When Keynsians consider the economy, the activity is often mistaken for the outcome. For example: when we see China building infrastructure at an incredible rate, and we see their economy grow, we are tempted to think that the construction of infrastructure leads to economic growth.
Is this not true? you ask. Alone it is not and this is a very dangerous subtlety to miss.
Let us consider a bridge. If we build a good bridge, the economy improves. But what if we build a hundred in the same spot? Silly. We all know it is wasteful. But why?
The bridge adds to the economy _not for the jobs needed to build it_. In the middle ages, there was no unemployment--almost everyone was involved in agriculture. Everyone had a job. It was only by _eliminating_ jobs in agriculture (and every other industry) that we created wealth. Is it counter-intuitive? No--let us consider the bridge.
The bridge adds to the economy because it reduces the costs of moving people and goods across the river. Trade can occur. Customers can reach new outlets, live in new houses but still make it to their places of employment--many benefits are conferred by the placement of a great bridge. These benefits for our individual lives are the basis of economy.
But would it not have been better if that bridge were placed for free? Indeed. Bridges are valuable for their benefits, not their costs. Just as agriculture--imagine free food, free energy. This would mean no employment in these areas, no jobs created (in fact, jobs destroyed wholesale). But the benefits are still conferred on society and those resources can be used to go create other benefits still (just as in the middle ages they were "tied up" by agriculture and could do no good elsewhere, and thus we were woefully impoverished).
There is an edge case in which super-automation means nobody can compete with cheap AI that do almost everything. Perhaps this is some hundreds of years in the future, and it is a case in which some limited-state socialism will govern an astounding utopia. What a wonderful problem we will need to solve!
But throughout the ages, with every single advancement in productivity, harbingers and doomsayers have sprung forth like locusts to cry the end of capitalism due to a death-spiral of unemployment and shrinking markets (Marx's obvious error here should have meant the end of it). This was the case, of rcertain, in the Industrial Revolution--it was the case in the automation revolution that lasted throughout the second half of the 20th century. When women in the United States entered employment, there was a terror of mass unemployment. It has been a fear of the "flattening" of the world and "outsourcing" in the early 21st century. Every time these doomsayers have gone up against history, they have been astoudningly wrong, and yet we give them incredible credit when they come back! These doomsayers have not the foresight nor the creativity to understand how the market, how science and technology, how entrepeneurship will bring about new frontiers that will crave labor. Just as we laugh at those those in the early 1900s that claimed nearly everything had been discovered in physics or everything invented, we should keep laughing at these doomaysers. You know that you don't know what will be invented next, but that it will be invented--history should teach you the same about labor-hungry industries. In case you're curious: in the US, as IT gets commoditized and goes overseas, the new frontiers will be in biotech, robotics/AI, and alternative resources (from solar power to asteroid mining). If you want to take a bet, let me know and then we'll meet up again in 20 years.
(Digression: how hypocritical is the left wing of the west for badgering the populace that the people of Africa or South Asia or somesuch are poor and we have not fixed it, and then they badger us when we purchase goods from them as we are "losing jobs" here in the West!)
And certainly there were temporary unemployments, and they were painful if not well-managed. Life-long carriage makers and horse-breeders suffered when the car was invented. It is regrettable that not everyone can have everything all the time, but to believe that the more labor-intensive activities of making a car by hand are somehow more economically helpful than creating the same cars with less labor is a belief unfounded in economics, history, or current reality.
The current question that faces us is whether we can prepare this labor. It is certainly not that the country won't be hungry for labor, but we may have unemployment if our labor is incompetent. We will require skilled labor to press forward. Indeed our labor is more skilled than it used to be as a whole, but in the lower reaches of this labor the skill for future jobs is lacking. Already the United States is hungry for 3 million skilled physical labor jobs it cannot fill (despite 7.6% unemployment) and if we do not find a way to inspire our lower labor force to go be trained then we will not be able to fuel these new industries and growth will, sadly, stagnate.
(For more on where this is failing, see my post on China from Foggofwar. This post is inspired in part by Senator Elizabeth Warren's claim that the US needs more infrastructure investment because China is doing it, despite the fact that mal-investment in infrastructure in China is one of the policies that's actually failing there.)
