to find a place in the more technologically demanding job market, perhaps by learning how to program the computers which replaced them. And this, some economists allege, has occurred (e.g ., Gordon, 2016). Though recovery from this recession's official double digit unemployment rate has been disappointingly slow, these economists say these technologically displaced workers eventually did return to the workforce. The evidence presented in support of this claim is the so-called full employment, 5% figure. In view of this statistic's well known deficiencies, to use it in this way is exceedingly dubious at the very least.
Economists came to their conviction that technologically displaced workers eventually always find other work from the Luddite event. Luddites were skilled English craftsmen of the early nineteenth century whose livelihoods were threatened by the machinery then being introduced into English manufacturing. Their response was to destroy the machinery in clandestine raids, a response suppressed with military force. Since the industrial revolution, of which the machinery was the fundamental part, went on to great success, economic historians say the Luddites were misguided progress opponents, a completely reasonable conclusion. However, economists have extrapolated from this reasonable conclusion to the completely unreasonable one that, at any time and place and in any circumstances, the technologically unemployed will eventually find other work just as the Luddites eventually did. The 5%, full employment figure, they claim, supports this extrapolation. But again, the conspicuous inadequacies of this figure make this a totally unconvincing argument.
Economists do not deny that technological developments displace workers, nor that the consequences of this will often be severe for those so displaced. Indeed, some even concede it is unfair and immoral that the costs of development are born mainly by those least able to endure it. Nevertheless, the dogmatic consensus of most economists is that displaced workers eventually adapt and full employment eventually returns.
I do not and can not agree. To my mind, to uncritically generalize across two of history’s most rapidly changing centuries, from the early nineteenth century Luddites to our overwhelmingly different computerized twenty-first century economy, is to invite error, gross error. The Industrial Revolution began about two and a half centuries ago. Since then technology has been advancing at an ever quickening pace, and workers, if they were to be employed, have had to continuously adapt to the ever changing jobs based on these ever changing technologies. Of all species humans certainly are the most adaptable, an ability based on intelligence. But while humans, in general, have more intelligence than other animals, we do not have unlimited amounts. Therefore, our adaptability is not unlimited. But to claim workers will always eventually adapt to any and all technological changes is to imply that humans in fact do have unlimited intelligence, a patent absurdity.
Economists’ dogma also apparently is contradicted by many economists themselves. I refer to the idea of “structural unemployment”. This term refers specifically to unemployment caused when workers lack the skills required by the latest job technologies, e.g., people who can’t program the computers which replaced them. For some time now many economists have been claiming that any unemployment over the temporary kind caused by workers changing jobs is structural unemployment. If the dogma is right, all these workers will somehow eventually adjust and find new jobs. But since this alleged structural unemployment has gone on for many years now, it is fair to ask why they haven’t.
The answer, I believe, lies in what the science of psychology has unequivocally proven: viz., different people have different amounts of intelligence, and many at the lower end of this spectrum are unable to adapt to the demands of much modern technology. Consider the large number of unemployed I claim are being shielded from view in our prisons. You may not agree with my conclusion that most of these men would not have become criminals if they had had jobs. Nevertheless, the limited intellectual capacity of many, if not most of them is conspicuous. (High intelligence crooks are not in prison. They’re in hedge funds and investment banks.) It simply is not possible to teach the sophisticated procedures of programming something like modern CAD-CAM machines to persons so intellectually limited they can’t even read.
The “full employment always returns” dogma is necessarily wrong because it necessarily implicitly assumes that every potential worker has unlimited intelligence, an abundantly disproved assumption. (If you doubt this and want to check it out, I refer you to any introductory psychology text.) But quite beyond this fallacious economist assumption, the fact is that even if every unemployed person, convict or other, were possessed of unlimited intelligence, and therefore could learn anything whatsoever, it would not solve the impending unemployment crisis. For developments have reached a critical point where technology is not just changing the nature of work, it often is replacing it altogether. Though the effect is most pronounced for those in the middle of the skills and ability spectrum (Cowen, 2013), large and growing numbers of persons at all ability, knowledge and skills levels have been and will continue to be displaced from the labor market (Avent, 2016).
The culprits, of course, are computerization and robotics. That these technologies have already eliminated many jobs is universally acknowledged. But whether the present situation is qualitatively different from the past, whether it is leading to irremediable unemployment or is merely the latest round of technologically triggered temporary job displacements, is something economists debate. The latter position is advanced by Cowen (2013) and Gordon (2016). Such optimism, however, contrasts starkly with the 2013 analysis of Carl Frey and Michael Osborne of the Oxford Martin School, an economics think tank associated with England's renowned Oxford University. They studied over 700 different kinds of US jobs and concluded that over the next decade or two 47% are at high risk of replacement by computers (Avent, 2016; Mason, 2015). This is only an estimate, the sophisticated guess of two economists. Things may not work out so badly. By the same token, however, they may turn out worse. The loss might be even greater than 47%. Should unemployment even approach this magnitude our economy would be devastated.
In the face of these extreme differences in expert opinion, we non-economists are wise to seek a middle ground. Brynjolfsson and McAfee (2014) provide one. These two Massachusetts Institute of Technology (MIT) economists say they are concerned but optimistic. Computers are only able to accomplish certain tasks, they argue. Even the fullest development of computers and robotics will probably leave many jobs humans can only do, or at least can do better. This, I’m sure, is so. However, superior human performance will not necessarily save jobs. For example, I doubt if anyone thinks computerized phone answering systems work as well as humans. But universal dissatisfaction notwithstanding, these systems are so much cheaper than humans their adoption has become universal.
Another of these two MIT economists’ optimistic claims is that computers and people are not necessarily only competitors. They cite evidence and reason showing human-computer teams can be superior to either alone, a most plausible position also advanced by Cowen (2013). However, the example all three of these economists offer in support of their human-computer team recommendation is the superiority of such teams in the game of chess. It isn’t at all certain that the kind of problem solving chess involves will be useful for problems having economic utility. The fact that three distinguished economists do not present evidence where human-computer teams have proven economically fruitful, strongly suggests such teams are merely an undeveloped and perhaps unexplored possibility.
Nevertheless, Brynjolfsson and McAfee do not sugarcoat the problem. They candidly acknowledge that computerization has cost thousands of jobs and likely will cost thousands more. Again, I believe them. I do because history shows it always has taken a generation or two to fully realize the benefits of new technologies. Gordon’s (2016) economic history emphasizes this time lag phenomenon. While the economic consequences of computers per se may have already largely occurred, as Gordon claims, computer driven robotics are still very much in their evolutionary stage. This fact has been compellingly shown by recent developments in computer driven vehicles. Many of those of us with professional knowledge of both computer functioning and human perception had assumed vehicle driving presented a likely insuperable task for computers. The two MIT economists admit to having held this view. But we were all wrong.
Developments in computer driven vehicle technology have progressed dramatically, and now this technology has the potential to cause massive unemployment. Today in the fall of 2016, about a half dozen real-life tests of it are underway in Asia, Europe and the US. These are not controlled and limited preliminary studies. Rather, fully computer driven cars and trucks are being used in ordinary ways in ordinary traffic. The universal expectation of knowledgeable persons is that these trials will refine this technology but not derail it. Thus, jobs driving trucks, taxis and buses will soon be at risk. A recent Associated Press article says there are a little more than 3.75 million of these jobs in the US. Reich (2015) places the figure at 4.5 million.
But driver job loss is only part of the problem. Experts believe computer controlled vehicles are destined eventually to completely replace not only employed drivers, but every driver. This latter scenario is expected because computer driven vehicles will be able to provide reliable, on-demand, door-to-door transportation services at a fraction of the cost and none of the bother of owning and operating one’s own vehicle. This will be similar to the technologically produced free lunches mentioned above. To take advantage of this free lunch, people will quite reasonably opt out of vehicle ownership. As a result its market will shrink drastically, thereby drastically shrinking the number of vehicle manufacturing jobs. Nor is this a mere “maybe” scenario. Auto manufacturers are said to be expecting this and adjusting their long-term plans accordingly.
But these are only direct job losses. There also will be as great or even greater indirect losses. Consider: Road accidents are overwhelmingly due to human drivers. A recent National Highway Traffic Safety Administration study found 94% of accidents involve driver error. One of the main goals of those who are developing computer driving technology is to reduce this, and there is every reason to expect they will succeed. For example, computers are not distractible, usually considered human drivers' most frequent failing. But also, any errors computers might make are correctible. In a computer caused accident the computer itself can be a black box which can be studied to identify the cause, which then can be programmed out of all other driving computers. A human who causes an accident may learn from it, but this is only one driver. And even this minor gain is lost when the driver dies from the accident.
