Categories:
Growth: Consequences
I wrote mine first, but it came out today (and at the last minute I inserted a reference to the Brynjofsson-McAfee e-book). Anyway, I write,
In a hyper-Schumpeterian economy, the main work consists of destroying someone else’s job. Garett Jones has pointed out that the typical worker today does not produce widgets but instead builds organizational capital. The problem is that building organizational capital in one company serves to depreciate the organizational capital somewhere else.
We are not stagnating, but the middle-class jobs that emerged after the second World War are disappearing. Read the whole essay, and let me know what you think.
READER COMMENTS
andy
Nov 3 2011 at 5:42pm
People at the bottom will have access to food, healthcare, and electronic entertainment, but the rich will live in an exclusive world of exotic homes and extravagant personal services. The most popular bands in the world will play house concerts for the rich, while everyone else can afford music downloads but no live music.
In other words – the “poor” will be very well off, the “rich” will be extremely well off.
I think the crux is that the rich must be rich precisely because they do provide goods to the poor. Which means that the ‘poor’ must consume these services – in other words, the poor will be very well off. This doesn’t mean there won’t be a group of people that just can’t make it. But I wouldn’t worry about ‘middle class’.
If the poor couldn’t buy the goods from the rich, they could just organize their own ‘economics’ without the rich. The question is how government handouts would change incentives in such scenario…
Michael Strong
Nov 4 2011 at 12:25am
Great essay, as always, with one major exception. I’m very glad you included your most optimistic scenario:
“The most optimistic scenario is the one I consider least likely. Under this scenario, the supply of workers adapts to changes in technology. In particular, this means a future with relatively fewer workers whose skills are limited to following directions in well-defined jobs. Instead, more workers will have the cognitive ability, initiative, and self-discipline to constantly update their skills, adapt to new technology, and to participate in the creative part of creative destruction. Under this scenario, economic growth will be very high, and median earnings will also be high.”
But your justification for your pessimism is misplaced:
“My reading of the research is that variations in education techniques lead to differences in outcomes that tend to be small and transitory.”
The research is perfectly irrelevant because we’ve never had a scaleable education system in which customized, specialized approaches to the development of habits (including cognitive ability, initiative, and self-discipline) is possible.
I would say that these skills are EXACTLY the ones that I develop, and have developed repeatedly at different schools across the country (i.e. replicated). But in order to scale this approach, I need to be able to create a brand name educational system that incorporates its own distinctive training system for teachers (at least one year long), its own distinctive evaluation system for students and faculty, and brand name credibility that differentiates the educational product being offered from mainstream public and private education.
The existing Montessori eduction system is a very early, flawed, beta version of such a program, yet some regard it as a success by these very metrics (see the WSJ “The Montessori Mafia,” for a sketch. But as someone who has spent more than a decade in the Montessori movement, it is a poorly funded, highly marginalized alternative system within which educators sacrifice roughly $1 million in lifetime earnings relative to public school salaries. As I point out in “Why We Don’t Have a Silicon Valley of Education” until and unless we break up the dominant operating system of K-12 education, which constrains innovation in public and private education alike, fundamentally new “education techniques” don’t stand a chance.
Analytically your belief that there exists empirical evidence that “education techniques” don’t have much of an impact is EXACTLY equivalent to that of a Soviet social scientists believing that innovation in computers is unlikely to have much of an impact in, say, 1950. Of course not, in a centrally controlled system – and globally innovation in education is constrained by government-dictated curriculum, tests, teacher training, etc.
The U.S. is the freest large developed nation, and as someone with more than a decade of experience trying to implement innovations, the overall environment, even in states with no direct regulation of private schools, prohibits real innovation in education. An individual school simply cannot bear the costs of creating an alternative standard and supply of alternatively trained teachers. But in order to achieve the outcomes desired, we need adult human beings trained in consistent moment-by-moment behaviors, something that is only possible if such people themselves, who exhibit consistent moment-by-moment consistency in the relevant behaviors. Academic training is worthless. Judging what is possible in any existing public or private school that is not characterized by a faculty that is unified in the norms, habits, and attitudes inculcated, at ever more granular levels, provides no indication of what is possible as the unanimity in cultural norm development is deepened and refined.
