The Great Decoupling, Exodus Recessions, and the Ghost of Economy Future

After my post last week on the future of work/the coming robot revolution, a friend passed along some excellent links from other bloggers who have been reaching similar conclusions. Turns out I am far from alone in my conviction that the future isn’t going to look anything like the past…

In The Great Decoupling of the US Economy, Andrew McAfee argues that the things workers care about, jobs and wages, have become decoupled from other economic indicators, such as output (GDP) and worker productivity. McAfee includes some excellent graphs demonstrating this decoupling:

chart20112-650x443

And he argues that technological advancement is to blame:

Our argument, in brief, is that digital technologies have been able to do routine work for a while now. This allows them to substitute for less-skilled and -educated workers, and puts a lot of downward pressure on the median wage. As computers and robots get more and more powerful while simultaneously getting cheaper and more widespread this phenomenon spreads, to the point where economically rational employers prefer buying more technology over hiring more workers. In other words, they prefer capital over labor. This preference affects both wages and job volumes. And the situation will only accelerate as robots and computers learn to do more and more, and to take over jobs that we currently think of not as ‘routine,’ but as requiring a lot of skill and/or education.

An excellent post over at Thought Expression, The Jobs are Never Coming Back, expands a little on this line of thought, and offers some potential policy solutions:

We must accept this uncomfortable fact: There is no natural, physical, economic or legal law which states that economic growth creates more jobs. Yes, jobs have traditionally been a side-benefit of a strong economy but believing that somehow if we just maintain a strong economy, jobs will eventually come back is nothing more then a collective delusion.

The author suggests that:

There exist policy changes that could help greatly to reinvigorate the job market of today. If there is not enough work to go around, then we can take measures to share the work more equally. Perhaps by decreasing retirement age, we can encourage employers to hire younger people. Shortening the work week could be another approach. How ironic it is that austerity measures everywhere are pushing to raise retirement age and decrease holidays? And this creates more jobs how?

Incidentally, I think an important complementary solution is to encourage unionization and worker organization in hard to out-source industries like fast food and retail, so that not all of the changes we make are coming from the top down.

But my immediate response to these suggestions, although I agree with them, is that they remain within a fairly narrow conception of economics built around market forces imagined as natural forces, like erosion or gravity.  But are market forces natural and inevitable? Or do they arise out of aspects of human society, behavior, and psychology which can be changed or modified? More importantly, market forces are not the only forces shaping human society—they can be challenged, and in fact are challenged routinely by politicians, corporations, and even individuals, who shape, twist, distort, step outside of, push back against, and manipulate capitalist markets and market forces.

Rather than finding ways for everyone to work less, why not set higher aims for our society? Just because market forces won’t create good jobs doesn’t mean that our society can’t. Nor does it mean that we have to transition to a planned economy. We simply need to set some high goals for our society, and then strive to reach them. Rather than seeing robots as time savers, creating leisure, why not see them—once again, as the science fiction writers of the 20th century predicted—as the tools we need to push our civilization ever outward.

astounding-sf-nov-1950

The choice is simple: do we build rocket ships, or do we build bombs? This is one concern of 1950s Science Fiction that remains directly relevant. Because wars are definitely one of the options available for employing people and resources and generating economic activity. Probably the worst possible choice, but nonetheless one we are all too likely to choose.

If we realigned our economy to focus on creating jobs and wages, rather than growth and productivity, what would happen? Would growth and productivity fall? That seems unlikely if in fact growth and productivity have been decoupled from jobs and wages. They don’t have some scary new inverse relationship, they simply aren’t impacting each other the way they used to. Then again, I fear that I may be missing something important here…

In any case, there are plenty of wonderful things people could be employed to do. We could distort the market place to encourage people to start small-scale, local, organic farms. Or we could re-invigorate the space program, and employ people and robots building rockets. We could hire engineers to work on pie-in-the-sky projects that will almost certainly never come to fruition, like terraforming mars or building a space elevator—not in the hope that those things will happen one day, but rather, to see what the engineers will come up with; to stretch out their and our imaginations, and simply to create jobs. Of course, the government already does a lot of this. Imagine what would happen to the economy if every government funded research project dried up tomorrow!