So computer driven vehicles may confidently be expected to vastly reduce automobile accidents. This will eliminate large numbers of injuries and lost lives, which will be wonderful. But it will also eliminate many jobs created by accidents. At this point even the experts can only guess exactly how many. Computers probably will not eliminate all accidents. Let’s be hyper conservative and assume only half will be avoided. That means half of auto body shops, half of auto insurance employees, and half of personal liability lawyers are going to be out of work (considering only three of the most obvious occupations).
As if all of this were not bad enough, computers and robots are what economists call “general purpose technologies”. They can do many things beside keep accounts, warehouse products and drive cars. We are only beginning to learn all the things they can do, and even as I write, clever people probably are figuring out how to use them to do things most of us would never imagine. Brynjolfsson and McAfee are almost certainly right when they say these technologies will not replace all jobs. But people like Avent (2016) and Mason (2015) are also almost certainly right when they say the job loss will be enormous.
So we have significantly greater unemployment than our statistics suggest, and it is going to grow significantly worse. But why do I say our current economic practices not only can not correct the problem, but necessarily will contribute to its worsening? I do because our economy is a capitalist one driven by competition and profit. If a new technology will reduce costs, profits can be increased by adopting it. So most business will eagerly do so. If for any reason a firm does not, its competitors will, thereby making their competition more damaging. Computers and robotics have the capability of reducing many firm’s employee costs while at the same time increasing productivity. Therefore whatever any capitalist CEOs or business leaders may personally wish, sooner or later profit and competition will force them to fully adopt these technologies.
A story which circulated several years ago when automated machinery was just beginning to be used in vehicle manufacturing illustrates this capitalist dilemma. It said General Motors was aware of the cost advantages of robots but deliberately drug its feet in adopting them because its executives realized the workers whom they would replace were also customers who might buy GM cars if they had jobs. In other words, allegedly these execs were unwilling to damage the customer commons. The story went on to say the Japanese car makers had a different domestic market and eagerly adopted the new machines in order to compete more effectively in the US. Therefore, competition forced GM and other US auto makers to follow suit.
I very much doubt this story. Not only because I know of some facts inconsistent with it, but especially because I think self-sacrificing unwillingness to damage the consumer commons is quite uncommon, especially among corporate officers, all of whom suffer from bottom line myopia. Nevertheless, the problem illustrated can not be doubted. Whether reluctantly or not, GM did adopt assembly automation and according to a recent newspaper article it now employs only about one third of the six hundred thousand workers it did before. Yet it now builds more vehicles.
This GM story may be apocryphal, but another, also from the auto industry, definitely is not. It illustrates how in the days before computerization and robots, prudent and wise capitalistic practice actually could significantly improve the economy. Early in the twentieth century when Ford introduced the assembly line method of building cars the company suffered a large and expensive labor turnover. Bored out of their gourds by the mindlessness of assembly line jobs, workers quit in large numbers, thereby causing a major expense and impediment to Ford’s operations. The company responded by dramatically raising wages. That solved the turnover problem. But, and more importantly, it also helped create the main support of the US economy: People with money to spend. In other words, before robots Ford’s capitalist actions had the effect of growing the consumer commons. With robots, things are diametrically different.
The US economy is driven overwhelmingly by consumers, ordinary people spending money to buy things. Over and over we are told that consumers constitute 70% of our economy. That's why it's often called a consumer economy. But US consumers are not rich folks who buy things out of their wealth. They are workers who must have employment in order to have money with which to buy. Thus any large reduction in workers, such as computerization and robotics has caused and will continue causing, probably at an accelerating rate, will eliminate equal numbers of consumers, thereby crippling or even destroying our economy.
Not surprisingly, in view of the magnitude and severity of the twin inequality and unemployment, consumer commons destroying problems, economists have offered many possible solutions. While their suggestions are varied, they show considerable overlap. In particular, all the economist recommendations I have read call for governmental actions. This is significant for two reasons.
First, it reflects the fact that economies are created and protected by governments (Acemoglu & Robinson, 2012; Reich, 2015; Stiglitz, et al., 2016). This fact is usually deliberately (and often dishonestly, I suspect) obscured by self-serving political rhetoric. Conservatives and their business allies claim government action impedes economic activity. If governments exercised no power over businesses, they claim, if there were no regulations and governments allowed businesses to do whatever they want to increase profits, free markets would naturally lead the economy to its maximum possible productivity.
That government regulations have costs which reduce productivity is certainly true. Unfortunately, history includes equally true instances of unregulated businesses which, to increase profits, have deliberately harmed the public. Such instances are a minority. By far most businesses are not so immoral. But it takes only one such evil business to cause enormous and often irreparable harm. So until someone discovers some way of guaranteeing the scrupulous honesty of all businesspersons, an unlikely if not impossible goal, the inefficiency of regulation would seem inescapable.
All of this should be well known to anyone who can read, which presumably includes all businesspersons. But motivated by the same kind, if not the same degree, of avarice which drove the few evil, public harming businesses noted in the above paragraph, many corporations and their sycophants continually call for the elimination of government regulations. They claim to be interested only in increasing productivity, but this is propaganda. Their obvious intent is to bend the rules in their favor. Such calls in fact come from the same short-sighted selfishness behind the “maximize shareholder profit” principle, the one which was a primary cause of the income inequality problem in the first place. Lest you doubt this, consider: There are nations in the world with few or no government business regulations. If corporations are so sure they would be much more productive in an unregulated nation, why don’t they relocate? They don’t because they know that not only their corporation but the free market itself can’t exist without the protection of a strong, sympathetic government.
The truth of the matter is that free markets exist and can only exist because they are created and protected by governments. Without the appropriate kind of governments and governmental institutions there can be no free markets. As the extensive analyses of Acemoglu and Robinson (2012) have shown, unless government institutions create and protect free markets, and especially unless they protect private property, people have no incentive to provide anything more than a personal minimum, and economies fail. Therefore, no solution to any economic problem is possible without government action.
The second significance of economists’ unanimity in recommending government actions is the fact that many of their suggestions are merely to reverse the government policies which caused the problem. A sensible response to be sure, but there’s no reason to suppose it feasible. For example, many economists recommend increasing the marginal tax rates on the wealthy. This would help alleviate government’s chronic under funding problem, and, as economists and business leaders have come to believe (El Erian, 2016) and several economic studies have shown (Piketty, 2014, reviews some of these), such tax increases would impair neither economic motivation nor productivity. More importantly, it would directly attack income inequality itself, the invidious social pathology which is corroding and damaging not only the economy, but also the government and our society. But these tax rates are ones which the wealthy have assiduously done everything in their power (honest, reputable or not) to lower. Since in the past few decades the wealthy have repeatedly succeeded in this, it is apparent they enjoy a considerable power over government, a power they were willing to use for their selfish benefit notwithstanding the harm this caused the economy and nation.
There is nothing to suggest the wealthy have lost this power or their willingness to use it selfishly. Thus, suggestions to reverse income inequality enhancing policies, even though these policies are conspicuously damaging the economy, are even more conspicuously naive. The wealthy expended a great deal of effort, mostly devious and dishonorable and some of dubious legality, in order to bend government policies to their advantage. So what conceivable reason is there to suppose they now are going to graciously step aside and allow more equitable policies to resume? Reich (2015) hopes for the redevelopment of countervailing power, and he cites precedents from US history. But current political events are, if anything, heading in an opposite direction. I think Batra (2015) is more likely correct when he says those whom he calls the wealthy oligopoly have selfish control over government and there is no reasonable likelihood of changing this.
The only possibility, it seems to me, is a policy which can gain support from both ends of the wealth and the political spectrums. Remarkably, one exists. It goes by a variety of names, a fact which itself suggests the breadth of its support. I’ll use the name Guaranteed Annual Income (GAI). The essential idea is profoundly simple: In lieu of every other form of welfare, every citizen will, with no further qualification whatsoever, receive from the government an annual income sufficient to provide all the person’s minimal needs. Recipients would be free to take jobs, if available, but work would not be required. Thus, persons satisfied with their GAIs could opt out of the workforce.
It is easy to confuse GAI with a similar program often called “mincome” for minimum income. But GAIs would be universal. Eight figure CEOs as well as welfare queens would receive it. Only chronically unemployed or otherwise impoverished persons receive mincome. Mincome is not relevant to the problem this essay address and is not considered here. It has been studied at one Canadian province and is being considered for others. If you are interested, you can begin study of it at www.huffingtonpost.ca/news/mincome/.
