Post-Scarcity Economics

Tea, Earl Grey, Hot... is the line from Star Trek The Next Generation's Captain Picard ordering from a replicator, a device that constructs whatever your heart desires from nothing more then energy, energy to matter.  We're not there yet but we're getting closer and some European nations are struggling with or experimenting with what comes after, what happens when labor is no longer scarce and not provided by human beings.

Finland is experimenting with simply giving people $600 Euros a month, no strings attached.  Drawn randomly from the ranks of the unemployed part of the experiment is to see what these people will do, will they sit around scarfing Doritos and Mountain Dew while playing the latest version of Call of Duty (hmm, perhaps that's too American), or will they become productive contributing members of society.  In Switzerland last year they held, and rejected a referendum, to simply pay everyone in the country $2500 a month.



France expects to lose 3 million jobs in the next eight years to automation.  Since the turn of the century the US lost 5 million manufacturing jobs yet during that same time frame manufacturing grew by 17%.  The jobs didn't go to China, they went to robots.  What do we do with people whose economic productivity is replaced with automation?  Robots are estimated to currently perform about 10% of manufacturing and industrial tasks, that number is expected to rise to 25% by 2025.  From 1998 to 2012 the production of computers and electronics rose 829%, using 1998 worker productivity rates today would equate to over 20 million more jobs.

What would you do if all your needs were met?  Suppose for a second that your current lifestyle was maintained free of charge.  Your house, cars/transportation, food, communications, medical, entertainment all cost free.  Would you sit around on your ass or would you start a novel, take up painting, or do something else?

Would you hire this to clean your carpets?

  

 Actually I was eyeing one of these at Costco the other day for $400.

Associated Press

Fortune

The Economics of Star Trek
 

Minimum Wage

There were 127,000 fewer working-age natives holding a job in the first quarter of 2014 than in 2000, while the number of immigrants with a job was 5.7 million above the 2000 level.

Because the native-born population grew significantly, but the number working actually fell, there were 17 million more working-age natives not working in the first quarter of 2014 than in 2000.

National Review

The Wages of Progressive Sin

You want wages to go up?

Stop importing labor... or allowing it to cross the border unimpeded

Progressives chasing their tails

The Massachusetts House passed a bill that will raise the state’s minimum wage to $11 an hour by 2017. The Senate already passed that wage level, and after a procedural vote there it will head to Gov. Deval Patrick (D), who is expected to sign it into law. 

 

The simple truth of it is that this cost is simply going to be passed along to consumers of goods and services, and offset by cutting employees.  The cost of living is going to go up and the value of a dollar is going to go down, those who are going to shoulder the greatest burden are the poor, whose purchases of goods and services represent a greater portion of their income than the middle class and wealthy.  The income gap will grow simply because this action won't lift people out of poverty, it will have the opposite effect as prices increase to offset decreasing profit margins.  In the end the wealthy will be wealthier and the poor poorer, do you think that those now making $12 will see a raise anytime soon?

 

What will their answer be?  To pass another wage increase.

 

The CBO examined the budget impacts of raising the minimum wage to $9 and $10.10. The report concluded that a $9 increase would lift 300,000 workers above the poverty line, but cost 100,000 new jobs as employers are expected to reduce workforces to make up for higher wages. A $10.10 increase would lift 900,000 workers above the poverty line, but cost 500,000 jobs.

Government-Sponsored Inequality

Envy and Equality are recurring themes in Left Blogistan...

Shaw Kenawe is the latest to address it, and she does it in her usual expert way.  We rarely agree, but I respect her.

She opens her post by asking:

"Do We Really Want to Become a Third World Country?

Incredibly, we're on our way to that sorry situation because of our income inequality--the highest since before the Great Depression"

There are two sides to every story.  Of course we have income and wealth inequality.  What society in the entire history of the planet does not?  Are the rich making their gains at the expense of the poor? Studies have not shown that.

Inequality in Perspective

Matt Zwolinski at Bleeding Heart Libertarians does a good job putting it all in perspective. He goes point by point, and I won't reprint them here, but there is context behind the raw numbers that includes changing factors like household size, education, and immigration.

We are also an economically mobile society, with people moving both up and down. We commoners also enjoy a cornucopia of luxuries that were only available to the rich back in the 50's. Most measures of inequality also fail to take into account the direct government transfer payments to the poor in the form of food, housing and cash assistance.

Income inequality is a natural result of a free market where people of various skills participate and bring products of various values into it. The services of a doctor or plumber are more valuable than those of a janitor, so doctors and plumbers enjoy greater remuneration than janitors.

A Tale of Two Liberals

Inequality?  Try this on for size:  OWS protesters were swept up and jailed in cities all over America for the misdemeanor of stinking up the place and refusing to pack up their tents. Meanwhile, well-connected liberal Democrat Jon Corzine walks free and easy after "misplacing" billions of investor dollars. You can bet he's not nervously looking over his shoulder--Washington's got his back.