Although I fear centralized power and bureaucratic-authoritarianism as much as the next fellow, I don’t think that distorting markets to further support this kind of work, or even just having the government outright hire people to do it, poses quite the threat to free-market enterprise that people imagine. For one thing, it seems to me that nothing distorts and manipulates markets more insidiously than power imbalances. Market forces, on a fundamental level, have trouble functioning normally in situations of vast inequality.

This is obvious if you think of markets as marketplaces. If you show up at the market place with the tomatoes and goat cheese you wish to sell, you can meet with other people and the laws of supply and demand will, generally speaking, distribute your goods in an efficient and reasonable way. People who want your goat cheese will get it, and you will get the things you need. But what if you show up to the market, and the person who runs the market takes his gun and waves you over to the corner? “You sit here,” he says, waving his gun in your face and scaring your goat, “and I’ll control who buys your goat cheese.” Pretty soon, the man doesn’t have to wave his gun around—you just have to know he has it. His power over you distorts the market. It isn’t free anymore.

This is the situation I see in global capitalism today. It’s pretending to be a free market, it looks like a free market, but everybody knows who has the guns. And so it’s not a free market. This is also how I see the economy of the United States. Everybody knows who has the money. The vast inequality of the American economy inherently makes our economy unfree. It distorts our markets, because workers do not have the same voice at the table as stockholders. Because more than half of all congresspeople are millionaires.

So yes, a spectacularly ambitious space program would distort the free market. But putting money into peoples pockets, and evening out the distribution of wealth, would help market forces function, not hinder them. By advancing these goals, large-scale employment projects might well do more good for free market principles than damage.

Of course, these solutions are not exactly groundbreaking. Over at Terra Nova, Edward Castronova reminds me (in a post from 2010 that I recently stumbled upon) that my view is still very narrow when it comes to the impact of new technologies on the future of the economy. Castronova suggests that we may be seeing the first signs of a new kind of economic problem: an exodus recession.

Suppose economic activity moves from the real world into the virtual world. Human happiness is unaffected or even goes up, however, the goods that produce the happiness are now produced and consumed in a virtual environment rather than the real one. Measurements of economic activity, being all based in the real economy, would begin to show weakness. . . . contemporary political and economic control systems do not tolerate much weakness, thus, there might well be some sort of crisis in the real world, for no good reason, simply because production and consumption was going “off the books” and into virtual environments. One term for this would be an “exodus recession” – an economic downturn caused by the movement of human attention and energy into virtual environments.

I think this is an incredibly compelling idea—the kind of idea so obvious that it verges on common sense (you mean, if people do things online that they used to do in real life that means people will do fewer things in real life!) and yet nobody seems to have really come to terms with it. Is it possible that what I see as a fall in demand for labor based on mechanization is actually a fall in demand for goods and services created by digitization?

Of course, the robots might not give us these kinds of choices...

Of course, the robots might not give us these kinds of choices…

The truth is, we don’t have any idea what influence technology will have on the future, because we don’t have much idea what the technology of the future will look like. But one thing I think we can safely say, is that we can’t count on “free” capitalist markets to create the future that we want ourselves and our children to live and work in, because even thought capitalism was an incredible engine of prosperity in the 20th century, it is not inherently so. We need to imagine what a prosperous future looks like. It it sitting around at the pool sipping milkshakes? Or building rockets to send manned missions to Jupiter’s moons? Or some hybrid of both? Or neither? And then we need to find a way to create that future. Because it won’t create itself.

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6 Responses to The Great Decoupling, Exodus Recessions, and the Ghost of Economy Future

  1. Smience says:

    Great post! Very thought provoking. I very much agree that grand goals for a society would be good for the economy, and I think would be particularly good for stimulating jobs given that these things are not necessarily easily automated. I would suggest that this type of approach and one aimed at providing people with more leisure time are not necessarily mutually exclusive.