If you have ever before heard of GAI, you are certifiably better informed than I, for until I began research for this essay several months ago, it was completely unknown to me. I admit this with some chagrin, for not only does the notion go back at least to the time of the American Revolution, it in fact has been and continues to be actively researched and advocated at various places around the globe. You can gain access to this work by Googling “guaranteed annual income” or looking under the same name at Wikipedia. The idea is mentioned in several of the works referenced here (e.g., Atkinson, 2015; Brynjolfsson and McAfee, 2014; Mason, 2015; Reich, 2015), but of my sources, only Raising the Floor by Andy Stern (2016) considers it in any depth.
Because GAI is proposed as a replacement for all welfare and government assistance programs it has gained the perhaps unlikely support of some political and economic conservatives. Indeed, the idea is quite similar to the negative income tax advocated by a man who may appropriately be called the dean of conservative US economists, Milton Friedman (Stern, 2016). Conservatives see GAI as probably more effective, but unequivocally more efficient than traditional welfare programs. For unlike such programs, no large government bureaucracy would be needed to administer it. Since every citizen qualifies, and since there is no restriction on one’s use of the income, there is no need to either vet or police recipients. A computer could distribute the incomes with no assistance from any bureaucrat whatsoever. Conservatives consider bureaucracies to be cancers on the body politick, institutional diseases which tend to grow, consume and eventually destroy the political entity itself, a proposition honest and objective liberals admit is not completely without merit. Thus, many conservatives endorse a plan which, at first glance, one might suppose only liberals would. And indeed, liberals eagerly support this plan because it is the very essence of an ultimate welfare program, the elimination of all poverty.
With regard to the main issue addressed in this essay, GAI may be seen as a method of preserving the consumer commons. Providing everyone, employed or not, with an income breaks the worker/consumer bound. With this plan even total unemployment can not destroy the consumer commons. Thus, GAI has the enormous and unequivocal advantage of directly addressing the fundamental problem facing our economy. As stated earlier in this essay, economists generally have a catechistic conviction that economic problems can only be solved by increased production, no matter how tangential production may be to the problem. But evidence and reason show the most efficient and the most likely effective way to solve any problem is to address it directly. And though GAI has other objectives, such as minimizing bureaucracy and eliminating poverty, it does directly address the economy’s root problem.
Yet enthusiastic as I am about the consumer commons protecting effect of the GAI plan, I strongly do not support it. I have brought it up only as a means of introducing a different idea of my own. It shares some fundamental characteristics with GAI, and I hope it therefore will also enjoy wide support. But GAI suffers from a grievous defect which my idea avoids. Let me consider this defect.
No work would be required to receive a GAI. It would be, as liberals proudly acknowledge, a universal welfare program. But many Americans consider anyone on welfare to be a detestable freeloader. House Speaker Boehner expressed this view when he charged that these people are parasites who don’t want to work (Reich, 2015). This opinion can be expected from a well-off conservative like Boehner who is economically and socially distant from those whom he castigates. But anti welfare hostility is probably most frequent, and vehement, among the working class, those closest to welfare recipients. Many of these critics virulently condemn so-called welfare queens, women who allegedly deliberately bear illegitimate children in order to live off government aid to dependent children. As far as I know, there is no evidence that such women exist. But even if they do, the total amount of money in all child welfare programs is no more than a few hundred millions. Yet with mind numbing inconsistency the same welfare critics praise and idolize CEOs who take billions from the government by tax machinations, or business persons who by devious, dishonest and, not infrequently, illegal means take billions from the economy.
Moralists view Americans’ anti-welfare attitude as vicious and reprehensible, particularly so inasmuch as the riches of the US economy makes the cost of welfare programs relatively much lighter here than in many other nations. But morality notwithstanding, this attitude is deeply seated. There are differing opinions why. But we need not get into a digression concerning this because the fact of anti-welfare hostility is conspicuous. And its persistence in the face of widespread moral condemnation means it is not going to ameliorate and must therefore be dealt with. Because of this attitude, we can confidently expect a GAI program would elicit widespread angry resentment. It is not simply that this would make it difficult to pass GAI enabling legislation, though it would. But of much greater importance, were such legislation ever passed it would further erode the sense of unity upon which government rests, causing further nation weakening political and social discord. It may be thought that, because GAIs would be given to everyone, this would not occur. In my considered opinion this expectation is totally mistaken. Not only would the welfare haters not be mollified by their own inclusion, in all probability they would be affronted by it, considering it a contemptible bribe, thereby enhancing their hatred of the program.
Economic programs such as GAI have profound social, political and psychological implications. They must, therefore, not be fashioned solely on economic grounds. Yet usually they are, and GAI certainly is. For example: Economic theorists have long told those unemployed because of technological advances, persons such as the working class Americans who for decades have been loosing jobs to globalization and automation, that their condition is natural and necessary, and that if they won’t or can’t learn more advanced skills they must resign themselves to a lower standard of living, significantly lower in most cases. Bluntly restated this economists’ message says to these people, “You’re inferior, so just accept your inferiority and shut up.” Only someone completely ignorant of human psychology and characteristic American attitudes would dare make this charge. The wonder is not that this brutal economist defense of the prerogatives of wealth led to the political revolution of the last presidential election, the wonder is that it took so long to happen and that, when it came, the revolutionaries’ weapon was the ballot, rather than guns and bombs. Because the GAI idea similarly disregards non-economic factors, it can be expected to engender similar social and political disruptions.
This kind of tunnel vision appears characteristic of economists, and there are other problems it will cause GAI. Lest you doubt this, let me digress a bit to consider the cause of this tunnel vision before noting these other problems.
Economics is by far the oldest of the social sciences. The discipline has, therefore, suffered from two handicaps. First, for many decades there were no other kinds of social scientists around to evaluate and critique economist conclusions from different perspectives. This is not to say such criticism would necessarily be valid. Indeed, it often would not be. But it always would force a wider perspective on economists’ thinking. In their isolation economists developed habits of thought which presumed their perspective universal. Today, of course, there are many different kinds of social scientists who often are severely critical of economists’ mental habits. Yet even the economist Rodrik (2015) conceded that this is only beginning to widen the perspectives of his colleagues.
The second result of economics’ primogeniture is a necessary scientific deficiency. Theorists like Smith or Ricardo or Marx tried to develop a science of a particular aspect of human social behavior, economic behavior, long before there was any science of human behavior, especially any science of human social behavior. Necessarily, therefore, their works were based, not on scientific determinations of such things as people’s opinions or of what people do, want or are capable of learning, but upon uninformed preconceptions thereof. As the Nobel laureate economist who started the modern microcredit movement, Muhannad Yunus (2010), has said, “The biggest flaw in our existing theory of capitalism lies in its misrepresentation of human nature.”
There is an encouraging tendency amongst growing numbers of modern behavioral economists to correct this (Rodrik, 2015). Nevertheless, many contemporary economists still follow their discipline’s dysfunctional precedent, and their psychological assumptions, explicit or implicit, are often empirically unverified (see the Appendix). Unsurprisingly, therefore, their theoretical conclusions also are often empirically unsupported (Schlefer, 2012). Everyone has preconceptions about human nature. Indeed, we couldn’t function socially if we did not. Unfortunately, however, they often are self-contradictory and/or differ from person to person. What is worse, scientific studies have shown many of them to be erroneous. The assumption of unlimited human desires headlining this essay is an example.
Now, to return to the problems economists’ narrow perspective and scientifically unverified preconceptions causes for GAI. The plan implicitly includes one of these erroneous assumptions about human psychology, i.e., the idea that people consider work undesirable and endure it only for the income it provides. Certainly in some particular circumstances this is the case. In some times and cultures it may be the general case. But this essay is focused on the current US, and this assumption definitely is not now generally true in our culture. We Americans define and determine our social status and value, our self worth, primarily on the basis of the work we do, our jobs. Indeed, the anti-welfare hostility discussed above is largely based on the conviction that work provides and determines one’s worth and dignity, so those who do not work have neither worth nor dignity. Because it involves no work, GAI would do nothing to provide this vital personal justification.
Furthermore, irrespective of monetary compensation, and contrary to customary economic thinking, persons can and often do derive an abundance of satisfactions from work per se. In his critique of economic theory Schlefer (2012) considers some of the evidence showing this, but evidence isn’t really necessary. The proposition is essentially self-evident. In point of fact most people enjoy their work, and, though not universally so, some consider their wages to be secondary, even if necessary. Pink (2009) has presented some of the psychological theory and evidence leading to this conclusion. He also pointed out how, when businesses are able to free themselves from the erroneous “people only work for income” assumption, they can turn knowledge of work’s non-monetary rewards to both theirs and their employees’ considerable advantages. Over and above the income it provides, people want and need work. For example, the research so far done on the mincome plan has found that only few recipients drop out of the workforce (Stern, 2016), and most who do have excellent reasons therefore, e.g., to finish high school or to care for a child. GAI will not satisfy any of these non-monetary needs and desires. It addresses only half of the insufficient jobs problem, the income half.
