Sunday, July 12, 2015

The Age of Inequality — and America's Next Economy

New York Times (excerpts):

Everyone on earth was a forager 15,000 years ago, surviving by hunting wild animals and gathering wild plants. These methods had low yields and worked best when people lived in tiny bands and moved around a lot. Foraging also made it difficult to accumulate wealth and power: There was no room for kings and aristocrats. Foragers tended to be very poor but very equal.

This all changed, though, about 11,000 years ago with the beginning of farming. Because more food could be produced, the human population exploded. There were roughly 6 million foragers in the world in 10000 B.C., but by 1 B.C. there were about 250 million farmers. Big social groups that stayed in one place, working their fields, flourished at the expense of smaller, less sedentary ones. Between 9000 B.C. and A.D. 1800, almost all foraging societies went extinct.

Farmers were typically richer than foragers. Farming society needed more complicated divisions of labor than the foraging world. Some people became aristocrats or godlike kings; others became peasants or slaves. And economic inequality surged.

But then everything changed again with the industrial revolution. Fossil fuels released a flood of energy, with steam and electricity powering machines that vastly augmented human and animal labor. Factories churned out huge quantities of goods, liberating humanity from much of the manual drudgery of the agricultural age and freeing them to create a service economy. People converted part of the energy bonanza into more of themselves (there were nearly 1 billion humans in 1800; now there are more than 7 billion).

Farming swept away foraging and fossil fuels swept away farming; today, there are signs that the fossil fuel world, in turn, is coming to an end. New energy sources, technologies that break down boundaries between mind and machine, and shifts toward living in virtual rather than physical spaces all threaten to make the 21st century the biggest rupture in history, dwarfing the agricultural and industrial revolutions.

Via the Roosevelt Institute --- The Next American Economy: What to expect from our economy between now and 2040:

"Technology will replace workers as a variety of professions become automated, but, as it leads to the creation of new jobs and overall economic growth, the extent to which technology can offset its own economic drawbacks remains to be seen. In “Where Will Work Come From in the Era of Cloud Computing and Big Data?” John Zysman discusses how American manufacturers can make up for lost business by ushering in a new era of high-tech, value-added products.

"Changes in the workplace will move traditional employment increasingly toward entrepreneurship, freelancing, independent contracting, and gig economy or “peer-to-peer” work on platforms. This will result in myriad changes to the ways in which Americans look after basic needs, from health care to retirement planning, that were previously met by a single employer. In “Barriers to Growth in the ‘Sharing Economy", Denise Cheng addresses numerous facets of the gig economy."

"The third trend concerns the likely increase in overall economic insecurity that will result from a society-wide decrease in the number of traditional jobs. Without the stability of long-term, full-time employment from a single firm that provides not only salary but also comprehensive benefits, Americans will need new tools to provide economic security for themselves and their families. Michelle Miller addresses some possibilities for the future of bargaining power in “The Union of the Future”.

"Finally, the government’s increasing inability to make policy that benefits society. Swelling retirement entitlements will raise budgetary challenges that further restrict the federal government’s ability and willingness to invest and reform. Julia Root goes into great depth on this topic in “Urban Platforms in 2040.”

"The challenge of adapting to these evolutions is grave. It would be easy to throw up our hands and prepare for the worst. This is perhaps most apparent in our final brief, written by Next American Economy leader and Roosevelt Institute Senior Fellow Bo Cutter, in which we project many of the ideas discussed in these papers into 2040 and paint a holistic picture of this (not overly) optimistic scenario in "The Good Economy".

From Mark Thoma's blog, Unemployment Benefits and Job Match Quality, followed by some reader comments:

"The generosity of unemployment insurance is often cited as a reason for long spells of joblessness. But this view neglects other important, and potentially positive, economic aspects of such programs. This column presents evidence that unemployment insurance has a positive effect on the quality of jobs that recipients find. This can in turn have a positive effect on future tax revenues, and has implications for the debate on optimal insurance generosity." [Comments below]

This is predicted by a standard classical theory of unemployment known as search theory. Even in a full employment economy, there is a role for unemployment insurance. In a depressed economy like our current one - the need for unemployment insurance is even greater.

The Fed has a policy to purposefully keep at least 5% of the population unemployed at all times? The so-called "full employment rate" is not when everyone who wants a job has one. It is when unemployment is low enough to cause wages to inflate. Millions of people who want a job are left without one because of this policy. Either the Fed should let the unemployment rate go to zero, or we need to provide unemployment to compensate those who are making a sacrifice to low inflation.

Anything higher than 5% would force employers to pass along productivity gains to workers, though the Fed characterizes it as "inflationary".

What we will find in 20 years (and in fact what we find now) is that companies have gotten used to the idea that they don't have to train workers, and they "cannot find local talent", only talent from foreign countries where the governments are (still) funding education and job training, and/or when imported workers need work visas where they cannot easily switch to another employer.

So, will Americans eventually need a basic income when human labor becomes obsolete?

Paul Krugman, New York Times: Greece’s Economy Is a Lesson for Republicans in the U.S.

"On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.

On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar... Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.

The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s Right. Because if the Right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America."

Joseph E. Stiglitz, TIME: The U.S. Must Save Greece

"As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reduction in history and unconditional aid from the U.S. in the Marshall Plan [after WWII]. And yet it refuses even to discuss debt relief [for Greece]. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid ... Greece needs unconditional humanitarian aid; it needs Americans to buy its products, take vacations there, and show a solidarity with Greece and a humanity that its European partners were not able to display."

By 2040, will Americans be hunter-gathers again? Or will the United States become the next new "emerging market"? Will income inequality become even more pronounced? Will the U.S. middle-class consist of ZERO people, with everyone either very wealthy or very poor? How will people live? What will their standard-of-living be like? A lot of us won't be around by then to know the final outcome, but we can see the current progress — and it doesn't look pretty. Could this be the Top One Percent's End Game?

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