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October 7, 2014

Stop wasting our time

Filed under: Uncategorized — admin @ 3:24 am

A “green screen”, in the movie business, referred to a device for filming people and inserting backgrounds later. Anything in the foreground with the same share of green, of course, could disappear as well during editing.

Let’s imagine applying a “green screen”, but this time to our economy. Take money out of the equation for a second, and look at what’s going on. All across the country, people are working long and longer hours just to maintain their standard of life and provide for their family. But at the same time someone is working 25% longer hours in their job, someone else applying for those same jobs is getting rejected!

What’s going on? Clearly, if both people were hired, they could each work less and more would be accomplished. This is an example of a pathological misallocation of resources, in this case the resource being human labor. If the resource was food, some people would be starving while stores would have to throw out extra food every night. Is the trend accelerating, and what, if anything, could we do about it?

At the same time, it’s become fashionable in some circles to attribute all these problems to government regulation, taxes, and that catch-all word, “socialism”. If only there would be less “wealth redistribution”, they would argue, the markets would be freer, everyone could be employed and on better terms. I’d like to show that, in reality, the solution could be quite the opposite.

The last 20-30 years have brought about large changes to our economy’s fundamentals. Improvements in logistics have enabled supply chains to stretch around the world. Apple products, once proudly “Made in the USA”, are now primarily assembled abroad, by companies like FOXCONN who pay workers much less than Americans’ local cost of living. Those jobs are not coming back from overseas – not to humans anyway. Record stores have been replaced with iTunes and online media services. Bookstores have been disrupted by Amazon (though indie ones aren’t dead yet).. A decade ago, we had travel agencies. When was the last time you used one? The majority of that work is done by computers at Expedia and other websites.

All in all, computers are doing the work that people used to do, and not enough new jobs have been created to pick up the slack. The result is a demand shock for local human labor, and the consequences can be serious.

We’ve seen a dramatic demand shock before. Before the Great Depression, 20% of US workers were employed in farm-related jobs. Today, it is only 2%. The shift that occurred in the Great Depression can clearly be seen to originate on the farms. Farmers were working longer and longer hours producing cheaper and cheaper produce, while others struggled to find employment at all. Sound familiar? It took 10 years for the workforce to migrate to cities (John Steinbeck’s the Grapes of Wrath comes to mind) for factories to be built, and for the country to move to a more manufacturing-based economy. It also helped that after World War 2, most manufacturing economies in Europe and Japan were bombed out, so American manufacturing (such as Detroit in its heyday) got a head start.

Today we are seeing something similar, but with more safety nets in place. Old people have social security and medicare. People with low income receive a variety of subsidies, ranging from unemployment, to welfare checks, to collectively bargained (and heavily subsidized) medical and education services. Many programs, such as public schools and roads, are redistributions of wealth that aren’t obvious.

But let’s get back to our question, of why some people are working longer hours than ever, while others who want the job are being turned away. One reason is, of course, there is a cost to train and support a new employee. But beyond that, if both people would agree to work less and get paid less, the company’s expenses over the long term would be roughly the same.

The reason this doesn’t happen, of course, is that the person working overtime (for the same amount of money as before) isn’t willing to give up half their pay so someone else can pitch in to help. They may do it for a family member, but not for a stranger. And why? Isn’t money supposed to motivate us to help strangers? Precisely because they can’t afford it. Less and less money is finding its way to the wage-earners of America, and more is given to executive pay and funneled to overseas workers and tax havens. We see this in every recent study on income inequality, and heard it voiced recently by the Occupy movement.

We don’t have to limit or tax executives’ pay in order to solve the problem of unemployment. Making the rich “pay their fair share” in taxes isn’t going to raise enough money to even make a dent.

In fact, safety nets are what make unemployment tolerable. When people know that they will survive on a smaller salary, suddenly they go from working overtime for dear life to seeking part-time employment. Which means instead of one person working 12 hour days, we can have two people working 6. Safety nets lead to better allocation of people’s time and labor. People can use the rest of their time to get an education in the jobs of tomorrow, pursue careers they are really passionate about, or start their own business.

For years, there have been proposals for an unconditional basic income — all citizens, receiving a regular monthly check in the mail, for the same amount whether rich or poor. This idea has enjoyed support from progressives, libertarians, and fiscal conservatives alike. Such a system would help absorb demand shocks for human labor and allow people to spend their time more usefully, without having to prove a low income to welfare workers, while resisting temptation to work for “cash under the table”.

Our safety nets help mitigate the growing unemployment we face. Far from being hazardous to the markets, they help people allocate their time properly. If our society ever implemented an unconditional basic income that would completely cover a minimum cost of living, people would go from saying “I can’t afford to lose this job” to asking, “what do I get for working full time at your company?”

If this were a static society, where demand for local labor was always the same, employees would always be needed and valued by the capitalists. But in a world where technology progresses at a lightning pace and there are a billion people around the world willing to work for 20 dollars a day, safety nets are the best defense for our workers’ standard of life. They enable our people to use their time more productively, get more educated for the future, start new companies based in our country, and serve the rest of the world who will pay for American products and services. Don’t worry, the money we spend overseas will come back. In the meantime, thanks to safety nets, hopefully Americans won’t waste their lives.

2 Comments »

  1. [...] but there’s also quite a bit of data to show that we get a lot of bang for the buck and also leads to better resource allocation in [...]

    Pingback by My thoughts on Net Neutrality « My Life and Ideas — November 15, 2014 @ 11:28 pm

  2. [...] returns. Having a safety net also makes everyone more free to take risks. They are able to afford switching costs that otherwise would restrict them from making informed choices, rendering their freedom in name [...]

    Pingback by A response to libertarians and anarcho-capitalists « My Life and Ideas — December 18, 2014 @ 12:34 pm

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