Investment bank ex-employee here. I'm pleasantly surprised that Hacker News front-page has finally landed an article on the history of modern macroeconomics whose author knows what he's talking about instead of masking their ignorance with popular voodoo buzzwords like "Ron Paul" and "Bitcoins".
Ironically but predictably, very few karma points are given. I'm happy to find this little gold nugget and the intellectual satisfaction that comes with reading it.
Articles like this (semi-political stuff) tends to get flagged and thus, disappears from the front page at speed. When I clicked the link to read the article, it was around #6 with 20-something points after 2 hours; when I refreshed HN ten minutes later, it had gained ten points but fallen all the way to the second page (~30 odd places).
I'd say there's a not unreasonable chance that the article was flagged because a reader didn't like the history it puts forth.
"On the one hand, technology has made us all much more productive ... on the other, jobs have evaporated."
"Most of us are working harder, for less money and with no job security."
My econ classes taught me that increased productivity causes short-term pain for displaced workers, but results in long-term higher standards of living for everyone.
That relationship seems to have broken down. What if the internet destroys more jobs than it creates?
Is it really "post-scarcity economics"? Or is it the effect of digital networks and rising inequality?
Jaron Lanier argues in "Who Owns the Future" that digital networks make the economy work differently. Now the benefits of higher productivity get hoovered up the elite few, leaving most people worse off.
Lanier argues that there has always been inequality, but the internet enables a winner-take-all economy that keeps productivity gains from trickling down to ordinary people.
I'd love to see a mathematical model that quantifies jobs and salaries lost to "disruptive" new entrants, and how many jobs at what compensation levels are created in their wake.
>My econ classes taught me that increased productivity causes short-term pain for displaced workers, but results in long-term higher standards of living for everyone.
That's ideology, not science. Economists sell ideology instead of science all the time (for one, it helps them tout the "free market" from cushy government or teaching positions).
The outcome described above is not inevitable, like gravity. It depends on who has control of the situation and what the increased productivity is used for.
If the elites owning industry etc can get by by employing far less people, why would they care about huge parts of the population not having a job or living in slums? As long as they get to sell their products to a market (which can even be abroad), they are fine.
To be fair, the tone is stronger than his ultimate argument. He goes on to outline four or five examples where the short term effects could be pretty devastating.
It's important to note that in the long run, labor markets reach an equilibrium, adapting to any current technological capabilities.
Then again, it's also important to note that in the long run, we're all dead.
Can anyone with more economic insight than myself comment on how increased automation leading to higher unemployment (ie, self-driving car) might change the recommendations?
Are we back to the Basic Income? Seems to be an increasingly relevant proposal.
Basic income is definitely key, and could form one part of the author's suggested strategy of increased government spending. Another card in our hand is decreasing the length of the work week, which has already been done in some European countries.
I am not really knowledgeable, but the standard argument I have read a few times is: technological development can not influence unemployment because it also creates new job openings. But this argument does not take the time it takes to train for a new job into account. So to become a somewhat serviceable programmer, it takes a few years to learn the details of computers, get accustomed to frameworks, etc. So fast change displaces (former middle class) workers towards less skilled jobs, since they are fast enough to learn. So one of the benefits of basic income is, that it would allow for more flexibility in picking up a new occupation.
I'm a software dude, not an economist, but as a guy on the Internet who reads reddit and hacker news, I feel 15% qualified to answer this question!
I want to quote some passages from the article, which is kind of long, and I think misses some of the point. All personal internet nerd opinion.
> Unemployment would drive wages down until, at some certain level, workers would be so cheap to hire that once again, men would be put to work and growth could return.
I think this is still true. The problem is that the price for human labor right now is below the rate of a living wage. Since your productivity goes to your bosses, but there are so many laborers looking for income, the ratio is that all labor roles can be filled by those already subsiding on other income sources, so the real value of labor is abysmal. How else do you have a massive dine in restaurant industry where waiters are paid $3.50 an hour and hope for the charity of their customers to make ends meet?
When human labor is no longer worth the cost of living, people just don't work. So even if you make more $7.25 jobs, there is little incentive to pursue them, especially through picking up and moving across city lines, because you will still be in the red and still stuck in a perpetual cycle of debt and despair.
> Only one thing makes entrepreneurs expand capacity and that has nothing to do with government tax policy.
