Friday, June 11, 2010

What if there's no fix for high unemployment?

The above Fortune article asks a brave question. The central idea of the article is asking the question of whether we may be reaching a point where technological progress is eliminating jobs faster than new ideas, products, and industries can replace them, leading to permanently higher unemployment. Anybody who dares assert that technology might just possibly in the long run have any sort of negative impact on employment is automatically an imbecile and/or heretic in many economic circles.

Of course, to the general public, the idea that technology which replaces workers will cause unemployment seems obvious. The reality is much more tricky. Because it seems apparent, but time and time again has wound up being false and there are models explaining why it's false, many people with the most fundamental economic education assume anybody who would make this observation, or hint that there might be something to this observation, must be some sort of ignorant rube. Over the last two centuries, technological innovation has been accelerating relentlessly, while populations have been growing exponentially, yet in the developed world we have generally been able to find employment for nearly everybody, with temporary exceptions during downturns in the economic cycle. When technology renders one type of job obsolete, another way has always been found to employ the labor of those displaced. This has been true for centuries.

For centuries, it was also true that US housing prices did not dramatically drop across the board. So it turns out centuries of observation is not adequate to formulate an unbreakable economic law. And given our historically high unemployment levels, I think it's fair to question this observation. Perhaps the observation will continue to hold and in a few years everything will be back to normal.

But one has to wonder just how many more productive uses of human labor we can come up with. We produce more food than the world can eat--though people go hungry because they don't have jobs to earn income to buy food. We have more houses in the developed world than we have families to live in them--though people go homeless because they don't have enough income. There are more cars in the developed world than people to drive them--though, again, not everybody can afford one. We have access to more entertainment and communications technologies than anybody could ever use. It is hard to think of anything for which there is a shortage in the developed world--with the exception of positional goods. Positional goods are things like "better" schools or "better" neighborhoods...items that only have value because they are perceived as more desirable than alternatives, even though the alternatives are perfectly adequate by objective standards.

In an absolute sense, there's very little that can actually be produced to add to the economy in the developed world. The best way to "grow" the economy is through the inflation of prices for positional goods. Higher education (which is better than secondary education) has seen skyrocketing prices even though there's little evidence today's graduates are much smarter than a few decades ago, health care costs (particularly at institutions deemed better than average) have skyrocketed while life expectancies (at least in the US) have barely budged, real estate costs have skyrocketed as people compete for the limited homes available in "above average" locations, spending on financial advise and products have skyrocketed as people chase better than average returns--and most investments have performed at rates near historical lows in the US.

In short, we're running out of actual wants and needs to meet by putting people to work. We've produced nearly everything anybody can possibly use, and we're simply competing to see who will get the "better" goods out of what is produced. At the same time, companies continue to find more efficient ways to produce these goods, which means less labor is needed to produce them.

It seems like at some point, we'll hit a wall where we realize there just aren't enough productive things for people to do to maintain anything close to full employment. Of course, that's been said before, and it's been wrong over and over again. But then, people who were worried about home prices dropping were wrong over and over again too...


Post a Comment

<< Home