Sunday, October 18, 2015

How Rising Productivity Destroys the Economy, and What to Do About It

What Is Productivity?

Labor productivity is defined by economists as dollar value of output per unit of labor input, which is perhaps a useful way of looking at things, but not the way a normal person would think to define productivity. Rather, one would more likely think of labor productivity as a measure of goods or services produced per unit of labor input. The difference might seem of minor importance but it is not, for productivity measured as dollar output per labor input, which I will call financial productivity, is not closely correlated with, and may even be negatively related to, productivity measured as output of goods or services per unit of labor input, which I will call real productivity.

How Raising Productivity Destroys Jobs

The industrial revolution initiated a trend of increasing real labor productivity that continues to this day. The consequences within free market economies have been profound. Technological innovation increases real productivity with a cascade of further consequences that can be envisaged by consideration of Adam Smith's nail factory. Initially, each worker produces, say, 100 nails per day, which sell for a penny a piece. Then an entrepreneur builds a nail-making machine that enables each worker to produce 200 nails per day. Initially, nails still sell for a penny a piece, but soon other nail manufacturers copy the new technology and there is a glut of nails. Workers are laid off, while competition drives the price of nails down. Eventually, the market stabilizes with prices down by something like 50%, as also the number of workers employed in the nail-making industry. The end result is thus a doubling of real productivity (output per worker) but virtually no change in financial productivity (sales per worker) because the price of nails has been driven down.

How Innovation Creates Jobs

Fortunately for his erstwhile colleagues, an unemployed nail-maker invents a nail gun and employs the other laid-off nail-makers to manufacture the new product. Now everyone's happy, everyone's got a job, but nails are much cheaper. What's more, real productivity of roofers, home builders, and coffin-makers has shot up as the nail gun raises real productivity in these and other trades. And so it goes, with every new invention raising real productivity, thereby driving prices down, while releasing workers to be employed in the provision of other newly invented goods or services. But except as a result of monetary inflation, increasing real productivity may be unaccompanied by significant increases in financial productivity, as in the case outlined above and as also in today's rapidly innovating Western economies.

When Job Creation Lags Job Destruction

But what happens if real labor productivity rises faster than new employment opportunities are created? There's no law of economics that asserts that labor made redundant through real productivity improvement in one industry will automatically be employed in some newly created industry. And any substantial expansion in the pool of surplus labor means an economic contraction as the buying power of the unemployed shrinks, which in turn will lead to a vicious circle of further unemployment leading to further contraction in workforce buying power.

Job Destruction As the Prime Objective of Innovation

We are now at that point in the cycle where rising real productivity of labor is rapidly outpacing the demand for labor in newly created industries. This is not surprising since much of today's innovation is expressly aimed at reducing the need for, and hence the cost of, labor, with a resultant redistribution of income from workers to their employers. Computerization, automation, robotization are not only eliminating jobs in existing industries, they are creating new jobs for which only a small proportion of the unemployed workforce is qualified. The workers needed are engineers, programmers, designers and highly skilled technicians, not former shoe-makers, garment makers, snap-together computer assemblers, and store clerks. Moreover, with advances in artificial intelligence, the need for even highly skilled workers is likely soon to decline.

How Globalization Intensifies Western Job Destruction

The consequence of the present trend in industrial and commercial innovation is a growing army of the permanently unemployed, a problem hugely exacerbated in the West by the offshoring of low skill jobs to Asian sweatshops employing children for pennies an hour (or for adults, something like $17.00 per day, but still nowhere near enough to live on in America or Europe.). In America, alone, the army of the unemployed who want to work totals perhaps 50 million people among the 95 million working age adults currently not working.

Governments Responses to Mass Unemployment: Pump Priming, Money Printing and War

Traditionally, Western governments have responded to high unemployment by borrowing or printing money and creating jobs with public works projects, expanded bureaucracy and, in dire circumstances, going to war. In the modern era, war is, from an economic perspective,  the best solution, since it increases labor demand as all available resources are deployed for the destruction of the enemy, while enemy action destroys one's own productive resources, thereby reducing real labor productivity and hence further adding to labor demand.

Why War, Other Than a Nuclear Holocaust, Won't End the Great Western Depression

So what next. War seems a real possibility, but it won't actually solve today's unemployment problem (unless by killing most of the population in a nuclear holocaust, an outcome that the insaner members of the elite probably consider desirable), since most of the unemployed lack the skills to serve either in an increasingly high-tech professional military or in the defense manufacturing industry.

Minimum Wage Laws a Counterproductive Response

The problem of mass unemployment is further exacerbated by stupid liberals who salve any pricks of conscience they may feel as they go about destroying the jobs of their compatriots by promoting unrestricted global free trade and mass immigration, legal or otherwise, by advocating for some ridiculously high legal minimum wage, which create more unemployment, since those whose labor is worth less than the elevated minimum wage are denied the possibility of work.

What Else Might Happen

Third-Worldization: Briefly, this solution, which I have discussed elsewhere, is the policy prescription of the treasonous ruling EuroAmerican elite fronted for by the Clintons, the Bushs, Obama, Blair, Cameron, Merkel et al. Their idea is to bring the most energetic and intelligent Third-Worlders to the West and let them drive down wages and destroy the solidarity of the indigenous working people, while at the same time the educational-news-propaganda complex undermines the fertility of the working people by promoting all forms of non-reproductive sex. That way you get the best labor for the lowest cost, with wages falling eventually to, say, 75 cents an hour, and a population incapable of political organization in its own interest that ultimately wastes away as a new era dawns in which an owning elite are served by an ever diminishing population of technicians, servants, dancing girls, masseuses and concubines.

The Trump Solution: Trump's promise to American workers is to stem the tide of illegal immigration that fuels the underground economy that robs American citizens of jobs, while creating a tariff wall to protect American industry from competition from Asian sweatshops, and providing tax incentives to encourage investment in American industry. There is no reason to doubt Trump's sincerity in this, since it is in his interest, as a builder and resort developer, to raise the prosperity of his mainly American customers. Many other large American owners of capital are in the same position. WalMart, for example, though they have profited mightily from organizing the distribution of Asian sweatshop products in America, can as easily profit from the hyper-efficient distribution American made products, if American-made products are, after the tariff, cheaper than Asian-made products.

Trump Plus: Includes the Trump Solution, which is to say an end to free trade with input factor mobility, a term explained here, leading to the return of off-shored jobs to the US and the EU, plus two other elements:

First, an end to minimum wage laws. 

Second, a reverse income tax or an income supplement to ensure all workers, however low their wage, receive a living income, a proposal I have spelled out here, and elsewhere. The result of this provision would be to allow entrepreneurs in the West to compete on a more or less level playing field with operators of off-shore sweatshops, but without forcing their workers into dire poverty.


CanSpeccy: Barbgate: How Western elites opened the gates and what to do about it

CanSpeccy: Even balanced trade between the West and Rest threatens your job

CanSpeccy: GLOBALIZATION IS GOOD (For the Rich)

CanSpeccy: Exporting the economy

CanSpeccy: How globalization is destroying the livlihood of Western youth

CanSpeccy:Who stands for Canadian Sovereignty? Not the Conservative Party of Canada

CanSpeccy: Why China Booms While America Slumps

CanSpeccy: When a Pair of Hands Is No Longer Worth a Living Wage

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