I don’t expect to convince you of my perspective; I am creating Free Cities in order to be allowed to create scaleable excellence in education, as it is for all practical purposes impossible in developed nations that impose the dominant operating system.
But at least as an analytic argument, you might note that the existing empirical basis for judging the efficacy of “education technique” is analogous to a Soviet social scientist judging the efficacy of improvements in information processing in 1950. Or if that is too much to concede, then at least such a hypothetical case exists. For an abstract Hayekian argument in support of this claim, see “Perceptual Salience and the Creative Powers of a Free Civilization.”
Xerographica
Nov 4 2011 at 5:18am
“My guess is that the more power is concentrated in governmental units, the less likely it is that our collective institutions will be geared toward achieving outcomes that are charitable and make efficient use of resources. Trying to get large sums of tax money past the grabbing hands of rent-seeking elites will be like trying to get a stagecoach full of gold past a horde of armed robbers.”
So what would happen if taxpayers were allowed to directly allocate their individual taxes among the various government organizations?
Arnold Kling
Nov 4 2011 at 6:35am
Xerographica,
I think that allowing taxpayers to allocate their taxes would be an improvement, but why stop with government organizations? Why not allow them also to choose from competing charitable organizations? That is what I propose in Unchecked and Unbalanced.
Bill Hocter
Nov 4 2011 at 10:41am
Arnold-I thought it was an excellent article. One could also see, as ancillary outcomes to any of those you describe, a further decrease in the average hours worked per week (to help maintain the size of the labor force)and/or a return to single income households as the labor market shrinks. Perhaps the enormous increase in the size of our domestic labor market in the 70’s to 90’s was an aberration.
Jonathan Bechtel
Nov 4 2011 at 10:43am
Insightful essay, as usual.
@Michael Strong: your comment was as good as the essay you were commenting on.
Arnold, I agree with your general points, but I’d add a few wrinkles
1). It’s possible the structural shift in the economy creates a need for new middle skill jobs that don’t exist right now, because the transition isn’t mature enough yet.
A few ideas:
1). Providers of motivation. If more and more jobs require a particular type of cognitive machinery, and the supply of domain specific experts is scarce, it might eventually be cost effective for businesses to hire less than ideal people and train them, and also have a team of motivators/coaches to get them from point A to point B faster. Might be cheaper than paying a rock star developer a million dollars to stick around for 6 months.
2). Irregular customer service. Firm sizes are shrinking rapidly, and for small heterogeneous firms, rock-star customer service is often an easy way to separate yourself from larger firms that can squash you with price.
For example, I’m starting a nutritional supplement company, and one thing we’re beginning to do is send thank you cards and call new ones personally after they place an order. This cannot be outsourced to an Indian BPO.
I’ve noticed that a lot of new tech firms are investing in this sort of customer experience as well, and once they get a certain level of traction, they start to hire customer service people as often as they hire developers.
3). A decentralized education system probably has a need for a much more diverse labor force than a centralized one that’s governed by credentials.
Practically anyone with a well developed interest could be used as an instructor to teach a topic to a group of people that was interested.
The older/retired segment of the population would also be unused resources that could be cheaply utilized.
Lastly, I think there’s a chance that markets will form for income distrubution itself. Exchanges that allow rich people to give money to worthy people in need could go pretty far.
The evolution of bitcoin and other open source currencies might be important for the latter to take place.
stuhlmann
Nov 4 2011 at 11:56am
About 30 years ago I read a science fiction short story, whose name and author I can unfortunately no longer remember. In the story, two old guys are having a beer at an outdoor café, and, as old guys often do, they were discussing how life used to be better. In the story, machines (robots and computers) had replaced nearly all human labor. Generous welfare payments made sure that no one starved, but almost no one worked. Back when these guys were young, people had jobs, and the two guys remarked how work provided meaning to life. The guys admitted that they had enough money to get by and even to enjoy some luxuries, like an afternoon sitting outside drinking, but they were not satisfied with their existence.
In the story, an android walks by, and the two guys attack the robot, kicking and hitting it. They only injure themselves, and the android asks why they had attacked it. The men explain how machines had taken their jobs and robbed their lives of meaning. The android replies that it can understand their anger, but remarks they should not be taking their anger out on it. The android had been built many years ago by a university professor, as an experiment. At the end of this experiment, the professor just turned the android loose, having no further need or interest in it. The android explained that it had been created to be like a man. It too no longer had any purpose, since it was less efficient at any given task than a machine designed especially for that task. The android suffered from the same difficulties as the two men, and the android was expected to last 500 more years.