The real inequality problem we have is caused by government. Rich people, big biz, big education, big pharma and wealthy financiers now own the US government. Having bought and paid for it, these rent-seekers are enjoying the best government money can buy, while the rest of us are subject to Big Sis Brigades wanding our crotches and confiscating our possessions.

The Silverfiddle Solution

In good times and bad, high taxation and low, federal government revenue collection averages about 17% of GDP per year. We need to design the federal government around that number. Collapsing useless departments like Education, HUD, Labor and selling the buildings would be a good start.  Shrinking and combining the remaining gargantuan tangle of departments and agencies would be a good next step.  Budget to that 17% target every year and cut what don't fit. It's what responsible states do.

Set a flat tax. Wipe out all exemptions, incentives and special favors for everybody, across the board, and call off the regulatory hounds that only the rich can afford to keep at bay. Burn down the Code of Federal Regulations and restore the rule of law so that the law is understandable by all and applicable to all.

Cut away the comfy taxpayer-provided safety nets protecting the phony captains of industry. A system that welds the escape hatches shut, forcing them to pay for their irresponsibility and malfeasance, will do more to tame the gamblers and pirates than the libraries full of regulations we now have.

Get the government out of health care and education. These are the two markets most penetrated by government, and not coincidentally, the two most inefficient markets with the greatest rates of inflation.

We need economic liberty and an education system that is not gouging us at every turn. As Hayek reminded us, it is a fatal conceit to believe that since we can't imagine our economic future, the government must plan it. There lies failure. Entrepreneurship is the way out.

Walter Russel Mead explains the way out of this mess much more intelligently than I do. Please go read Post-Blue Jobs pt 2.

Holman Jenkins has a handy rebuttal to the Income Inequality charge as well:  The Inequality Obsession

Can America Achieve Avocado Independence?

As Jersey is fond of screaming in ALLCAPS, "ENERGY IS A GLOBALLY TRADED COMMODITY!!!" And he is right.

But we shouldn't let that keep us from extracting our own gas and oil.  I'd rather put our own people to work and have a dependable supply system on hand in case of global emergency.  Also, the Canada pipeline, while not giving us energy independence, does allow us to purchase more oil from a friendly neighbor and therefore less from people who hate us.

Jonathan Thompson explains the folly of pursuing energy independence.  He's a green energy liberal, but he doesn't resort to the usual tendentious tactics.  His article is firmly grounded in mainstream economics that comprehends the global market:

The base premise of energy independence is the notion that we started importing oil because we didn’t have enough of it here at home. That’s about as accurate as the idea that Walmart fills its shelves with China-made items because the U.S. is unable to produce those things.

In fact, we get oil from all over for the same reasons we get tomatoes, avocados and cheap electronics from all over the place. It’s not always pretty, and it doesn’t always make sense on some levels -- shipping apples from New Zealand to Colorado just seems wrong -- but it makes sense to the market. Chesapeake says that spending $400 billion per year on foreign oil is “fiscally insane.” 

Yet the U.S. will also spend $400 billion on a variety of exports from China this year, not to mention the billions more we’ll spend on food, clothing, cars and electronic devices from a myriad of other countries. No one calls that fiscal insanity, nor do we hear politicians calling for iPhone independence. (High Country News – Circular Logic of Energy Independence)

So green dreamers like Jersey take a free-market principle and use it to argue against drilling for more oil. The same argument could be made for ceasing all manner of activity, from making our own cars to growing our own food. We could still get cars and food from other nations, but the diminution of supply would drive up prices and a lot of Americans would be unemployed.

The author goes on to explain how us pumping oil like crazy can make a difference in the market, and eventually make prices come down... Which will then make drilling in difficult sand and shale formations less lucrative, slowing operations there, resulting in less supply and higher prices, again making extraction profitable...  And around it goes.

 This is market economics 101, and it is no reason to forgo our own extraction that puts Americans to work

So free market forces are not “right” or “wrong.” The free market is an organic entity sending and receiving myriad internal and external signals every day, and as such is self-correcting, so long as central planners keep “rescues” and “protections” to an essential minimum. 

Also, there are no magic bullets or perfect solutions; only tradeoffs.  Until someone comes up with a viable alternative, oil and coal is here to stay.

Mr Obama, You're No Reagan!

Deroy Murdoch, a most astute man, does us a favor by assembling a concise catalog of Obama's economic blunders...

"Under Obama, federal spending has risen from 20.7 percent of gross domestic product to 25.3 percent, Washington’s largest slice of apple pie since 1945."

"Obama’s spend-o-rama includes federally funded green jobs that Boskin dismisses as “the leprechaun economy.” The apotheosis of this blarney was last month’s $1.2 billion Energy Department loan guarantee to SunPower Corporation of Richmond, California. Its solar-equipment project promises 15 permanent positions. Cost per job-created: a staggering $80 million." (NRO-Deroy Murdock)

Reagan's Recovery vs. Obama's Sagging Non-Recovery

Boskin compared snapshots of Obama’s and Pres. Ronald Reagan’s post-recession recoveries, 27 months after each downturn hit bottom.

In September 2011, on Obama’s watch, non-farm payrolls had grown 0.6 percent, yielding 841,000 jobs since June 2009.