Not only does the GAI plan not provide the psychological benefits of work, by making no restrictions on people’s time it actually can be expected to increase personal and social dysfunction. The unfortunate fact is that many people, though they are perfectly normal, nevertheless lack the psychological and intellectual resources needed to use abundant free time in ways which are not personally and/or socially destructive. This was touched on above where I considered the large number of unemployable men who, unable to devise any benign way of occupying their free time, devolve instead to crime. This is but one example of how many people respond when their minimal needs are met without any restrictions on their time or activities. It requires creativity to occupy free time, but creativity is not a common human attribute. Therefore, in such situations many persons simply allow their innate appetites to reign in undisciplined and unhealthy ways. The US is currently suffering from three epidemics fostered by this kind of uncontrolled indulgence: obesity, drug use and sexually transmitted diseases. A work-free GAI will only exacerbate such problems.
In conspicuous (and commendable) exception to the above charge that economists tend not to consider non-economic implications, Brynjolfsson and McAfee (2014) provide an excellent evaluation of the adverse psychological and sociological consequences of the GAI proposal’s lack of work requirement. If you have any doubts about how grave a deficiency this is, I encourage you to read their book, especially their Chapter 14 which presents compelling supporting evidence. But while I cannot too highly praise their analysis of the no-work problem, I can not agree with their recommended solution, a negative income tax.
This idea was suggested some time ago by the eminent economist Milton Friedman. It is a logical extension of income tax deductibles. Persons with taxable income are allowed to deduct from it an amount deemed necessary to provide minimal subsistence. In effect the government rebates the tax owed on the deductible amount. Some people earn less than the this, so while they owe no tax, they also do not receive the benefit of this rebate. In fairness, and to help provide these low income persons with a minimal subsistence income, Friedman said the government should pay these persons the amount which it rebates to more prosperous taxpayers. Since the IRS already exists, this would not involve the creation of yet another, to conservatives, undesirable bureaucracy. Also, the additional administrative costs would therefore be minimal.
Brynjolfsson and McAfee endorse this plan because it provides low income persons with an incentive to work since every dollar earned below the deductible amount is augmented by the negative tax. But this recommendation, it seems to me, is inconsistent with these economists’ own favorable evaluation of evidence, such as that reviewed above, showing people derive more than income from work. Where is the evidence that unwillingness to work is a problem? I am not saying such a problem does not exist, nor that there is no evidence of it. I simply wonder why in a well documented work such as these two MIT professors’ The Second Machine Age no such evidence is quoted. Are they subscribing to Boehner’s prejudicial contention that the unemployed are just lazy? Or are they reverting to theoretical economists’ discredited practice of arbitrarily assuming characteristics of human psychology which have not been scientifically established? The problem the economy faces is one of insufficient jobs, something for which there is abundant evidence. Therefore, the negative income tax misses the point.
There’s an even more serious defect in the negative income tax idea. While it is a subsidy to the under-employed, it is an even greater subsidy to their employers. It enables them to hire workers at less than a living wage, the negative tax (ergo all other taxpayers) providing the deficiency. Critics have frequently, and vehemently, railed against Walmart for precisely this reason. Current employment welfare programs, such as the Employed Income Tax Credit, presently provide a subsidy of this kind amounting, these critics charge, to billions of dollars. As Brynjolfsson and McAfee themselves point out, the six heirs to the Walmart fortune have more net wealth than the entire bottom 40 percent of the population. I can conceive of no economic, and certainly no moral justification for further subsidizing the obscenely wealthy.
Worst of all, a negative income tax will only further inflame American anti-welfare hostility, exacerbating this politically and socially destructive attitude.
Before describing my alternative to GAI it is important for readers to know it is an undeveloped idea, not a formal plan. It is suggested in response to a request for ideas made by Brynjolfsson and McAfee (2014) near the end of their excellent book about the employment problems computers and automation create. My response is rather prolix, I fear, but I needed to consider all the above to organize my thinking and also in order to inform you of the particular views underlying this idea.
The first thing to note is that while I believe the idea to be original, neither do I know nor claim it so to be. I am unaware of its having been suggested before, but that well may be due my ignorance since I do not read the literature where such an idea would be presented.
The idea is not a plan. I have neither the knowledge nor informational resources needed to detail a plan. I am an octogenarian, long retired, social psychologist by training, behavioral and medical researcher by practice, and therefore not learned in matters economic. Moreover, my only informational resources are Denver’s public library and the internet, a fabulous tool to be sure, but one, I must confess, my neighbor’s children use with greater facility than I. So all I have to offer is the germ of an idea. My hope in offering it is for persons who have appropriate knowledge and informational resources to consider it carefully and critically, but more importantly, creatively, and develop a plan from this seed.
The idea is similar to GAI in that government(s) would provide every citizen with an income sufficient to satisfy all basic needs. Let’s call it a “citizen salary”. It would include both retirement, disability and full medical/dental insurance. The cost of living varies greatly across different localities, so citizen salaries would have to vary accordingly. But except for this location differential, all citizen salaries would be equal. Since citizen salaries will cover all citizens’ minimal needs, other welfare programs, including Social Security and Medicare, would be redundant and would be discontinued. A citizen salary would not itself be taxed, but it could be used to pay other taxes, such as sales and/or property. Finally, citizen salaries would not be attachable for debt. After all, one goal is to guarantee all citizens’ minimal sustenance, a goal which would be frustrated if improvident person’s were to borrow against their citizen salary and then default. This restriction would apply only to citizen salaries. Persons with other means would remain free to borrow against them for any legal purpose.
Though similar to GAI, this idea differs in a vital respect. A citizen salary would indeed be a salary, not a grant. It would be pay for working at what may be called a Citizen Job (CJ). Except for a few special cases such as age or disability (considered below), everyone would be required by law to work part-time at a CJ. Therefore, no one would be out of the workforce, no one could be considered a freeloader or parasite, no one would be unemployed, and unemployment insurance or benefits would not be needed. Though holding a CJ would be mandatory, every effort would be made to place workers in jobs suiting their abilities and interests. (For the purposes of this program, legal resident aliens, i.e., green card holders, would be classified as citizens. And since they therefore must hold a CJ, their citizen salary would not be a gift. Just like actual citizens, they would have to work at a CJ to pay for the benefits provided by government.)
The benefits of this idea are multiple.
First: The idea addresses the welfare hostility problem discussed in the previous section. With CJs no one gets a free ride. Everyone works. And since everyone must work, under this program it would be clear that there can be but few welfare cheats and parasites. Socially and politically destructive hostility should therefore be minimized.
Second: CJs would provide workers with those non-monetary work benefits discussed in the previous section.
Third: By appropriate choice of CJs (discussed below) taxpayers will be assured they are supporting beneficial and useful things, not make-work.
Forth: In contrast with others who suggest either relatively minor (Jacobs & Mazzucato, 2016) or massive (Mason, 2015) changes to the economy, a CJ program would leave the economy intact. Because it would not threaten the profits and prerogatives of those benefiting from the current economy, e.g., major corporations and their senior officers, they will be less likely to oppose it. Indeed, because it would protect the consumer commons, they might endorse it.
Fifth: Some have suggested public (Atkinson, 2015) or not-for-profit (Yunus, 2010) businesses as a means of providing jobs the private economy does not. Such companies would be, at least potentially, competitors with private businesses. Should such competition exist or develop it would be detrimental, for the private sector is the fundamental source of the nation’s wealth, the ultimate support of such employment. A CJ program would not entail such counterproductive competition.
Sixth: Since everyone’s CJ would be a conspicuous contribution to maintenance of the government, this hopefully will help recreate that “We’re all Americans together” attitude which characterized the US during and after WWII, which, I believe, was in significant part responsible for the remarkable achievements of those times. I further believe the destruction of this attitude by those seeking to maximize shareholder profits did far more harm to the nation than even the income inequality they caused.