Tax policy has a huge impact on expanding a business. Taxes are, in the short run, a direct percentage loss of productivity. You take a portion of profits and that directly influences future hiring gains. The taxes might long term provide benefits beyond the short term costs (ie, roads, power, police) but those are not in the span at which businesses make hiring decisions. However, reducing taxes today doesn't cause a hiring boom if there is no demand. It is a downward cycle of a dozen factors, but tax rates are a factor on the bottom line behavior of businesses and consumers. Taking their money by gunpoint to use it elsewhere only works if the elsewhere gets you some significant returns on your investment, from an economics perspective. A lot of government spending doesn't do that if it is for the purpose of playing empire or placating special interests.
> I favor government spending targeted on making the lives of citizens richer and more cultured. Some may say, this is elitist of me, to which I reply, what is wrong with elitism?
I strongly diagree with this on the principle that culture is relative. I may not want your culture. You argue your culture matters because it contains the wealth and power. Which I feel is the root cause, and back to your topic, why basic income is relevant.
Money has concentrated itself so heavily away from the masses and into the owners of the means of production and the capital that supports it that it causes the majority of economic slowdown because people spend incrementally less on incrementally less immediate things the richer they are. You eventually get to the point where the wealthiest are putting their money not in immediate goods and services that churn money and keep the engine going but into longer term finances like bonds or dividend investment. Investing money doesn't have the immediate return effects spending it does, especially when the best companies to invest in are also the ones flooded with money, with no demand to grow their business into (because the only people with the income to realistically grow their profits by real percentages are already the wealthy sponsors of the business) so they can just sit on troves of money and the dividends that come out are the slow siphoning of capital out of the abundant laborers and into the rich, because they don't recoup the absurd amount of money they make their employers through the combined productivity of technology and automation.
Automation isn't any different than how the green revolution worked. You take the work of many and, with machines, are able to perform it with many fewer. The reason for basic income is that we, economically, have collectively agreed we don't need idle hands anymore. We don't have hay to bale, we don't have crops to pick, we don't have anything we are willing to spend a living wage on to pay anyone for to have them exert their meat bag appendages to perform basic tasks.
Which drops the floor out of the middle class, because as the article describes, the entire system of the 60s / 70s worker boom was the ability to walk into town and find a dozen windows looking for fleshy arms to move and interact with things. Today, your machines do that.
Principally, the solution is that everyone should have equal shares in all businesses and from there profit off the productive gains all this innovation and automation gives society. If everyone was equally invested in automated work that produced more than the labor is worth, and gained equally the fruits of this process, there would be no recession, everyone would be getting checks from the productive overhead of society. That would also drive up labor wages, because if you don't have to slave for food, you probably won't. If you have a choice, you will demand more for the trace menial work left, where every year more and more of it is being sent to obsolescence.
However, we don't have that. We have an absurdly imbalanced class system where the supermajority of people hold no assets of any form and live day to day on whatever they can scavenge, and we have very few who control the capital, infrastructure, and productivity, and also gain all its fruits.
I think the root problem is inheritance. Entirely. If resources were redistributed through the masses when someones life ends, then their remnant productivity goes back into the collective, and each person has an opportunity, from a foundation of plenty, to collect more of that prosperity and concentrate it for accomplishing great innovations or productive gains. If you can be born into wealth and plenty, it perpetuates the concentration of wealth and plenty over generations. The richest today can sometimes be traced back to the richest of a thousand or more years ago - prosperity breeds prosperity, and you get the cards stacked profusely in your favor when you are raised amongst plenty in a society of scarcity.
But just eliminating inheritance today doesn't solve the problem, because the problem is that too much is concentrated in too few. Inheritance caused it (in the way Bill Gates became the wealthiest man in the world by virtue of his parents already being wealthy, that combined with a brilliant intellect and probably well instructed business sense available only to the already prosperous was able to create Microsoft - so if you are born genius with rich parents, you have a much better shot at becoming the richest man in the world, though I won't argue there aren't outliers).
Likewise, I'm not arguing "boo hoo, Bobby got his Dad's millions and I just got the furniture and funeral costs". It is that by being privileged, and being able to pass that on to your children, over centuries, enables class, and that enables the powerful elite to out-compete the rest by virtue of status, and by having an elite, they can restrict new admission to prosperity through their own connections and back doors. They get not just the equity, they get the networking, which is cultural, and spans generations. If everyone got reset, the elite culture would be the entrepreneurs and geniuses that can move the world, not the ones who rolled a good set of birth parents and got beyond-world-class education.
So the problem at hand is how to peacefully get that absurd concentration of capital reversed, but market economics won't do it, because we are already beyond a threshold where consumers had any power in the relationship. Globalization infused the powerful with absurd amounts more markets to extract revenue from, and the article touches on this, but I don't think reaches the critical aspect - globalization enabled the privileged of small spaces to extend their reach, economically over the entire world, where previously they could only extend their reach in that way militarily.
