Dec 27, 2016 (San Diego) We heard many of the promises made by Donald Trump regarding jobs. He is going to bring back good factory jobs to the United States. The same promise was made by Nigel Farage during the BREXIT campaign. We expect to hear the same language in both French and German upcoming elections. Why? This low-level fury at the transformation of the economy is not limited to the United States. This is the great untold story of this sharp turn from the center right to the far right in the United States, and everywhere else.
The Great Recession accelerated certain trends. One of them was the effects on the job market of both globalization and the disciplining of organized labor. This continued a long trend towards flat wages and an economy that produces both high income and low-income service jobs, but no middle income jobs. What we saw during and after the Great Recession was not just limited to the United States, but in this country, it has created pockets of economic depression. Some of these pockets were democratic strongholds, the voted for Donald Trump this time around. This income inequality can best be explained in the elephant graph, by Branko Milanovic who is an economics at the world bank.
He concluded that not only are middle classes in retreat across the western world but that income inequality has increased to dangerous levels. this is one of the reasons for the rise of right-wing populism around the western world, as well as middle-income countries.
Some of the conclusions were questioned by Adam Corlett, writing for the Resolution Foundation. Though he found something that Joseph Stiglitz has found as well. If anything, income distribution in the United States has been all but even. There are areas of the country that have been in technical depressions for almost two decades now. Stiglitz has written in The Price of Inequality that: “Part of the reason for this is that much of America’s inequality is the result of market distortions, with incentives directed not at creating new wealth but at taking it from others.”
This is dangerous for the well-being of any society.
There is more to this dangerous soup, though. What many economists are not willing to say is that we are moving to a new economy, one where the nature of work and what work is available is changing. Yes, we are positive manufacturing will come back to the United States. Companies such as Apple and HP will bring back their factories from foreign lands, but the uptick in jobs will not be nearly as large as promised. Why? Robotics. There will be work for the programmer, and where that programmer happens to be in the world is a good question. But line work, assembling your electronic devices, not necessarily. And even if some does come back, it will not be as well paid, or as plentiful as it once was. There will be some line assembly work only because it is cheaper to retool the humans, instead of the robots, but China is already leading the way to replace millions of workers with robots.
Carl Benedikt Frey and Michael A. Osborne wrote in 2013 that about 47 percent of work was in danger of disappearing in the United States. They explored 702 specific jobs that could go away (in some cases will in the next 10 years) due to computers and robotics.
Further, they quote other economists who observe that: “the essence of the current trend towards labor market polarization, with growing employment in high-income cognitive jobs and low-income manual occupations, accompanied by a hollowing-out of middle-income routine jobs.”
In San Diego, we are seeing this, with an economy that is hollow at the mid-income levels, with jobs at both ends. There is more, this is not just limited to the factory floor any longer. “the pace of technological innovation is still increasing, with more sophisticated software technologies disrupting labor markets by making workers redundant.” We are expecting to see this in driverless vehicles and in the shipping industry in the next ten years. Between driverless vehicles and drones, anywhere from 1 to 10 million jobs are at risk of disruption in the United States alone. It is not just the drivers of vehicles, but all the support industries, such as hotels for long distance drivers, that will no longer have a demand.
Logistics is not just long distance truck driving, but also warehouse operations. Yes, your Amazon fulfillment center could leave behind most humans. This goes from the human who takes your order, at the warehouse and fills it, all the way to the delivery. You could have robots inside warehouses doing this, and driverless trucks delivering with a drone physically taking it to the door. What will happen with all the humans that these operations will displace? Likely this is where we will see this first. Amazon already delivered the first item in the United Kingdom using a drone.
So here is the question for policy makers, and economist alike. We live in an economy that is centered around consumption. 79 percent of the American economy relies on you buying something. Whether it is an I-thing from Apple, or just paying your electric bill, both are part of the consumption. What happens when roughly half of workers cannot find work? Or whatever they can find is in the service industry, and even that is under attack? What happens when roughly a third to higher of workers are permanently unemployed? What happens to an economy depending on consumption at that point? Are we seeing part of that future in the rust belt? What about Virginia Counties depending on coal?
One of the solutions that some economists have come about, apart of permanent education for a workforce that needs to change full skill sets, is a minimum guaranteed income. This single payout would replace all other safety net payouts, in the United States SNAP, Social Security, Medicare, and other assistance programs. Charles Murray writes in the Wall Street Journal:
The UBI has brought together odd bedfellows. Its advocates on the left see it as a move toward social justice; its libertarian supporters (like Friedman) see it as the least damaging way for the government to transfer wealth from some citizens to others. Either way, the UBI is an idea whose time has finally come, but it has to be done right.
First, my big caveat: A UBI will do the good things I claim only if it replaces all other transfer payments and the bureaucracies that oversee them. If the guaranteed income is an add-on to the existing system, it will be as destructive as its critics fear.
And it is not just a libertarian idea. You can find it among progresive economists as well. For real this is being implemented, or will be in other countries. Switzerland, the Netherlands, Spain and Canada are already considering the idea.
The reason is simple, either we do this, or societies will become very stark, very fast and very poor. If you think this is un-American, well, Thomas Paine considered this, and Milton Friedman was one of the early theorists that saw a future where a percentage of the workforce would need permanent support. We are in the second machine age, and if people cannot survive, they will find ways to survive. Some of them are far from pleasant.
Our policy makers in both the federal and state levels are still not talking of this. We are still arguing over minimum wages and where they should be. The minimum transfer payment of $13,000 proposed by the Wall Street Journal, with the current minimum federal wage payment, gives a worker $26,920 per year, before taxes. This is closer to a living wage, and in some areas of the country, this is enough. It also would allow people to spend the moment as they chose, except for $3,000 in some kind of medical insurance. The Affordable Care Act already has some of that in place. So perhaps the ACA needs to remain in place, for this to be done.
Realize, it also puts the burden of real savings on each citizen. We are talking of removing all other safety net items, including social security, and this has to be married to inflation, or 20 years from now that will be worth almost nothing.
Whether we do something about this, and create a system on top of all others, or modify the safety net, it has to be universal, and if we do not act, we are still going to be left with millions of displaced workers. It is not because they are lazy. It is because jobs are going to go away, whether we like it or not.