Since a CJ would be only part-time, people would be free to use the remainder of their work time in any way they may choose. Presumably, since a citizen salary would provide only minimum subsistence, most would probably choose to seek an additional part-time job or to engage in some other income producing activity. As noted above, one of the weaknesses of today's economy is the large and growing incidence of persons relying on part-time work. Reich (2015) reports that almost 20% of the current work force has only part-time jobs. For businesses, there are considerable advantages to this. They can hire well suited persons for particular short duration tasks without the expense of adding someone to their payroll who would be redundant after the task were completed. But unfortunately for the worker, the income from a sequence of part-time work is often, if not usually, insufficient to meet basic needs. A CJ program would provide these needs, thus allowing businesses to continue with unblemished conscience realizing the efficiencies of part-time and contract workers and allowing these workers the benefits of being independent contractors.
To implement a citizen salary program we must first determine what work is to be done on CJs. A wrong choice here would doom the program. It is intended as a share-work, not a make-work program. Therefore, CJs must be beneficial and useful. The economist Keynes reportedly once said that to maintain employment governments might bury bags of money and hire persons to dig them up. One hopes he was being facetious. But whether he was or not, CJs must not involve anything even remotely similar.
CJs must involve constructive, useful tasks which now are either under performed or not being done at all. But the product of these jobs must not compete with that provided by the private, profit making segment of the economy. After all, as noted above, the private sector is the ultimate source of the nation’s wealth, so it would be counterproductive for CJs to take business away from businesses. Fortunately, the US has an abundance of such under performed, noncompetitive work. These are things which now are not done or are inadequately done, but which, if resources were available, would be accomplished in the public sector, i.e., where the employer is a government or government agency. So I propose CJs replace all public sector employment. “Replace” is not a typo. I am in fact suggesting the replacement of all public sector jobs by CJs. Thus every citizen will work to support government(s) and in turn government(s) will support every citizen.
You may think there are too few citizens to do this. You may be one of the many Americans who believes the US has so vastly many public sector jobs it would be impossible to fill them all with part-time CJs. If so, you're gravely mistaken, though you can not be blamed because you have been brainwashed by endless propaganda from the same self-serving people who claim income inequality is economically beneficial. These propagandists disparage the public sector because its jobs are supported by taxes, and they hate taxes. Indeed, a persuasive case can be made that Americans are the world's foremost tax cheapskates. In point of fact, the USA is one of the least taxed nations. According to an internet report of the Tax Policy Center of the Urban Institute & Brookings Institute the average total tax in the thirty-four most economically developed nations is 34% of GDP, while in the US it is only 24%. In fact, only two of these nations, Chile and Mexico, have lower taxes than the US.
Nevertheless, endless propaganda insists we are taxed more than any other nation and holds excessive public sector jobs to be responsible. Whether this propaganda is deliberately false or simply uninformed I will leave to others to judge. But that it is fallacious is easy to show. According to data reported by OECD, the Organization for Economic Cooperation and Development, in 2008 (the latest data reported in Wikipedia) only 14.6% of the US workforce was in the public sector. Since state and local governments responded to the 2007-09 Great Recession by reducing their number of workers, reductions which have not fully recovered, this 14.6% figure is even lower today, so using it is conservative.. Of the thirty-four OECD nations, the US ranked twenty-ninth. Only five nations had fewer public sector workers, so obviously the US does not have excessive public-sector employment. And as a consequence, many tasks which most other developed nations consider vital are under performed or not done at all in the US. This is the work CJs would do.
In order to get a first approximation of some of the parameters a CJ program could entail let’s consider a timely case. It concerns tasks which one municipality addresses but which it has insufficient workers to adequately accomplish. The city of Chicago recently decided it has a desperate need to increase its police force. Let’s do some back-of-the-envelope calculations of how a CJ program could fulfill Chicago’s desperate need.
The above OECD data say the US is two percentage points shy of having one-sixth of the US workforce in the public sector. That means for every such worker there are at least five others available to hold CJs. This is an underestimate. Not only because the actual proportion is less than one-sixth (and as noted above, probably by more than two percentage points), but also because in the past few years large numbers of Americans have dropped out of the workforce. Since no able person would be exempt from holding a CJ, under this program there would be no dropouts. Thus there would be more than five additional CJ workers to supplement every current public sector position. But I do not have the data to estimate how many, so let’s just go with the number five, keeping in mind that it is triply conservative.
Thus CJs could give Chicago at least six times as many cops. But of course, since CJs are only part-time, at any given time the effective force would not be six times larger. If CJs were half-time, for example, the effective Chicago force would be three times its present level. But half-time seems excessive. The exact part-time of a CJ is one of the parameters that would have to be determined. But just to have more reasonable numbers to work with let's say all CJs would be one day per week. This would conveniently fit into the current normal workweek of five eight-hour days. At this rate the effective size of a CJs augmented Chicago police force would be 1.2 times its present size, a 20% increase, quite sufficient, one may reasonably suppose, to fulfill Chicago's desperate need.
But nationwide there probably are not enough understaffed public sector positions to usefully absorb a 20% increase in workers. So the CJ program would need other beneficial tasks. The following lists a few possibilities. These are only suggestions. The actual CJs any government would support over and above its current operations would depend on its particular needs, circumstances and desires.
Many CJs could staff child care centers. The US has been accurately accused of grossly ignoring the needs of working mothers. Indeed, there have been tragic incidents where mothers have had to choose between going to work in order to earn money to feed their children and leaving them unattended. So child care centers could provide many highly useful CJs. Moreover, since every able person would be required to hold a CJ, a child care program would be necessary to provide care for children when their mothers are working at their CJs. There are private child care centers, and such a CJ program would be in competition with them, contrary to a main objective of the CJ idea. However, such private centers are only a minor part of the economy, so the competition of a CJ child care program would be minimally disruptive.
In the past couple decades a species of beetle whose numbers used to be kept in check by winter cold now survive because of global warming. These beetles kill pine trees, and the US now has hundreds of thousands of acres of dead and dying forests. They need to be cleared and replanted with species of trees not susceptible to beetle kill. A CJ program similar to the Great Depression’s CCC could address this need. Obviously, this kind of work could not be efficiently done on a one-day-per-week schedule, nor done at all in winter. Instead this kind of work would have to be full time but only for a limited period, say a couple months per year. Other kinds of part-time CJs may also best be limited duration full-time work.
As noted above where the excessive US incarceration rate was considered, many persons have insufficient abilities to compete in today’s labor markets. CJs offer an effective solution. Here’s how.
Technological improvements often involve labor saving devices or procedures whereby a few workers replace many others. Even if the new technology requires higher skill workers who command higher salaries, because fewer of them are needed businesses can realize a net gain by adopting the labor saving technology. Today governments compete in the labor market with these businesses. Therefore, today’s governments must also adopt labor saving technologies. But in a CJ situation governments would not compete for workers. Their workforce numbers would be externally set. Thus, unless these numbers were too small for their needs, a government’s only reason for adopting any technology would that it yields a better output. Labor saving would be irrelevant. Indeed, since a main purpose of CJs is to usefully employ people, labor saving per se well might be counterproductive.
Let me illustrate with an example. My home city, Denver, uses street sweeping machines which are enormous labor savers. One person can sweep miles of streets with one of these machines but only a few blocks with a boom. But the resultant cleanliness is significantly poorer. The machines only sweep curbs, not the middle of the street, and they cannot reach tight places. And while they do pick up a large amount of debris, they do not get it all. Also, they are completely incapacitated by parked vehicles carelessly and illegally not removed on sweeping day. But the ability limitations which now lead many unemployable persons into petty crime would not prevent them from becoming excellent street sweepers. And if a city had such workers for whom it had to find useful CJs, broom sweeping of at least some of its more important streets would be useful and beneficial. Such people could do a much better overall job than the machine. They also could do at least some cleaning around illegally parked cars. They might even be authorized to ticket such vehicles, which would not only add to the workers’ sense of being a useful and responsible member of society, but also would relieve police for more important duties.
Careful consideration of other labor saving technologies would, I am sure, discover other circumstances where better results could be had with unskilled workers. Let me reemphasize: This use of labor instead of labor saving technology would only be justified if it produced a superior outcome. Mere make-work should be eschewed for it would tend to undermine one of the main goals of a CJ program.
Another of our nation’s unmet needs is the care and supervision of the mentally ill. Often these unfortunates exhibit bizarre and socially disruptive behavior for which, as noted earlier, they are incarcerated. But police chiefs, jail and prison wardens all complain that they have neither resources nor training to deal with these people. As with the lack of child care centers, there have been many instances where dumping psychotics onto the police has led to tragedies. CJs could provide some care for the mentally ill and would free police and prisons to attend to their appropriate functions.
