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NFT: WP blog + Summers: Heading into a jobless future.

manh george : 7/22/2014 11:44 am
Blog in today's WP

"We’re heading into a jobless future, no matter what the government does."

http://www.washingtonpost.com/blogs/innovations/wp/2014/07/21/were-heading-into-a-jobless-future-no-matter-what-the-government-does/

Links to a Larry Summers op-ed from July 7 in the WSJ, linked below.

From Summers:

Quote:
What has happened in agriculture over the past century is remarkable. The share of American workers employed in agriculture has declined from over a third a century ago to between 1% and 2% today. Why? Because agricultural productivity has risen spectacularly, with mechanization reducing the demand for agricultural workers even as food is more abundant than ever.

All of this has had far-reaching implications. Tens of millions of people have moved from rural to urban areas to take jobs in manufacturing and services. Supporting those left behind has led the federal government to spend well over $100 billion in the past decade. Though global issues surely remain, the problems in American agriculture today no longer involve ensuring that food is available, but ensuring livelihoods for those who once worked in agriculture.

'Software Is Eating the World'
What has happened in agriculture is happening to much of the rest of the economy. In Marc Andreessen's phrase, "Software is eating the world." Already the number of Americans doing production work in manufacturing and the number on disability are comparable. There are good reasons to expect an uptick in the next few years in manufacturing employment. But the long-term trend is inexorable and nearly universal. As in agriculture, technology is allowing the production of far more output with far fewer people. No country can aspire to more of an increase in competitiveness than China, yet even it has suffered a decline in manufacturing employment over the past two decades. And the robotics and 3-D printing revolutions are still in their second innings.


What is also interesting and disturbing out of all of this, if it plays out this way, is the near certainty of a rise of populist extremism on both the left and right.

And the economic uncertainty--what happens AFTER the current cycle, not during it. Capital Economics, among others, thinks that wage pressures will force the Fed's hand sooner than the consensus. Near as I can tell, Capital Economics never heard of technological change.
Link - ( New Window )
Past large-scale mechanizations have always had  
kickerpa16 : 7/22/2014 11:48 am : link
places for the surplus workers to go to.

Agriculture to manufacturing. Manufacturing to service-oriented.

I don't know, except through state employment, where the service surplus escapes to.
There is a ton of work  
Mark from Jersey : 7/22/2014 12:45 pm : link
just no money to do it.

I still cannot believe I am avoiding potholes and its July.
So we won't have to work anymore?  
WideRight : 7/22/2014 12:48 pm : link
It will all be done for us?
That's an interesting blog entry in the Wash Post from Vivek Wadhwa  
cosmicj : 7/22/2014 12:52 pm : link
His suggestion that the work week will shrink in size is also something that keeps being predicted and in fact the average number of hours worked in the US has been declining long term (see the link, 1st para. on 2nd page). Meanwhile, the number of people on gov't assistance, including food stamps and SS disability, has been rising.

So there's significant evidence that this process is well underway and has been for a couple of decades.
Is the Employment Situation Really Improving? - ( New Window )
And my response isn't based on economic business cycles, but  
kickerpa16 : 7/22/2014 12:52 pm : link
on a potential long-run (very long-run) trend.
I can already see a rout by the BBI nihlists....  
WideRight : 7/22/2014 12:55 pm : link
But consider that the author may care more about making news than thinking about what he says. In his own words, faulty reasoning in the past doesn't give him pause?

"Not so long ago it was explained that the VCR might be bad for the movie-theater industry but Blockbuster was a major job creator."

RE: Past large-scale mechanizations have always had  
Deej : 7/22/2014 12:55 pm : link
In comment 11776079 kickerpa16 said:
Quote:
places for the surplus workers to go to.

Agriculture to manufacturing. Manufacturing to service-oriented.

I don't know, except through state employment, where the service surplus escapes to.


I think we end up with an overwhelmingly service-dominated economy.
WideRight  
cosmicj : 7/22/2014 12:58 pm : link
he acknowledges your argument but wonders whether this time around there will be no new sector that needs millions of workers. One shocking fact is that, though IT is the dominant driving force behind automation and economic modernization currently, the share of the workforce in the sector has remained flat since the Internet bubble. Gives you pause, doesn't it?

You see in my earlier post that there's evidence that new absorbers of workers haven't been emerging in recent decades, forming a secular trend.
Economics is about markets  
WideRight : 7/22/2014 12:58 pm : link
which move to equalize supply and demand. Do you really think there there will be all this surplus production if no one has any income to demand it?
RE: Economics is about markets  
Greg from LI : 7/22/2014 1:01 pm : link
In comment 11776237 WideRight said:
Quote:
which move to equalize supply and demand. Do you really think there there will be all this surplus production if no one has any income to demand it?


This is what I keep wondering, too. If so few people have income, who the hell is paying for all those machines to keep making things?
Lawrence Summers  
WideRight : 7/22/2014 1:02 pm : link
just put himself out to pasture.
Supply/demand  
cosmicj : 7/22/2014 1:04 pm : link
Income will drop but prices (and costs) will drop even faster.

Which is called deflation. Hmmm...

(For precision, income in the sentence above refers to nominal income.)
RE: Lawrence Summers  
GIANTSr01 : 7/22/2014 1:04 pm : link
In comment 11776244 WideRight said:
Quote:
just put himself out to pasture.


My first thought was Lawrence Summers is trying to justify his past policy prescriptions which have had limited success.
Greg  
kickerpa16 : 7/22/2014 1:05 pm : link
Capitalists. Literally, those who own capital.

I wouldn't worry as much about a simple S/D diagram, since there are many markets with many moving parts. But if you start segmenting the labor force into different skills, those that augment (complement) machines and those that don't, you start to see some of the trends.