So the problem is getting the prosperity of society back into the hands of everyone, because if everyone were investing, buying, and providing goods and services, the economy would be at its peak efficiency.
It isn't just employment that contributes to economic growth, it is the prosperity and wealth of everyone. The article documents clearly how debt artificially grew the economy, but that is the negative of wealth, and it stripped the middle class bare. Now we are entering another spree of concentrated wealth and the means of production by automating the creation of goods and services, so that whoever holds the keys to the machine makes all the money. That is honestly unsolvable in traditional economics, and the article also hits that - the economics of last century don't apply to the modern global economy, and you have to question your assumptions.
> Tax policy has a huge impact on expanding a business.
No, absolutely not. As someone who has run a small business, there is exactly one thing that made me hire a new employee: too much work (aka demand). That's it, period, absolutely nothing else. Taxes did not have a single thing to do with it. Barring tax policies far removed from everyday reality in the U.S., hiring a new employee to meet demand will always be more profitable than letting that demand go unmet (or to a competitor). On the other side, regardless of how lenient tax policy gets, no business owner will hire an employee if that employee is unnecessary to meet demand. This is Management 101 (I mean that almost literally, my degree is in Business Administration, but the actual class was probably 302 or something).
The new hire puts you up a tax bracket, and you lose profit to gain productivity.
Your immediate finances can't support adopting a new hire or division because tax proceeds from your profit margin limit your growth potential.
If you can immediately make a return on a new hire, with instant productivity gains and immediate bottom line improvements, yes, you absolutely make the hire. But that doesn't always happen, and in major skill movements across the labor market it never happens. You need financial capital to invest in broadening or transitioning your business rather than just increasing labor to meet more demand, principally because in this modern age it is easier to automate increased demand (circumstantially, but frequently) than to hire more workers to cover it. IE, if your market grows 10%, you might as well invest in a contracted software team to automate your systems to enable your current labor staff to be 10% more productive than to hire 10% more people.
That's not how tax brackets work. Tax brackets in the US are marginal, which means that the increased rate only applies to income above the threshold. It is impossible for an increase in income to be accompanied by a larger increase in tax burden.
(I guess I should mention that the Business degree came with a Professional Accounting option.)
I'm also a small business owner -- have been for several years now. I also have a number of business clients, and I'm active in my local business community. On this point, you're wrong.
Taxes are not my biggest concern, demand is. Same for my clients, down to the last one.
> The new hire puts you up a tax bracket, and you lose profit to gain productivity.
Not if you're sensible about how you price your product or services. Hiring should increase your profit, not decrease it; when you see businesses making cost-cutting layoffs, you're seeing adjustment caused by either a decrease in demand (sales & revenue) or by mismanagement ("fiefdom hiring").
> Your immediate finances can't support adopting a new hire...
If the phone started ringing off the hook right now I could afford a new hire within a week or two.
> ...because tax proceeds from your profit margin limit your growth potential.
Taxes aren't due until the next quarter. I suppose they "limit my growth potential", but so does every other business expense, including payroll. Hell, if I didn't have to pay anybody, I would have infinite growth potential!
> You need financial capital to invest in broadening or transitioning your business rather than just increasing labor to meet more demand
I think you are conflating a couple of different things here.
Taxes don't have a practical effect on capital for a successful business. Lenders and investors are happy to work with businesses that can provide ROI. Increasing labor to meet demand is something you do in parallel with other growth strategies, but for small businesses, they can often do just fine hiring an extra employee or two to meet demand without having to organize enterprisey growth strategies.
> principally because in this modern age it is easier to automate increased demand (circumstantially, but frequently) than to hire more workers to cover it.
what?
This is contrary to what I hear from every single one of my clients. Every one. I can see it being true in certain, specific cases -- certain industries, certain types of business maybe -- but as a generalization of all businesses in America, it is wrong.
I think you need to go and talk to a couple of local restaurant managers and feed them these lines. See what they think.
> IE, if your market grows 10%, you might as well invest in a contracted software team to automate your systems to enable your current labor staff to be 10% more productive than to hire 10% more people.
And spend more money on the contractors than you would on an equivalent number of employees, have a questionable long term support plan and/or ownership of the software, spend money on staff training, and, best of all, wait a minimum of six months to a year straining under the weight of increased demand (and pissing off all of your existing and new customers in the meantime) while the software gets built and then debugged and documented.
> If everyone got reset, the elite culture would be the entrepreneurs and geniuses that can move the world, not the ones who rolled a good set of birth parents and got beyond-world-class education.