Concerning the mentally ill, should they receive citizen salaries? The answer depends on the severity of the illness. Most mentally ill persons are not completely incapacitated, so many could hold non stressful CJs suited to them. One of the main tasks of those whose CJ were to care for the mentally ill would be to try to so place their clients. For less functional patients the citizen salary could be a contingency used to elicit functional behavior. For example, psychotics often resist taking their medications. In some such cases it might be possible to use a citizen salary as a behavior modification tool to elicit medication compliance. The severely ill, however, would receive suitable care under the disability provision of the program, but would not receive a citizen salary.
In general, whether for mental illness or any other disability, in keeping with the program’s goals of assuring that CJs benefit both the worker and society, the first and optimum choice would be to find a CJ suited to each disabled person’s particular capacity. This would help preserve the individual’s sense of self worth and also provide some benefit to the community. For the same reason, older persons would be encouraged to continue working at their CJ if they were able. Perhaps the best way to do this would be to set a retirement age and provide a supplement to the citizen salary of persons who continue working at their CJ after reaching this age.
Children are another class of citizens who would require special consideration. Obviously they cannot hold a CJ, but equally obviously they have needs. The most straight forward approach would be to provide each family with an allowance for each child.
For families this would work. Unfortunately, not all children have families, and allegations are heard that some such children have been borne by some women in order to live off child welfare, the so-called welfare queens. Since CJs would be mandatory and would provide a living for everyone, including alleged welfare queens, such practice would no longer be functional. Nevertheless, a child care allowance under a CJ program might elicit the charge that women such a these were using their children’s allowance for themselves, not their children. This would provoke exactly the kind of socially and politically destructive invidious hostility which the CJ program is designed to avoid. Since much of this is based on the idiosyncratic hostility of the complainers, I know of no way to prevent it. However, there is one way a CJ program might mitigate it. As has already been noted, a CJ program can be expected to provide a reasonably large number of workers. If there were sufficient reliably responsible workers available, it would be possible for control of the child support allowance of number of so alleged welfare queens to be the CJ of one such responsible person. The funds could not be expended without his/her approval. Thus suspicions that the child allowance were being used inappropriately could be allayed.
Yet another special case concerns criminal prisoners. This is easily handled. Just like everyone else, jailed persons would be required to work, especially if they were jailed for non compliance with the CJ mandate. However, unlike ordinary CJs, prisoners would be given no choice of the work required of them, and the citizen salary therefore would be payable not to them but to the institution incarcerating them.
A last special CJ case concerns the wealthy. Most persons with six, seven or eight figure incomes are not going to be willing to surrender a day a week to a CJ. Since, as has been documented above, the wealthy exercise considerable control over US governments, it would likely be impossible to institute any CJ program against their will. Therefore, the program would need a provision whereby the wealthy could buy themselves out of the CJ mandate. Obviously, this is undemocratic. But a fundamental premise of our economy and political philosophy, its democratic ideals notwithstanding, is that wealth and its pursuit is commendable and socially useful. And what is wealth but the power to have what one wants and to avoid what one doesn’t want? So democratic or not, such buy-out provision would be in keeping with US customs and practices.
Accordingly, a minimum wealth level should be specified such that persons above this level are well able to provide for themselves. These persons would have the option of buying out of the CJ program. There should not be a standard buy-out price. Rather, the cost of buying out should be some progressive percentage of the person’s wealth (not just income, but total net worth including income), and it should not be tax deductible. This rate and the exact wealth level for buy-out are parameters which would have to be determined. But buy-out should not be cheap, else it would undermine the whole CJ program. For example, it would be neither unreasonable nor inappropriate for persons with net worth in the billions of dollars or more to have a yearly buy-out fee of a million or more. The proceeds from buy-outs would be added to the funds supporting the CJ program. This would give the wealthy buy-out person every right to consider him/her self as a supporter of society, and give little reason for anyone else to condemn the buy-out provision as undemocratic.
Thus far we have mainly considered the benefits a CJ program could have for individuals and society at large. But there are other major players whose needs and desires must be considered, private sector employers. Would the program benefit them? I think it would in several ways. Here are some.
First and foremost, a CJ program would support the consumer commons. The purpose of citizen salaries is not only to provide for every person’s minimum needs. They also are to support demand. The expenditures people made in supporting themselves would help maintain the demand which businesses must have to survive.
Demand support is not unique to a CJ program. As noted above, a GAI program would also do this. But it would be much more costly. In his book recommending such program, Stern (2016) does some back-of-the-envelope calculations which suggest a guaranteed income program might cost up to two and a half trillion dollars annually. Approximately half of this could be recovered from superceded welfare programs, but a very large remainder would require substantial additional taxes. In comparison, a CJ program would realize the same gains from welfare program replacements, but it would also have all the funds presently supporting the public sector. Whether any additional funds would be needed would depend on program details, but any additional taxes would be minor compared to those of GAI. As noted above, Americans are the world’s foremost tax cheapskates (perhaps because they cheat less on taxes than do some other nationalities). So if any additional taxes were required there will be objections. But I believe the obvious social benefits of a well structured CJ program will minimize them.
It must be admitted, however, that a CJ program, if it includes all the benefits listed above, will cost more than a GAI program such as Stern suggests. In particular, many will say the expense of full medical insurance coverage alone makes the idea unfeasible. To be sure, if US health care costs continue growing as they now are they will soon be unsustainable. But this is true whether they are included in a citizen salary or paid for in any other way. As many economists and others have correctly noted, US health care costs are out of control. Compared to every other developed nation, we pay substantially more for health care and receive significantly less benefit therefrom. This problem must be resolved or it will break the nation. However, this is true regardless of anything else we do. If the health care cost problem is resolved, then full medical coverage provided by citizen salary is feasible. If the health care problem is not resolved, then the nation is bankrupt anyway.
A CJ program would eliminate many employer worker expenses. There would be no need for unemployment insurance, disability insurance, workers’ comp, medical insurance or retirement. An employer might supplement any of these benefits, but it would only be a particular form of taxable employee wages. Also, neither employers nor employees would have to pay social security or Medicare taxes, since these programs would be absorbed into the CJ program. This would be no free lunch. Appropriate funds would have to be obtained from other taxes. But the impending problem the CJ idea addresses is one of grossly insufficient jobs, an insufficiency which well might raise to catastrophic levels. In such a situation, whatever other advantages they may have, taxes on employment will be massively dysfunctional and counterproductive. The savings to employers from all of these cost eliminations would not only improve businesses bottom lines, it would significantly reduce the cost of labor thereby encouraging and enabling businesses to employ more workers.
But these gains would not be uniform across all employers. At the present time corporations enjoy an advantage in worker selection because they can afford, whereas smaller business can not, to provide the above mentioned kinds of fringe benefits to their employees tax free. But while a few such businesses might therefore have reason to disfavor a CJ program, the resources which now give them this advantage would enable them to easily cope. The important point is that removal of such fringe benefit costs would level the worker recruitment playing field. This can be expected to enable many more small business to exist than is now the case, an important gain for the economy as a whole. Similarly, by providing minimum incomes for everyone, a CJ program would also level the playing field between employee and employer. With a citizen salary back up, no one need ever be compelled to accept unacceptable employment. This freedom, it can be confidently expected, would lead many to venture a businesses of their own, again something of benefit to the whole economy.
Since a citizen salary would provide all a person’s needs, the loss of a private sector job would not be the disaster it now often is. This would give employers greater flexibility in letting workers go when business slackened. And since this would reduce the likelihood of an employer being burdened with surplus workers in a downturn, employers would be more willing to take on more workers in an upturn. Similarly, since employees would have the security of a citizen salary, they might be willing in a downturn to accept a smaller salary until better times returned. In general, the CJ backup would vastly increase the flexibility of the labor market, something which economists assure us would be of significant benefit to everyone.
One of the most contentious issues between liberals advocating for workers and conservatives supporting businesses is minimum wage law. The purpose of these laws is to provide workers a minimum livable income. But a CJ program would satisfy this goal. Thus minimum wage laws would be redundant and could be rescinded.
While a CJ program would provide many benefits to businesses, it would also impose some restrictions. One of the first is a restriction on the length of full-time work. A major goal of the program is to compensate for the loss of jobs which automation is causing by providing what essentially would be job sharing. This goal would be frustrated if the standard full-time work week were not adjusted. Therefore, it should be shortened by at least the amount of time required by a part-time CJ and perhaps more if the loss of jobs to automation becomes particularly severe. In the tentative example considered above, CJs were assumed to require one eight-hour day per week. If this were the parameter chosen for such program, then full-time work would be legally redefined to be four such days or 32 hours per week, and overtime work would have to be legally discouraged if not prohibited. Similarly, it would be illegal for employers to buy particularly valuable workers out of the CJ program. The purpose of these provisions, of course, is to force employers to maximize the number of workers. This may be inconvenient for some businesses, but since a CJ program would almost totally eliminate the disadvantages of adding workers, it should be a minor problem.