I’ve thought about this story a lot over the last 30 years. I find it troubling because it seems all too likely to come about – in 20 years, 50, 100?. As the story illustrated, material security is not the only goal in life. A job and a career provide more than food on the table and a roof over your head. They provide identity, status, and purpose to life. Sometimes that identity can be more important than the material rewards. Go ask someone who works on a cattle ranch – low pay, but you are a real, live cowboy. So what happens to people, men especially, when they have no way to prove themselves and to win status through constructive work? Bread and circuses were only partially successful at pacifying the mob in Rome.
I’ve also been reconsidering another science fiction story, Frank Herbert’s “Dune”. I highly recommend the book, especially to economists. As background to the story, in the distant past, there was a defining event in human history called the Butlerian Jihad. This jihad was waged against machines and the machine mentality. The outcome of the Butlerian Jihad was not only the destruction of all computers and thinking machines, but also that it became both illegal and immoral to create or possess machines “in the likeness of a human mind”.
The world and galaxy presented in Dune are not very pleasant. There is feudalism, slavery, endless warfare, and social and technological stagnation. People are bred like cattle or dogs – in order to develop the specialized mental and analytical capabilities in humans that enable a space going civilization to operate without computers. For years I had always wondered why this Butlerian Jihad occurred, given that for most people, the universe that followed was a pretty awful place. I think I am beginning to understand. Perhaps those who smashed all the machines just wanted their jobs back.
mark
Nov 4 2011 at 12:23pm
What do I think? I think that was a great article and you are one of the smartest people I have encountered, even if the encounter is 100% digital.
I also appreciated Michael Strong’s comment and hope he will participate in this forum. And vice versa.
Mr Strong’s and Jonathan Bechtel’s comments both reminded me of an article I read recently, I think in The Atlantic, about CareMore, which found that low-level labor-intensive interventions in medical care reduced total cost outlays by 18% by dramatically reducing high cost interventions. Which reminded me of the lesson learned in policing in NYC when it began enforcing laws against low-level crime and amazingly enough the tone of the whole city changed. Perhaps, to return to your article, we will have an increase in labor intensive work that consists of low-level interventions in health, education, even incarceration, and so on, and pay for it with less expenditure on high-cost methods.
Jonathan Bechtel
Nov 4 2011 at 1:18pm
This is tangential to the post, but I think all the issues discussed here are reasons for optimism in the long run, not pessimism.
It seems like the world has pivoted, and the opportunities to profitably help different segments of society is getting bigger each day.
There is no great stagnation!
Xerographica
Nov 5 2011 at 10:57am
Arnold, you asked why we should stop at government organizations…but the answer to that question can be discovered by answering why nobody has ever advocated for direct tax allocation before.
For example…here’s a bit from Jonathan Wolff on a blog entry on Opportunity Cost…”When the government created a new fund for cancer treatments, for example, economists immediately asked what we would have to give up to pay for it.”
Why did the economists ask what we would have to give up to pay for the cancer treatment fund? I completely understand the opportunity cost concept but I don’t understand what the point of the question was.
If the question was directed at congress then it implies that there is an insignificant disparity between 535 congresspeople considering the opportunity costs of other people’s money and millions and millions of taxpayers considering the opportunity costs of their own individual taxes.
Yet surely there are enough economists that understand Hayek’s concept of partial knowledge to realize that the disparity between the two allocations would not be insignificant. The allocation based on the sum of billions and billions of bits of disparate knowledge would be considerably more efficient.
So why then do economists ask what the opportunity costs are instead of advocating that each and every taxpayer consider the opportunity costs of their individual taxes?
The reason we should stop at government organizations is exactly because libertarians want to go further. The desire to go further is what’s been holding us back. Our confirmation bias has prevented us from seeing, appreciating and advocating a simple truth.
If we truly do not have a confirmation bias then it should be easy to step away from the tax rate and away from the debate over the scope of government. Doing so would free us up to focus our energies on promoting allocative efficiency. Why would anybody argue against the best possible use of public funds?
Paul
Nov 28 2011 at 4:33pm
I am thinking about how the following is enabled/happens.
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