I’ll add my obligatory reminder here that just because past concerns about automation replacing workers have turned out to be overblown certainly doesn’t prove that current concerns will also prove out to be overblown. But it is an historical fact that for the last two centuries, automation and technology has played a dramatic role in reshaping jobs, and also helped to lower the average work-week, without leading to a jobless dystopia.
He quotes from a speech warning of technological displacement of workers that was given in 1927 by then Secretary of Labor James J. Davis.
Taylor writes as if the dire prediction proved false. And yet, within 5 years, unemployment hit 25 percent. Those dots connect in the PSST story, but too many economists are fixated on Keynesian AD.
Even if this is a PSST story rather than an AD story, the story didn’t end in 1933.
I find the PSST story a helpful metaphor. When automation displaces workers, someone needs to think of new uses for their labor. In the long run that should happen, but I worry technological change can now outpace our ability to find new uses for labor. Its a calculus problem with rates of change vs rate of creativity. If one outpaces the other a gap grows that is never covered.
Also in terms of historical examples that one that keeps me up at night is horse employment. in 1912 there were over 20 million horses, for a population of 95 million people, today there are 9 million horses for 300 million people. In 1912 few of those horses were pets, today, almost all of those horses are pets. Not as easy to reduce population for humans.
I would argue PSST is leading to population reductions but it takes generations with falling birth rates. So the future is Japan (1990s) who got there a generation before Europe (today) and two generations before China and North America. (2040 – 2050) So government spending is not the solution but making family formation easier is more important. Remember the old 1950 – 1970 economy was very good at family formation.
In term of the modern global economy, I would argue the big problem is the AD curve driven by falling or slowing of populations. Note the driver of consumption is people aged 25 – 50 so with aging population the AD curve reductions happen 10 years before the AS reductions.
The great contradiction of modern society is richer we are, the less we can afford children.
We also have a lot less typewriters lying around than I suspect we did 50 years ago. From the economic standpoint, does the horse have more in common with the worker or the typewriter?
It’s an open question, that’s why its worrying.
Does the horse have more in common with the worker or the typewriter?
Why not both. Outside of Israel, all developed nations have a sub-replacement fertility (East Asia, Europe) while the most nations tend to have the highest birth rates (Africa) are the poorest. Why is this true?
“When automation displaces workers, someone needs to think of new uses for their labor. In the long run that should happen”
I hear this argument frequently, but there’s an unspoken premise I must dispute. Note that the argument is usually defended with the assertion that “human wants are infinite”. Well, even accepting that as true, new uses of human labor need more than just a new want. It has to be a want which can be met by a process which includes some set of actions the displaced workers can perform. It requires that as each task done by a worker is replaced by machines, some new productive task within the capacity of human beings will be found. It thus requires human capacities (with regards to possible tasks performed) to be infinite, and it is *this* which I dispute; we are finite beings with finite brains. It doesn’t matter if there are infinite wants if there is no task a displaced worker can perform that can contribute to meeting any of these infinite wants better than a machine.
The Unemployed and underemployed should get a Guaranteed Year of Work in Gov’t — with the highest paid gov’t employees (50%) and those who have enjoyed gov’t paychecks the longest (50%) to face redundancy in order to afford the new entrants.
After 10 years of continuous gov’t employment, Gov’t workers should get a pay freeze that is not increased, even if they accept an appointment to higher level job.
Poor workers need jobs, the gov’t has jobs — those in gov’t jobs should … leave and start businesses or work for corporations or do other private, wealth creating work.
Doesn’t this almost describe the military?
Not remotely.
Well it certainly seems to be how the military markets itself.
The military, like and employer, markets itself based on economic conditions. In strong labor markets, the military is willing to take basically anyone just to make quota, and so highlights the competitiveness of the compensation packages; in slacker markets where there is enough interest to allow for selectivity, it highlights the difficult and honorable nature of the work.
The government actually doesn’t have that many jobs anymore. IT has made even bureaucrats more productive. Actual GS spots are becoming rarer and more selective over time, and the government certainly can’t make much use of unscreened, uneducated people off the street anymore
Yes, there is a lot of outsourcing and contracting now, but the number of actual federal positions – both normal executive branch and in the uniformed service – has imploded as fast as in any other private sector, and in per-capita terms is as low as even since the Great Depression. See Total Government Employment since 1962.
In 2014, there were 2,663,000 non-uniformed workers in the executive branch, which is 10% down in absolute terms from the peak in 1990, and you have to go back 50 years to see a number lower than that, when the labor force was less than half what it is now.
The PSST (or ‘real business cycle’) equivalents to the classic supply, demand, and monetary shocks of the AD framework are technology and productivity shocks.
When the average labor productivity in sectors that employ large portions of the workforce suddenly rises, it’s not ‘musical chairs’ so much as having to build or discover new chairs. That takes time, and if it’s takes too much time, there is a lot of idleness, unemployment, and social disruption. And then, those problems can go on to cause the AD issues, and financial or debt-deflation crises that can exacerbate the misery.
Indeed, one can be more abstract and general than this and apply it to culture as well.
People can adjust, adapt, and evolve to shifts in the economic, technological, institutional, and social-normative environment, but only up to a point. They can only flourish if they can discover a new social equilibrium of new patterns of values, behaviors, and interactions that is well-suited to the new conditions. And they are only likely to solve this problem if the changes are sufficiently slow and space out enough to allow for the necessary time.
But if change is rapid and constant then new social technologies to replace the old, obsolete ones cannot be developed in time, and a new equilibrium cannot be discovered quickly enough in a way that is tailored to the needs of the whole population. And so there is bound to a lot of cultural disruption and human fallout.
One new social technologies that was supposed to be one of the new ‘shock-absorbents of social disruption’ was the safety-net welfare state, but it’s pretty clear that isn’t working well anymore and has too many negative side effects for too many people who obviously aren’t bouncing back off the net.
The question of whether we are either able or willing to discover and implement better social technologies to address these problems is one of the most pressing political issues of our time.
“The question of whether we are either able or willing to discover and implement better social technologies to address these problems…”
And if it turns out that we are unable to discover such better social technologies (or none such can exist), what then?
“In the long run new types of industries have always absorbed the workers displaced by machinery, but of late we have been developing new machinery at a faster rate than we have been developing new industries. Inventive genius needs to turn itself in this direction.”
Well, the creation of new types of industries is dependent upon the formation of new businesses. Government regulation, fees and licensing has become a very significant inhibitor of new business/industry formation. Not to mention government raising the cost of labor even as that labor is even less productive due to needing to “apprentice” in new jobs or invent new processes for the new industry.
The above mentioned 25% unemployment persisted due to government jacking up the price of employees just as many old businesses collapsed when “safe” money in tried and true processes dried up and the surviving innovators invested in new machines to avoid the government’s costly labor policies.
It is speculative to say how much of the current unemployment could be alleviated with a reduction in the government imposed cost of time and money to opening a new business. But it is certain that these costs do inhibit those displaced from trying business formation as a way to recover from the loss of jobs as the jobless have neither the financial wherewithal to pay off the agencies, nor the bellies to withstand the delays and slovenly approval times.