Finally we must consider two other requirement necessary to allow a CJ program to function. Unfortunately, many businesses and economists will object to both. Their objections will have to be faced and overcome if any such program were ever instituted.
First: A main goal of the CJ idea is to protect the consumer commons from the damage caused when business, seeking to maximize profits, reduce their labor costs and thereby reduce consumers’ ability to sustain demand. But the consumer commons is not the only thing damaged by the assault which US corporations have made upon US workers. The nation’s tax revenues have also been diminished. Ultimately, the funds for a CJ program must come from this source. Specifically, much if not a majority of its supporting funds would come from income taxes paid on earnings in the private sector. Therefore, any practice which diminishes this tax reservoir will necessarily impair or prevent a CJ program. The outsourcing of US jobs to countries with much lower labor costs, does this. Therefore, such outsourcing would have to be curtailed or possibly prohibited.
Eventually this would involve restrictions on free trade, and this will provoke the wrath of most economists. At one point in his excellent work, Schlefer (2012), whose discipline is political science, mentions how vehemently the economists on a multidisciplinary panel insisted on the absolute, unconditional necessity of free trade. This is pure dogma. For example, many economists insist the 1930 Smoot-Hawley tariff act was a major cause of the Great Depression, but Batra (2015) presents data showing this claim is unsustainable, if not total nonsense. And economics Nobel Prize winner Krugman (1990) has pointed out that externally produced goods comprise a small fraction of the US market. Thus, even though they are less costly, as economists insist, overall they are relatively unimportant.
It is true, as many economists point out, that globalization has raised the world-wide income average. But clearly this has not stabilized the international economy. Moreover, it has not improved the lot of many of the world’s poor because the root causes of their impoverishment are not economic. They are bad government (Acemoglu & Robinson, 2012), overpopulation and climate change caused droughts (Friedman, 2016). The CJ idea is based on an older and much more pragmatic ethic: Viz., “Get your own house in order before attempting to solve your neighbor’s problems.” A CJ program necessarily would be intra national. Any nation might choose to support one, but clearly each nation’s program would have to be crafted to fit its particular circumstances. So the idea is not globally directed. Nevertheless, if the idea can help any of the world’s developed economies save themselves from demand collapse resulting from job losses, it will provide global benefits.
Second: Another CJ aspect which many economists would oppose is its focus on jobs rather than productivity. As has been noted, increasing productivity is traditional economists’ mantra. Reportedly these people believe it is the only way any economic problem can or should be solved, whatever might be its cause. Thus, as with the above considered recommendation of the economist Summers, they recommend increasing productivity in order to replace job losses which are largely caused by productivity increasing automation. Anyone who so believes will see a CJ program as marginal at best and counterproductive at worse. Indeed, CJs could harm productivity. For example, by requiring everyone to hold a CJ businesses would be deprived part-time of their best workers. This could reduce productivity, at least for these businesses. But would it do so for the whole US economy? Would it diminish GDP? Traditional marginal productivity theory economists probably will say it would. However, more modern theorists say the current economic problem is insufficient demand not insufficient productivity. The fact that contemporary corporations are unwilling to invest the vast amount of cash they have in order to increase productivity supports the modern theorists’ contention. And if demand is the problem, by supporting demand a CJ program would benefit GDP. So who’s right? Since those who know most about the situation, the economists, disagree, quite obviously nobody really knows.
But it doesn’t matter!
If our economy were undeveloped, if it were unproductive, it would matter. But with a GDP running between sixteen and eighteen trillion dollars annually, with a per capita GDP of $50,000 to $55,000, with almost a third of our population in and above the upper middle economic class, the US economy definitely is not unproductive. Moreover, what more is there to produce? Faster computer games? As Gordon (2016) has so compellingly shown, the economy is abundantly providing the things we feel we need, even those things which a century ago would have been considered unimaginable luxuries. I come back to the point from which this essay began: Humans have neither a need nor a desire for absolutely superfluous frivolities such as 1001 sex positions. Ergo we do not need more production.
To insist on further increasing the productivity of our already massively productive economy is irrational if not inane. Productivity is no longer a problem. That problem has been solved! And automation promises to lead us beyond mere solution into an era of phenomenally greater productivity, into an era in which automated machines will produce just about everything anyone could want. But with the most profound and terrible irony, this very productivity achievement threatens to destroy production. Traditionally industry required workers in order to produce. Automation, and other factors which the economists I’ve read confess they do not fully understand, has been reducing the use of and the compensation paid to workers. But the obverse of a worker is a consumer. Each is one and the same person in a different guise. Workers are the very people who complete the production/consumption cycle, who make the economy work by buying the things produced. The usual figure says consumers are 70% of our economy. This is a gross underestimate. The taxes worker/consumers pay are principal sources of the funds which purchase the other 30% of the economy’s product. Clearly, productivity gains from worker elimination are also eliminating consumers and heading our economy toward disaster.
I reiterate the maxim stated earlier in this essay. With consumers as with cows: If you’re going to milk them you have to feed them. A CJ program could do that.
It was three quarters of a century ago, so I don’t remember many details. I was eight, give or take a year, and walking along a sidewalk a few blocks from home. I saw a paper scrap, and picked it up to see what it was. Apparently, a page from a children’s magazine because it had cartoons and jokes suitable for children. One of these I have never forgotten. Since it’s amusing, but especially because it’s relevant, I’ll tell it.
A driver was seeking a town in a part of the country where he had never been. So he asked a local for help. The local obliged, and started outlining directions. But soon he stopped, saying they wouldn’t work. He began again with different directions, but again stopped saying they also wouldn’t work. Then he began with yet a third set of directions. But again he stopped, this time in considerable confusion. “Well I’ll be darned!” he said. “I never realized it before, but you can’t get there from here!”
Certainly, a CJ program could solve the large and growing jobs deficiency which is damaging and threatening to destroy our economy. Nevertheless, quite possibly, “You can’t get there from here.” The CJ idea basically is job sharing, and persons who presently are employed full time in either the private or, especially, the public sector are quite unlikely to be willing to share. Though there’s a better chance of this than of the world-wide universal wealth tax Piketty (2014) suggested at the end of his monumental work. After all, workers have but little political power, whereas the wealthy not only have the power, but those who are motivated more by greed than honor have demonstrated a willingness to use their power to manipulate the laws in their favor when they can or hide their wealth in international tax havens when they can’t.
But an unwillingness to share jobs may be the least of the CJ idea’s problems. Because many public sector jobs have particular educational requirements, sharing would be impossible in many cases. After all, persons at the lower end of the human abilities spectrum can be street sweepers, but exceedingly few of us are going to be able to do the work of, for example, an M.D., Ph.D. virologist at the National Institutes of Health.
The CJ idea seems too big, it would involve too great a change from our accustomed employment practices. Indeed, it would require a massive change. But, clearly, only a massive change will do, because job losses due to automation is the challenge confronting us, and with 47% of US jobs at risk the challenge is truly massive. The situation facing us is not simply a problem, it’s potentially overwhelming. No band-aid patch is going to help, let alone solve it.
But how do we get there from here? Frankly, I don’t know. That’s why I write. The CJ idea might be the big fix we need. Nevertheless it’s going to take an enormous amount of creative planning and fine tuning to realize any benefits it might have. Therefore, I invite readers to consider the CJ idea. Could it solve the problem if it were implemented, and, if it could, how could it be implemented?
The recent Presidential election has placed the US on a possible road to major political changes. In large part the cause of this potentially revolutionary electoral choice, it may be persuasively argued, is that the problems discussed herein have not been solved, nor, indeed, have they even been usefully addressed. It is impossible to fortell either the nature, extent or consequences of any portended political changes. And perhaps we have allowed shortsighted and selfish interests to prevent us from addressing these problems too long, and have therefore lost the chance of solving them in any manner other than with the pain and dislocation which usually accompany revolutionary political changes. But if we have not, then the CJ idea is one way we might address these problems. So I ask again, can you help find how we can get there from here?
Empiricism is the essence of science. The overwhelming majority of scientists and philosophers of scientific method agree that evidence is the only valid means of discovering how things work. Some even suppose evidence can discover truth, but that is naive (Miklich, 2016).
Belief in evidence was not always the case. At one time reason was considered to be the only knowledge source. Plato so insisted. Evidence, he accurately argued, is inconsistent and untrustworthy, like the shadows on a cave wall. But underneath were consistent fundamental processes he believed could be inferred by mathematical reasoning. With this Platonic methodology Ptolemy built a mathematical astronomical theory which endured for centuries. Eventually, however, intellectual giants such as Kepler and Newton showed that theories based on empirical data provide much more accurate predictions. With such evidence based theories modern technologies have created a world Plato could only have seen as miraculous.