    A couple of additional comments:

    (1) On market distortion. I think maybe you may have missed or confused something by introducing the gun into your market analogy. Sometimes the nature of the free-market will be towards centralization of resources, and that in and of itself can distort the market.In your market example, the goat herder might hold a monopoly on the goat cheese market and run up the price unfairly. In this case a disinterested gun toting enforcement agent could actually balance the system and maintain a free market. As you point out, the market is a human system, and like all human system it has its flaws.

    (2) I really like that term “exodus recession”, I will definitely have to get over and read that post. While I agree that this is a plausible scenario, we must keep in mind that the digital industry makes real money, and it makes lots of it. The video game industry is much bigger than Hollywood now. These industries are a big part of the economy, and when they do well, the economy grows.

    That being said, I don’t think these industries are necessarily impervious to the forces of automation I was talking about in my blog post. As the software programmers and digital artists use to bring their creations to life, it becomes possible for one person to do more and more. While our digital demands are increasing to soak up a surplus of digital wares, I do not think this can necessarily go up forever either.

    Thanks for the mention.

    • orkinpod says:

      Thanks for the comment – you’re right about my market analogy – I definitely did confuse something. I think it’s true that differences in power between actors distort market relationships drastically, but the more I think about it, the more I’m not sure how… I guess my point is that power, not only economic but also political, military, and social, regulates access to and participation in all kinds of markets. So long as power is unequally distributed, markets will not function with total freedom (of course, the idea that any market place could be totally free is a fiction, anyways…)

      And I didn’t really do justice to the concept of the exodus recession, but I think it was mainly formulated as a kind of thought experiment about what could happen in a more distant future, when digital worlds or artificial realities had advanced considerably. But it is very thought-provoking even in the context of today’s economy.

      Of course you’re right about digital industries. But I’m still undecided about to what degree we can expect digital and internet related industries and economies to behave in similar ways to the industries and economies that preceded them. Are they mostly simulacra of what came before? Or something fundamentally different, with their own unpredictable properties. I suppose, as with most things, the answer is both and then some…

  2. cvdanes says:

    Excellent, excellent commentary, and you bring up many good points. I just have a few observations:

    1. Although we tend to blame the machines, it’s really the people who buy them who are a fault 🙂

    2. I think it is a laudable goal to challenge society to “stay ahead of the machines”, so to speak. But there are only so many “brainy” jobs out there, even for the ones with the brains to do them. And, frankly, a man (or woman) should always be able to provide for his/her family through the use of physical labor, if they need or choose to do so.

    3. I think a consistent feature of each age of society is that it thinks it is somehow decoupled from the past. The technology may be different, but the people are fundamentally the same. This productivity bubble will eventually collapse on itself, as all others have, unless our robots start to desire plasms televisions, etc.

    4. Finally, I don’t think we will be needing to encourage people to do other things. Climate change will be doing that for us soon enough 🙂

    • orkinpod says:

      Thanks for the comment – excellent points all. And of course climate change is the wild card; it is what will likely render all of our planning and predicting for naught by the sheer disruptive force of it.

      I disagree, politely, with your third point. I believe that the internet, smart phones, video games, medicine, sanitation, modern newspapers, telephones, railroads, weapons of mass destruction – all inventions of the 20th century, all appearing in, historically speaking, the blink of an eye – have fundamentally changed human life, in ways and on levels that we are barely beginning to understand.

      As a student of early-american and colonial history, I know that there is continuity. But the lives of early Americans, whether African, Native American, or European, were fundamentally, completely different than our own lives, in texture, in content, and in context. They were still human, with all that entails. They felt the same human emotions, spoke the same human languages, experienced human needs and human companionship. As individuals, perhaps they weren’t so removed from us. But as a society, I’m not so sure…

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