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.
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| 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.
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| 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.
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| 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.
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| 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.