RE: RE: Past large-scale mechanizations have always had  
kickerpa16 : 7/22/2014 1:07 pm : link
In comment 11776233 Deej said:
Quote:
In comment 11776079 kickerpa16 said:


Quote:


places for the surplus workers to go to.

Agriculture to manufacturing. Manufacturing to service-oriented.

I don't know, except through state employment, where the service surplus escapes to.



I think we end up with an overwhelmingly service-dominated economy.


We have 70% (or so) service economy. Again, the very long-run outcome, which is one of a few (if increased mechanization starts to eliminate these jobs) means that we will see large scale movements out of here, as we have in the past.

I'm not sure where they would end up.
RE: Greg  
Greg from LI : 7/22/2014 1:10 pm : link
In comment 11776254 kickerpa16 said:
Quote:
Capitalists. Literally, those who own capital.

I wouldn't worry as much about a simple S/D diagram, since there are many markets with many moving parts. But if you start segmenting the labor force into different skills, those that augment (complement) machines and those that don't, you start to see some of the trends.


I can understand that there are trends, but there has to be a point at which you simply don't have enough consumers anymore because so few people have income to allow them to spend money.
Capitalists build machines to make more capital  
WideRight : 7/22/2014 1:14 pm : link
Fools build machines when there is no demand
RE: RE: Greg  
kickerpa16 : 7/22/2014 1:17 pm : link
In comment 11776267 Greg from LI said:
Quote:
In comment 11776254 kickerpa16 said:


Quote:


Capitalists. Literally, those who own capital.

I wouldn't worry as much about a simple S/D diagram, since there are many markets with many moving parts. But if you start segmenting the labor force into different skills, those that augment (complement) machines and those that don't, you start to see some of the trends.




I can understand that there are trends, but there has to be a point at which you simply don't have enough consumers anymore because so few people have income to allow them to spend money.


If the prognosis is correct, and true mechanization takes hold (assuming multiple passes of the Turing test are accomplished), then the marginal costs of assembly (where pricing occurs) go quickly towards 0.

A common theory that we see prices moving higher than average is because it is labor-intensive.

Many capital-intensive tools have upfront costs but much lower variable costs. Meaning that they can be priced much more cheaply.

Incomes have grown because humans are still the dominant force in production.
So, what, everything's going to be so dirt cheap  
Greg from LI : 7/22/2014 1:21 pm : link
that it won't matter that most people have little disposable income?
Labor's share of income has been in collapse...  
manh george : 7/22/2014 1:21 pm : link
and as Summers says, in many ways we are still in the second inning. I don;t see how anyone can look at the acceleration in technological change and not be concerned.

RE: So, what, everything's going to be so dirt cheap  
kickerpa16 : 7/22/2014 1:23 pm : link
In comment 11776300 Greg from LI said:
Quote:
that it won't matter that most people have little disposable income?


Technically, this explanation is incorrect in the true pricing scheme, but let's go with it for simplicity.

The cost to a consumer is:

Fixed cost/# of consumers + Variable costs (additional cost of energy per hour or worker per hour).

So, what happens with mechanization?

Fixed costs go up, but # of consumers increases as well. Variable costs plummet.

Since variable costs tend to dominate the pricing scheme, we can see a decrease in prices.
And it's one of several possible outcomes (i.e., incomes going to 0  
kickerpa16 : 7/22/2014 1:26 pm : link
as employable occupations dwindle).

We have seen shades of it in the hollowing out of the middle class, which has partially been explained due to technology (these skills are easily mechanized).

It's also on a time scale that is inherently unpredictable. We are following an exponential growth path, but one that isn't perfect.

There may be other, simultaneous changes (i.e., massive improvements in life span and health care) that mitigate the need for large incomes.

Centuries ago, on the lower part of the growth path, 40 hour work weeks would have been unthinkable.

It's one of many possibilities, but a strong one.
Or you won't need income...  
WideRight : 7/22/2014 1:27 pm : link
because its all so cheap.
Not my favorite book on the topic...  
manh george : 7/22/2014 1:30 pm : link
because it vastly overstates the case for collapsing marginal costs, but it hits many of the key themes over the head until they holler "uncle."



Productivity is increasing much faster than is being measured, and all of the benefits are accruing to owners. Rifkin thinks this is going to reverse, but he is neither a technologist nor an economist. He is just really good at headlines.
There will be a new scarcity...  
WideRight : 7/22/2014 1:47 pm : link
and a new economy, including jobs, will grow up around it. The entire sports and entertainment industry is a cultural construct that creates jobs.

The NFL didn't exist when food was scarce

Maybe people will slowy shift back from urban to rurual  
steve in ky : 7/22/2014 1:52 pm : link
Less expensive land and more easily can grow and raise some of their own food.
RE: Maybe people will slowy shift back from urban to rurual  
kickerpa16 : 7/22/2014 2:56 pm : link
In comment 11776404 steve in ky said:
Quote:
Less expensive land and more easily can grow and raise some of their own food.


It may be more of a transition away from suburbia.

Urban enclaves have always been tenable with significant unemployment, as have rural areas.

True suburbia never really has.
As a countervailing tendency though...  
Dunedin81 : 7/22/2014 2:58 pm : link
fuel costs are higher and likely to stay there, so rural living is not as cost-effective as it was even a decade ago.
RE: As a countervailing tendency though...  
kickerpa16 : 7/22/2014 3:00 pm : link
In comment 11776618 Dunedin81 said:
Quote:
fuel costs are higher and likely to stay there, so rural living is not as cost-effective as it was even a decade ago.


Absolutely. Though water scarcity will also play a role in both rural and urban viability. Some of the traditional breadbaskets will wilter, while other areas while fluorish.

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