Thursday, June 11, 2015

Sharing the Tech Threat, II: The Sharing Economy


Yesterday we looked at an article about an Al Jazeera documentary about technology replacing “middle” workers, that is, people in traditional white collar occupations.  We didn’t look at the Al Jazeera documentary, we just went with the premise, one that should be obvious to anyone who understands the effects of technology and grasps the fact that both labor and capital produce marketable goods and services . . . but that capital’s productiveness (understood in binary economics as the relative proportion of production) is far outstripping that of labor.

Machinery eliminates jobs, it does not create them.
The bottom line — as we say yesterday — is that technology displaces labor from production.  Everything else being equal, advancing technology does not create jobs as the common myth holds.  Rather, advancing technology eliminates jobs.  What “creates jobs” is increases in consumer demand, that is, increases in disposable income.

Per Say’s Law of Markets, however, production equals income.  If you don’t produce, you don’t have income.  Everything else being equal, the only way to consume is to produce something you can consume, or to trade to others for what they produce so you can consume what others have produced.

Jean-Baptiste Say: "Production equals income."
Consequently, when machines are producing the marketable goods and services, and people who formerly produced with their labor don’t own the machines, they are not producing, and thus have no income.  Thus, when advancing technology displaces human labor, and those who lost their jobs don’t own the new machines, there may be much more in the way of consumer goods available, but fewer and fewer people have the means to purchase them.

The Keynesian response is to redistribute purchasing power by manipulating the currency.  This is the driving principle underlying all of Keynesian economics.  It embodies several false assumptions, but we don’t need to go into those at this time.  All we need to know is that John Maynard Keynes believed that if the State had full control over money and credit, All Will Be Well.  That’s why he intended his 1930 two-volume A Treatise on Money to be his magnum opus.

It also possibly explains why Keynes’s 1936 General Theory of Employment, Interest, and Money is almost incoherent.  It seems Friedrich von Hayek’s critique of the Treatise on Money, while it missed some key errors due to both von Hayek and Keynes being “currency school,” devastated Keynes.  The clincher, however, was Harold Moulton’s 1935 The Formation of Capital, which demonstrated the utter falsity of the monetary theory on which Keynes had built his entire economic school.

Keynes: "In the long run, I died...after I killed the economy."
And what was that?  Keynes assumed as an iron law of existence that new capital formation can only be financed out of savings . . . which he defined as the excess of income over consumption, no exceptions allowed.  Moulton proved beyond the shadow of any doubt whatsoever that the Keynesian assumption is seriously flawed.  Moulton demonstrated that the excess of income over consumption is not only not the sole source of financing for new capital formation, it is the most damaging form of financing as it diverts consumption income to reinvestment, decreasing consumer demand, and making any new investment less feasible.

Despite the desperate attempts of today’s academics and politicians to maintain the Keynesian system in the face of an ever more obvious looming disaster, many people are starting to realize that Keynesianism is bankrupt, and has been a no-go from the start.  They are not yet, however, abandoning what Louis Kelso and Mortimer Adler referred to as the slavery of [past] savings.

Hence, the “sharing economy.”

There is, of course, no problem with sharing.  It’s a good thing, despite Ayn Rand’s raptures over the virtue of selfishness and Milton Friedman’s ecstatic utterances on the goodness of greed.

Sharing necessarily implies something to share.
The problem with the sharing economy, however, is twofold.  One, according to the Washington Post Magazine article, The Post Ownership Society: How the ‘sharing economy’ allows Millennials to cope with downward mobility, and also makes them poorer,” the “sharing” is not completely voluntary, and thus not truly a virtue.  It’s a necessity and largely involuntary.  People have to share dwellings, a limited number of jobs, opportunities for advancement, and so on.  It’s only “sharing” by a very long stretch of the imagination.

Two, “sharing” assumes something to share, as well as being voluntary, and that implies a surplus above what someone needs that he or she freely divides with another.  In the sharing economy, however, it’s not that someone is divvying up some excess so that everyone has enough, people who may have barely enough are having some of it taken away.

In other words, people must do less with less as their productiveness decreases in competition with advancing technology.  This is why “the Millennials” are becoming poorer, at least relative to the previous generation and what they could reasonably expect from a sound economy.

Next week we’ll look at how technological displacement can be handled and how sharing can be done to increase wealth rather than used to divide a shrinking pie.

#30#

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