A couple of days ago one of our faithful readers sent us
links to two very interesting articles.
One was on the “Naked Capitalism” website, “People
and Power: The Technology Threat.”
The other was from the Washington
Post Magazine, “The
Post Ownership Society: How
the ‘sharing economy’ allows Millennials to cope with downward mobility, and
also makes them poorer.” Taken together, they paint a very grim
picture indeed.
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| "It's my new invention. Start grooming it to take over your job." |
The
Naked Capitalism article focused on a two-part Al Jazeera documentary
chronicling how advancing technology is eliminating “mid-range” jobs, i.e., traditional white collar bastions
of middle and low management and others on that level. The Washington
Post Magazine article related how the trend to temporary work and
reluctance to commit to anything (such as marriage and home ownership) is
undermining the “Millennial” generation.
The
two articles fit very neatly together, although that was probably not the
respective authors’ intentions . . . who may not even be aware of one
another. Not having seen the Al Jazeera
documentary, we suppose that it related how jobs that used to be done by
actual, flesh-and-blood human beings are now being done increasingly by
machines.
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| Babbage's "Analytical Engine" |
This
is nothing new. Advancing technology has
always eliminated jobs. It’s the nature
of technology to do so. Both
Jean-Baptiste Say (“Say’s Law of Markets”) and Charles Babbage (who is
generally acknowledged as the “father of the computer”) noted that technology
replaces human labor in the production process, or no rational producer would
purchase the technology.
What,
then, are we to make of the mantra that “technology creates jobs”? Nothing.
It’s not true.
Put
away your torches and guns, techies. We
will proceed to demonstrate the truth of this claim.
We
begin with the standard economic copout of holding everything else equal except
the thing we are changing. It’s not
really a copout, of course, but standard scientific practice. You keep everything else the same and change
only one variable to see what happens.
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| "Damn' elf labor. The other eight must be playing hooky." |
So,
let’s start with the shoemaker and the elves.
The only shoemaker in town employs ten elves, who produce ten pairs of
shoes each day, five days a week. That’s
fifty pairs of shoes, which is exactly enough to meet local demand, no more, no
less. The shoemaker pays each elf one
silver piece per week, and sells each pair of shoes for one silver piece. The cost of materials and operations is 25
silver pieces each week, leaving the shoemaker a profit of 15 silver pieces
each week, or one and a half gold pieces.
If you just did the math, one gold piece = ten silver pieces.
One
day Mac the Machine Salesman comes to town and tells the shoemaker he can sell
him a machine, set it up, and give him a service contract for the life of the
machine (ten years, guaranteed) for 100 gold pieces plus 4% interest on the
loan principal. This will be at the rate
of one gold piece per week for two years; the additional four weeks’ gold
pieces are for the 4% interest. The
machine is guaranteed to produce exactly 50 pairs of shoes per week.
Whipping
out his stylus and wax tablet, the shoemaker figures that over the life of the
machine he will save 416 gold pieces in wages, or 4,160 silver pieces, with no
increase in other costs: pure profit; his retirement is secure. At the end of the machine’s useful life, the
shoemaker can either buy another machine and sell the old one for scrap or take a
trade-in allowance, or go back to elf-manufacture.
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| Nothing sadder than an unemployed elf. |
Naturally
he buys the machine, and fires the elves, who are not unionized. Because the elves did not contribute to the
local economy by buying anything, not even shoes (they produce what they
themselves need by magic and hoard their silver), and the shoemaker saves all
the extra money in a sock under his bed for retirement, the only change in the
local economy has been the disappearance of ten jobs.
Thus,
by holding everything except the introduction of machinery constant we see that
advancing technology does not create jobs, but eliminates them.
So what
does create jobs? As Dr. Harold G.
Moulton demonstrated in The Formation ofCapital (1935), increases in consumer demand create jobs by increasing the
demand for machinery that requires human operators. Not the same jobs that technology eliminates,
of course, but different jobs.
Take
the shoemaker again. He tells Mac the
Machine Salesman that the deal he offers is great — but he is anticipating
doubled demand for shoes because everybody in town has taken up jogging and
wearing out their shoes twice as fast as they used to. Demand is going to increase from fifty to a
hundred pairs of shoes per week.
Mac,
of course, says, “No problem. I can let
you have two machines on exactly the same terms. You will produce twice as many shoes and make
twice the money.”
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| "There's gotta be a better way to make a lousy silver piece." |
The
shoemaker almost agrees, but then realizes something. “I can only operate one machine at a
time. Who is going to operate the second
machine?” he asks. “Elves can’t reach
the turn-on switch, and they’re not strong enough to pull the lever to produce the
shoes.”
Mac
shrugs and says, “So hire somebody at one silver piece per week, the going rate. The only difference is that you’ll net 29
silver pieces each week instead of 30 for your living expenses and double the
amount of your retirement savings.”
Thus,
one new job was created in place of ten jobs eliminated — but it wasn’t the
same job. It was a new, different
job. Further, it wasn’t due to the
introduction of machinery per se, but
because of an increase in consumer demand.
Tomorrow
we’ll look at how advancing technology is affecting the “mid level” people in
the economy.