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The Economics of Reality

Mark A. Goldman                                                                       Dated: 9/5/08


If you had been born 150 years ago, your birth would have been a job creating event.  I don’t mean just for your mother, although she surely would have had her work cut out for her.  What I mean is that to clothe and feed you, it was going to take the skill and hard work of at least one and maybe more new factory workers.   To make a pair of shoes a hundred and fifty years ago was quite labor intensive.   It probably took two man days of work to make one pair of shoes.  Today almost all of the work of making shoes is done by machines with probably less than one hour of human labor required to make a far superior pair. The incremental time and effort it takes workers to clothe and feed one more human being is very small today even though there are a lot more people to clothe and feed than there used to be.  What does this mean?  It means that with every advance in technology and productivity, there is, relative to the size of the overall population, less need for people doing jobs in manufacturing.  Computers and advanced technology can handle difficult tasks much, much faster than humans can.  

If other people can and are willing to do a job cheaper than you can do it, they will be given the opportunity to do it.  Under the current structure of modern economic systems, those jobs will pay less and less as productivity improves and population grows.   As technology improves, most of today’s factory workers, no matter where they live, will eventually lose their jobs too.  What does all this mean?  It means lamenting the off-shoring of jobs is useless. It also means that if we don’t change how we think about economics, as the population grows, poverty will grow too… and along with it, the discontent, instability and war that more poverty will bring. 

Owners of businesses hire employees to do work that needs to be done.  To be successful, a smart owner will take advantage of technological improvements as they become available.  As owners install new technology, each worker’s productivity increases, reducing the number of employees needed to produce the same level of output.  That also means a larger percentage of the profits generated by the business filters up to the owner as labor costs decline more than does the cost of new equipment. 

After awhile, most of the workers who allow owners to move through this process and eventually become rich and successful, will no longer work there.  They will never share, be acknowledged for, or be fully compensated for the contribution they made to the owner’s success.  As jobs shrink, the number of people who can do the jobs that remain, increases, and that means there is less and less pressure for wages to increase. 

You can do your own mind experiment. Look into the distant future and imagine the owner of a business one day logging onto his computer in the morning, and after reading yesterday’s stock market results, he clicks a button which in turn begins the manufacture of widgets in a factory in some distant country where almost no humans work because all tasks are done by robots, machines, and computers.  The owner and his skeleton crew of remotely located programmers, designers, and material handlers are the only humans involved in the business.  This imaginary business should inspire us to think about what society is going to look like a few years from now as we move closer to the end point of the trajectory we’re on. 

What kind of society do we want to live in and how will things work as we move closer to this evolving reality.  The old models begin to break down as populations grow, technology advances, and resources become increasingly scarce.  Part of the confusion we face today is that some of the dislocations we anticipate are already in play while most of us are still mentally tied to a set of unexamined assumptions that perhaps worked fine just a few years ago but not any longer.   

Forbes recently reported that the richest four hundred Americans are all billionaires.  A billion dollars is a thousand million dollars.  Does anyone need to be that wealthy?  Does any one person really EARN that much money?  Many of these billionaires are simply inheritors of other people’s wealth, having contributed nothing at all to society in the process of acquiring it.  Does it make sense for human beings living on planet earth to arrange their political economy in a way that divvies up resources this way… where a few people are able to accumulate vast riches while billions of others live in abject poverty, lacking the power, resources, or knowledge of how to improve their condition?  This system was designed by and is maintained by human beings who are not programmed by nature to behave this way.

When you have a billion dollars, I’m sure the system doesn’t seem like such a problem.   What is the incentive for the wealthiest citizens on planet Earth to want to change things?  Probably not much. 

My own mind experiments have convinced me that if we don’t come to view a certain minimum lifestyle as a basic human right — one that allows all people to live lives of dignity even though they may not have a good paying job— then what we think of as democracy cannot be sustained.   Nor can peace or civility. The junk mail we receive every day already gives us a sense of how desperate some people are to make a living… even in the United States.  To move to something that is sustainable will require that we come to value all people as brothers and sisters, without regard to how much money they make or how successful they are at giving some of us everything we think we need or want.

One thing we do know is that we don’t have to do a mind experiment to know how tax breaks offered to the wealthiest among us will turn out.  We remember that this concept was sold to us with the idea that it helps new businesses get started which in turn increases employment.  We now know that this so-called trickle down approach, which sounds good in political speeches, simply does not work.  It can improve GDP.  It can even grow the economy.  But these statistics do not describe the result:   a nation of great economic disparity between the owners of capital and underemployed workers who get used and discarded as if they were nothing more than obsolete equipment.

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