July 13, 2013


Post-Scarcity Economics (Tom Streithorst, July 11th, 2013, LA Review of Books)

On the one hand, technology has made us all much more productive than we were 30 years ago. On the other, jobs have evaporated.  [...]

It is a paradox: our ever-growing productivity and our more insecure lives. Our understanding of economics is stuck in the past, in a world of scarcity, a world without advertising, where making things rather than selling them was the fundamental economic problem. Technology and the free enterprise system, to an extent that would amaze our ancestors, have solved much of the problem of supply. Our homes are more solid, our clothes more fashionable, our food tastier than our grandparents would have dreamed. In a world where even the residents of housing projects own more computing power than NASA did when they put a man on the moon, we cannot think that making stuff is the problem. [...]

In 1980, capital struck back.

In response to a seemingly inexorable inflationary spiral in which rising goods prices sparked cost of living wage hikes, which naturally increased the prices of goods and services, Federal Reserve Chairman Paul Volcker raised interest rates provoking the most brutal recession in 50 years. Unemployment soared, and so the Volcker and Thatcher recessions broke the back of inflation. When workers fear for their jobs, they no longer demand higher wages. In June 1980, when Volcker started raising interest rates, US inflation was over 14 percent. Since then, it has averaged around 2 to 3 percent. Simultaneously, both in the United States and the United Kingdom, the government attacked the basis of union power. When Reagan fired the obstreperous air traffic controllers and planes did not fall out of the sky, he shattered the confidence of organized labour. If we could do without trained air traffic controllers, then what is the bargaining power of unionized truck drivers, construction workers, steel workers, cameramen?

And so, starting during the recession of the early 1980s, corporations were able to reduce real wages, fire workers, get rid of staff and replace them with freelancers. Power on the shop floor shifted from the unions to management. Risks that had been absorbed by the corporation (you get sick you still get paid) now became the worker's responsibility (if you are freelance, you get no vacation, you have no job security, and if you get sick and you don't work, your employer has no responsibility to you). On a company by company level, this policy was remarkably successful. Cutting labor costs, if it does not affect output, goes straight to the bottom line. Lower wages for the worker mean higher profit for the entrepreneur. The decline in corporate profitability that signalled the end of the Golden Age was reversed and even today, in the midst of economic stagnation, corporate profits remain strong. [...]

[I]n the longer run we need to figure out a better way to stimulate demand than either war or going into debt to buy more stuff. Personally, I favor government spending targeted on making the lives of citizens richer and more cultured. [...]

 Let us spend on education and on high-speed rail, but let us also spend on culture. The Works Progress Administration created beautiful murals in post offices all over America. This is a model we should expand on. If dance classes for housewives seem silly, then what is wrong with skate parks and concerts and playgrounds and parties and parades? The actual form of spending, though, is merely up to our taste. The key is create demand to match the productive capacity of the economy. How we decide to do it should be democratically determined. That we should do it is just sound economics.

...you obviously shouldn't be trying to create jobs and lift wages.  In the future we'll transfer wealth based on cultural factors, not economic.  But not the sort of Culture the author means.  Rather, participation in marriage, child-rearing, community, church, neighborhood, governance, etc. will be rewarded.  Welcome to America 3.0.

Posted by at July 13, 2013 6:13 PM

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