Notwithstanding these vast accomplishments, a substantial number of economic theorists apparently believe evidence is not particularly relevant. They have readopted Plato’s methodology. They devote their efforts to rationally deduced mathematical theories which they usually call “models”. And instead of basing them on empirical data, they base them on arbitrary assumptions. Critics claim many of these assumptions are conspicuously unrealistic, a charge the theorists do not deny. But they say it is irrelevant. For example, the eminent US economist Milton Friedman claimed that if a model makes accurate predictions it matters not that its foundational assumptions are unrealistic (Rodrik, 2015).
Friedman’s claim, I submit, reveals a total and profound epistemological misunderstanding. It is entirely possible for a model to make correct predictions for incorrect reasons. Consider: For a decade at the end of the twentieth century economists’ favored model said any major recession was essentially impossible. And for more than a decade this prediction seemed correct. Then in 2007 the prediction and the world’s economies both fell apart in what is now called the Great Recession, the worse economic failure since the 1930s Great Depression. Obviously the favored model was grossly inadequate notwithstanding more than a decade of accurate predictions. (Other, less popular models were not so completely off base, but this doesn’t really say much for economists’ models. After all, the more different models there are, and economists have lots, the greater the likelihood that by random chance alone one will make a correct prediction.)
One of the main reasons why theoretical economists make unrealistic assumptions is in order to simplify their theory or model enough so it can be developed mathematically, the method Plato required. These economists believe mathematically derived conclusions are necessarily empirically true whatever their starting assumptions. As every mathematician will tell you, this opinion is simply and unequivocally mathematically wrong. Despite Plato’s claims, math per se has nothing to do with the real world. All it can possibly do is show the logical consistency between axioms, i.e., assumptions, and conclusions, i.e., prove that the conclusions are logically implied by the foundational axioms even if this is not apparent. Therefore, if one’s assumptions are unrealistic, mathematical rigor absolutely requires one’s conclusions also to so be. Unrealistic assumptions lead tautologically to unrealistic conclusions. If they do not, there’s an error in the math.
This in no way is a criticism of the use of math in science. Mathematic models are highly desirable. But their utility depends wholly on the validity of their starting assumptions. To make this clear consider a case where math did discover an important aspect of reality. Nineteenth century physicists found compelling evidence that the speed of light is constant and unaffected by the speed of the object from which the light comes. This was deeply puzzling, but it could be explained if one assumed objects grow smaller in the direction of their movement. However, when the Dutch physicist Hendrik Lorentz attempted to develop a mathematical description of such shrinkage the math forced a conclusion on him he did not want but could not escape: Time would be slowed in the shortened moving object, a seeming impossibility. But such is the case. Much subsequent research has shown this so called time dilation does indeed occur, precisely as the math says. Math uncovered this completely unexpected phenomenon hidden in the empirical fact upon which the mathematical deduction was based. But without this empirical base there would have been nothing for the math to find.
To empirically oriented persons, theoretical economists’ deductive models based on arbitrary and often unrealistic assumptions seem more suited to philosophy (or perhaps secular theology) than science. This seems especially the case in view of some theoretical economists’ dogmatic insistence that their models are empirically true even when they are inconsistent with evidence. These theoreticians insist their models are as scientifically valid as physicists’ theories. It’s hard to decide whether this conceit is due more to ignorance or arrogance. Physics theories predict with astounding precision. For example, in Feynman’s (1985) delightful little book explaining quantum electrodynamics, he notes that if the distance between New York and Los Angeles could be measured with the precision physicists have achieved between theory and empirical measurements of the magnetic momentum of the electron the error would be no greater than the width of a human hair! In comparison, economic models not only said the 2007-2009 Great Recession wasn’t possible, many economists say their theories can not even provide convincing post hoc explanations of such fundamental economic phenomena as the decline in US productivity growth since the 1970s!
Catastrophic failures like these are probably largely due to theoretical economists use of the obsolete and demonstrably inadequate Platonic scientific method. It therefore may seem reasonable to completely dismiss all economic models. The economist Rodrik (2015) has come to their defense. He acknowledges that economists’ models are not descriptions of fundamental economic functioning equivalent to physics theories. He also concedes economists’ models are often based on unrealistic assumptions. Nevertheless, he claims these various and often inconsistent models are suitable for different particular situations. They comprise a tool kit from which economists must use educated judgment to select the most appropriate one for the particular issue at hand. Roderik’s defense is thoughtful and deserves the careful consideration of critics. He has dismounted from theoretical economists’ high horse. But he still maintains the possible utility of some unrealistic assumptions, so I’m not convinced he yet has both feet on the ground.
Fortunately, a goodly part of economics is empirically based. Though not as spectacularly precise as quantum electrodynamics, the conclusions of such research are well worth knowing (and a great deal more relevant to a great deal more people than the magnetic moment of the electron).
There are two different kinds of empirical science, experimental and correlational. Experimental scientists manipulate some variables under rigidly controlled conditions in order to discover whether they have a causal effect on other variables. Correlational scientists do not themselves manipulate any of the variables they study. Instead they observe their phenomenon of interest as it naturally occurs, measuring whatever aspects of it they can and then determining the interrelationships among and between these variables.
Logically, only experimental science allows conclusions about causality. Correlational science (sometimes for obvious reasons also called observational) can only infer it, and while such inferences may be completely reasonable, they can still be completely wrong. Consider: Excluding those who are bald, there is a relationship between persons’ gender and their hair length. Females tend to have longer hair. But this is caused by fashion, not gender. A person of either sex can, and some do, keep his/her hair at a length different from the fashion. This is well known, of course. But if it were not, if all we knew is the relationship between gender and hair length, then one might reasonably infer that female gender causes hair to grow long. We scientists study the things we do precisely because they are unknown. And, in correlational research all one usually knows about two variables is their relationship. Thus, to conclude that either is the cause of the other can only be a potentially erroneous inference.
While there are some experimental economics studies, by far the greater part of empirical economics is correlational. Therefore, for the bulk of this research there is no scientific verification of the causal nature of the relationships which it concludes exist between the studied variables. The relevance of this is the recommendation of the economist Summers, mentioned in the text, of using fiscal stimulus (i.e., government expenditures) to increase GDP on the expectation that this will reduce income inequality. This recommendation is based on historical data relating GDP growth to job and income growth. These data are a solid finding, but a correlational one. Hence we can only infer that increased GDP will reduce inequality, and as illustrated in the text, in the present circumstances it is quite conceivable that it will not.
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This essay is a non-economists’ (there’s not a bit of math in it) inquiry into the US employment losses which have been happening for about a half century. Businesses have been reducing workers and their pay in order to increase shareholder profits. Many ways have been used to do this, but more and more computers and robotics are replacing workers. Well informed economists fear that in a decade or two such automation may eliminate almost half of US jobs! The worker reduction practice has been justified by economic theory which claims (though with dubious supporting evidence) that it maximizes productivity. This book argues that, even if this claim is correct, the practice damages the economy and the nation. Our economy is already massively productive, abundantly supplying our needs and desires. As the book title implies, no one needs nor wants such totally superfluous things as 1001 sex positions. Therefore, for the highly productive US economy to focus on more productivity is neither useful nor reasonable. The enormous US economy can provide a sufficiency for everyone, but only if everyone has a means of purchasing what is produced. To do this Americans need and want jobs and income. By diminishing workers’ incomes, and especially by diminishing the number of workers, this profits/productivity emphasis reduces consumer demand, thereby damaging the economy. Ultimately, and paradoxically, sacrificing jobs and incomes to increase productivity is self-defeating. Ultimately, job losses must diminish productivity simply because the workers who make things are also the consumers who buy them, and without jobs and income there will be no one to buy whatever is produced. Poorer workers weakens demand; fewer jobs destroys it. Continuing to place profits and productivity above workers threatens the possibility of an economic collapse worse than the 1930’s Great Depression. Yet no business dare not follow the jobs reductions practice since they might be driven out of business by competitors who do follow it. The economy therefore seems to be on the brink of a disaster. Some economists and others have suggested that, to prevent this, the government should give every citizen a minimal income; no questions asked; no work required. This essay gives several reasons why this suggestion is a bad idea. Instead it offers an idea for a program which will sustain jobs and worker income. If this idea can be developed and implemented it could help preserve the economy from the damage which the emphasis on profits and productivity has caused.