I'm always skeptical when I hear this education argument. In STEM at least, it doesn't seem that you can get a better education just by throwing money at it (ignoring the fact that a lot of rich kids don't actually major in STEM fields). You can still learn world-class Math/CS/Physics/Chemistry even if you don't go to MIT/Stanford.
What exactly is this "beyond-world-class education" that rich kids get?
If you ask me, the major problem is that most people (from all social and economic classes) aren't interested or talented in activities that are productive at present (like STEM or Medicine), in addition to not being rich or connected. No amount of education can correct that, IMHO.
You're missing a lot of auxiliary factors when you just look at college, let alone a specific college program. The educational advantage rich kids get starts at birth. A huge amount of it simply comes from having parents that make you do homework, etc. You say that you can learn world-class STEM without going to MIT/Stanford, but you're presuming a hell of a lot of prerequisites there that the majority of poor people do not have. You say that most people aren't interested or talented, but talent doesn't have a damn thing to do with it and the reason they aren't interested is because nobody has ever helped them get to the point where it's interesting. The popular perception of math, for example, is about as distant from actual mathematics as you can possibly get. That is not the kid's fault, it's the fault of the education system and society at large.
> A huge amount of it simply comes from having parents that make you do homework, etc.
That's not something exclusive to rich people. I got a lot of encouragement as a kid from my parents to learn stuff and read books, without them being rich (grew up in Romania).
Money isn't the big factor in your argument, quality parenting is (which I agree is important).
I'd say hes giving a lesser example. Private tutors, the ability to acquire any scientific equipment you want, not having to worry about what your next meal is, not having to get a job at 14 to make ends meet in the family hurting your studies, private schools that do career tracks from 8 with career tracks per student rather than factory public school education, and like I said, more importantly than anything, the connections you get by being in the rich kids club from birth.
You get a stacked hand economically, culturally, and socially. We often focus on the economic part, but I think it is the other two that contribute way more to the status quo being limited upward movement from poorer classes to the wealthy / elite / prosperous.
Still sticking to STEM, here are my thoughts on each of your points:
> Private tutors
Not sure about these, don't know much about them.
> the ability to acquire any scientific equipment you want
If you're studying math/CS, how much of these do you need? Maybe for Physics or Chemistry, but even then?...
When I was a kid, my parents bought me a cheapo Electronics kit and I learned a lot about circuits from that and a couple of books.
> not having to worry about what your next meal is, not having to get a job at 14 to make ends meet in the family hurting your studies
I don't know that many Romanian kids with that problem, so I expect it's even less common in the western world (disclaimer: I currently live in the US).
However, I do see a lot of kids skipping school, acting cool and picking on nerds (and this is a global problem IMHO, not limited to the US or Eastern Europe). That's not poverty, that's just bad attitude.
> private schools that do career tracks from 8 with career tracks per student rather than factory public school education
Not sure about these either, never had contact with private schools.
> more importantly than anything, the connections you get by being in the rich kids club from birth
I think these matter a lot more in the legal and financial worlds. In tech, with all the startup money being thrown around, it's not that hard to get funding for an idea.
> You get a stacked hand economically, culturally, and socially. We often focus on the economic part, but I think it is the other two that contribute way more to the status quo being limited upward movement from poorer classes to the wealthy / elite / prosperous.
I personally know a few people from poor families who became tech millionaires in a decade or less, by starting their own company or working pre-IPO at a startup. While these are only anecdotes, they show it's not impossible to become rich. You do have to pick a high-growth field.
I think there's still a lot of mobility in fields where personal contribution and talent still matter, like technology, science and art (for example, you can still be poor and later become a millionaire, see Justin Bieber and Psy for recent examples). It's much harder to do this in finance, law and politics; but then again, hasn't it always been so?
> Inheritance caused it (in the way Bill Gates became the wealthiest man in the world by virtue of his parents already being wealthy, that combined with a brilliant intellect and probably well instructed business sense available only to the already prosperous was able to create Microsoft - so if you are born genius with rich parents, you have a much better shot at becoming the richest man in the world, though I won't argue there aren't outliers).
Keep in mind that Linus Torvalds became a multi-millionaire due to Linux [1].
It needs some work yet and is not terribly well written. But it goes along well with the original post, providing things for we (as individuals) to do that don't require massive policy changes that the article suggests.
Good luck getting any of that done in America with the current house of representatives. It is currently politically impossible to get anything done at all in Washington. Our current congress can't even vote on simple stuff like raising the debt ceiling.
Ironically but predictably, very few karma points are given. I'm happy to find this little gold nugget and the intellectual satisfaction that comes with reading it.