Is this not true? you ask. Alone it is not and this is a very dangerous subtlety to miss.
Let us consider a bridge. If we build a good bridge, the economy improves. But what if we build a hundred in the same spot? Silly. We all know it is wasteful. But why?
The bridge adds to the economy _not for the jobs needed to build it_. In the middle ages, there was no unemployment--almost everyone was involved in agriculture. Everyone had a job. It was only by _eliminating_ jobs in agriculture (and every other industry) that we created wealth. Is it counter-intuitive? No--let us consider the bridge.
The bridge adds to the economy because it reduces the costs of moving people and goods across the river. Trade can occur. Customers can reach new outlets, live in new houses but still make it to their places of employment--many benefits are conferred by the placement of a great bridge. These benefits for our individual lives are the basis of economy.
But would it not have been better if that bridge were placed for free? Indeed. Bridges are valuable for their benefits, not their costs. Just as agriculture--imagine free food, free energy. This would mean no employment in these areas, no jobs created (in fact, jobs destroyed wholesale). But the benefits are still conferred on society and those resources can be used to go create other benefits still (just as in the middle ages they were "tied up" by agriculture and could do no good elsewhere, and thus we were woefully impoverished).
There is an edge case in which super-automation means nobody can compete with cheap AI that do almost everything. Perhaps this is some hundreds of years in the future, and it is a case in which some limited-state socialism will govern an astounding utopia. What a wonderful problem we will need to solve!
But throughout the ages, with every single advancement in productivity, harbingers and doomsayers have sprung forth like locusts to cry the end of capitalism due to a death-spiral of unemployment and shrinking markets (Marx's obvious error here should have meant the end of it). This was the case, of rcertain, in the Industrial Revolution--it was the case in the automation revolution that lasted throughout the second half of the 20th century. When women in the United States entered employment, there was a terror of mass unemployment. It has been a fear of the "flattening" of the world and "outsourcing" in the early 21st century. Every time these doomsayers have gone up against history, they have been astoudningly wrong, and yet we give them incredible credit when they come back! These doomsayers have not the foresight nor the creativity to understand how the market, how science and technology, how entrepeneurship will bring about new frontiers that will crave labor. Just as we laugh at those those in the early 1900s that claimed nearly everything had been discovered in physics or everything invented, we should keep laughing at these doomaysers. You know that you don't know what will be invented next, but that it will be invented--history should teach you the same about labor-hungry industries. In case you're curious: in the US, as IT gets commoditized and goes overseas, the new frontiers will be in biotech, robotics/AI, and alternative resources (from solar power to asteroid mining). If you want to take a bet, let me know and then we'll meet up again in 20 years.
(Digression: how hypocritical is the left wing of the west for badgering the populace that the people of Africa or South Asia or somesuch are poor and we have not fixed it, and then they badger us when we purchase goods from them as we are "losing jobs" here in the West!)
And certainly there were temporary unemployments, and they were painful if not well-managed. Life-long carriage makers and horse-breeders suffered when the car was invented. It is regrettable that not everyone can have everything all the time, but to believe that the more labor-intensive activities of making a car by hand are somehow more economically helpful than creating the same cars with less labor is a belief unfounded in economics, history, or current reality.
The current question that faces us is whether we can prepare this labor. It is certainly not that the country won't be hungry for labor, but we may have unemployment if our labor is incompetent. We will require skilled labor to press forward. Indeed our labor is more skilled than it used to be as a whole, but in the lower reaches of this labor the skill for future jobs is lacking. Already the United States is hungry for 3 million skilled physical labor jobs it cannot fill (despite 7.6% unemployment) and if we do not find a way to inspire our lower labor force to go be trained then we will not be able to fuel these new industries and growth will, sadly, stagnate.
(For more on where this is failing, see my post on China from Foggofwar. This post is inspired in part by Senator Elizabeth Warren's claim that the US needs more infrastructure investment because China is doing it, despite the fact that mal-investment in infrastructure in China is one of the policies that's actually failing there.)
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