Under the tax-cutting, business-boosting Reagan, non-agricultural employment swelled 8.7 percent, generating 7.7 million new jobs. (NRO-Deroy Murdock)

How Mr. Volker Would Fix It

Reading that comparison reminded me how Obama, to much fanfare, brought the venerable Paul Volker on-board as a convenient counter-weight to his socialist advisers who were discomfiting those serious people not in a hopium-induced daze those first heady days of the Obama Presidency.

It calmed people down, and then Obama proceeded to completely ignore the former Fed Chair who tamed Carter's dreaded stagflation and ushered in the historically-unprecedented Reagan economic boom. Volker has offered his advice on how to fix this mess. It's too wonky to go into here, but it involved breaking up anyone too big to fail, no more government underwriting Wall Street gamblers, putting the different financial functions into their own boxes and jailing those who stray, among other things. You can read the whole thing here: Volker's Advice.

Free Market Ideas for Increasing Employment

For the libertarians among us, taking advice from a former Fed Chairman just won't do, so Reason Magazine has an article entitled Get a Job! that is chock full of free-market remedies sure to get people back to work.

The ideas are too simple-minded and timeless for the progressive eggheads powering Obama's economic failure: Less regulations, less government intervention in the marketplace, no more government bureaucrats picking winners and losers...

Free marketeers know that government cannot power the recovery.  The path to economic success begins with economic freedom. Bill Frezza explains:

Do you sometimes wonder why economists are accorded such respect and influence given the fact that they claim knowledge over the unknowable, promote theories that are untestable, and make forecasts for which they are never held accountable? Isn’t that the definition of a witch doctor?

If engineers were held to the same standards, bridges would collapse as often as banks, planes would fall from the sky (if they ever got off the ground), and cyclical blackouts would be a permanent feature of our electrical grid. But at least they would get to visit the White House.

This gets to the heart of why we should take all macro economic advice with a grain of salt.  It is a soft science, useful for gaining insight, but incapable of predicting market behavior.  Government-planned economies fail, free markets succeed. 

Have you ever watched engineers from different schools argue on Sunday morning talk shows about the validity of Bernoulli’s Principle or Ohm’s Law? No? Yet economists, like rival witch doctors, get red in the face promoting diametrically opposed economic remedies, sometimes sharing Nobel Prizes in the same year for theories that directly contradict each other. Take $2 trillion and call me in the morning. (Bill Frezza - Fundamental Fallacies of Macro Economics)

Obama's No Lincoln, Plus a Quick Economics Lesson

Hailed as America’s first truly cosmopolitan president, Mr. Obama seems to have learned nothing from his youthful years on the international scene. It's no exaggeration to say that the typical Army Sergeant has more real-life experience than this elitist metrosexual poser.

He’s not like Lincoln because he’s shown no humility...

"I have been driven many times upon my knees by the overwhelming conviction that I had no where else to go. My own wisdom and that of all about me insufficient for that day."
  -- Abraham Lincoln

Lincoln had seen success and failure in his life,and he understood all too well our flawed and fallen nature. He had a deep humility borne of this knowledge.

It is impossible to imagine Obama saying something like that.  Instead, he and his wife lecture us on how stupid we are.  Obama juts his chin in the air and fills it with flowery words that have no basis in real-world experience. He’s an inexperienced, unlearned man, but this does not stop him from loudly calling out enemies and lecturing us on how to eat, how to live, how to sneeze and how to spend our money.

To comprehend economics, avoid Paul Krugman, read Greg Mankiw

Harvard Economics professor Greg Mankiw has a gift for explaining the dismal science. Here he explains how economic transactions in a free market are not a zero sum game, but rather, they are win-win situations:

… let’s start with a basic economic transaction. You have a driveway covered in snow and would be willing to pay $40 to have it shoveled. The boy next door can do it in two hours, or he can spend that time playing on his Xbox, an activity he values at $20. The solution is obvious: You offer him $30 to shovel your drive, and he happily agrees.

The key here is that everyone gains from trade. By buying something for $30 that you value at $40, you get $10 of what economists call “consumer surplus.” Similarly, your young neighbor gets $10 of “producer surplus,” because he earns $30 of income by incurring only $20 of cost. Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties. (Greg Mankiw - Emerging Markets)

This also explains why trade deficits are not always bad. Think about it: Your household runs a permanent trade deficit with the grocer and the utility company. If they were simply vacuuming money out of your pocket this would be a bad thing, but it is not because you get a product back (food, heat) for the money you hand over. In turn, those products enable you to continue widening the trade surplus with your employer.

Finally, this is why I think, on balance Wikileaks helps more than hurts...

China has us by the balls:

An October 2008 cable, released by WikiLeaks, showed a senior Chinese official linking questions about much-needed Chinese investment to sensitive military sales to Taiwan.

His comments came days after the Pentagon notified Congress it was poised to sell $6.5 billion worth of arms to China's arch rival Taiwan.

The much-delayed package was eventually sold, but did not include requested F-16 jets. (AP - Breitbart)