George Rebane

[This is the addended transcript of my regular KVMR commentary broadcast today 9jul14, two days early because this weekend the station is covering the World Music Festival from the county fairground.]

The Wall Street Journal is one of the remaining success stories in print publishing, this week celebrating its 125th anniversary since it was launched in 1889.  Today it is a global multi-media giant with over 2.2 million paid subscribers to its print edition alone.  They ran a huge section about what the future holds in their 8jul14 edition, having experts tell us what to expect over the next quarter century in everything from medicine, through personal technologies, to, of course the economy.

Hidden away in the middle of the big section was a little piece by Dr Larry Summers on the economic challenge of creating future jobs.  You remember economics professor Summers, former president of Harvard, and former Obama Treasury Secretary?  Well, the good professor has peeked into the crystal ball and seen that we have employment problems – trouble right here in River City.  It’s not just a temporary unemployment rate or workforce participation rate problem that our so-called ‘recovery’ will hopefully fix.  Nope, it’s the real thing – growing systemic unemployment across the land and into the future as far as the eye can see.  Actually, Summers was a bit more circumspect in his description, after all the article did appear in the WSJ, which seems to shy away from un-rosy views of our long term financial futures.

Listeners to these commentaries and readers of Rebane’s Ruminations have been apprised for years about the inevitable growth of systemic unemployment as advancing technology lets employers substitute intelligent robots and software for human labor.  But before going on, let’s understand what is meant by systemic unemployment, or as put more gently by the good professor, “Job availability is already a chronic problem in the U.S.” (more here)

So systemic unemployment growth is that unemployment which is baked into an economy, the continuing job losses combined with population growth that will never recover, that cause the unemployment rate to ratchet upwards permanently.  For obvious reasons we have always had some level of systemic unemployment.  There has always been a certain cohort in our working age group that for one reason or another could not find jobs.  But coming from a progressive soul, one that was part of the current administration, Summers adds a surprising zinger.  He points out that 50 years ago systemic unemployment was at about 5%, and then drops the “reasonable estimate” that over 16% of the prime age workforce will still be unemployed “if and when the economy returns to normal cyclical conditions.”  Did you catch the IF in that sentence?

Actually, that 16% is a low-ball estimate.  I have run and reported numbers that reasonably double that figure.  The economic mavens at the Mercatus Center of George Mason University, with whom I have had private discussions, agree with these projections.  To be fair, even Larry Summers admits that “If current trends continue, it could well be that a generation from now a quarter of middle-aged men will be out of work at any given moment.”  When you factor in the younger and older workers, then both of our numbers fly in pretty tight formation.

However, Summers and others of his persuasion see such workers as being “out of work at any given moment”, meaning that they come in and out of the workforce.  The real problem comes when you consider that almost all of these workers, once out, will remain unemployed for the rest of their lives simply because they don’t have the smarts to be re-educated to the required productivity level for any then available job.  That is the real problem of systemic unemployment, when your ability to contribute to society and maintain a dignified lifestyle becomes somewhere between very difficult and impossible.

Professor Summers and I both agree that this is where government intervention will be required.  But I’m afraid our individual nostrums to solve the problem will be quite different, and his won’t work.  In any event, systemic unemployment will be the social problem of the coming age.  Please join the continuing discussion of this on my blog.

My name is Rebane, and I also expand on this and related themes on georgerebane.com where the addended transcript of this commentary is posted with relevant links, and where such issues are debated extensively.  However my views are not necessarily shared by KVMR.  Thank you for listening.

[Addendum]  The above graphic was filched from the cited Summers’ article.  It communicates well the policy puzzle that systemic unemployment presents.  We note that this heavy burden must also be borne while standing in a quagmire.

From the gitgo Summers tells us that the millennial problem has been to produce enough stuff that people want, and then to “ensure that everyone gets their fair share.”  This sets the direction from which he will be seeking solutions; economists are good at devising ‘fair share’ algorithms, and progressive economists are really good at it.

But very quickly Summers turns to the problem at hand and identifies that producing enough stuff is no longer the problem, but “providing enough good jobs” will be.  The emphasis is his, but we don’t know what he views as a good job, but his government bureaucrat of the future will have no problem discriminating between good and bad jobs.

As expected, Summers believes in stasis like all good progressives.  His solution to the jobs problem is to have government “ensuring livelihoods of people who once worked in (you supply the job category, he uses agriculture).  To his kind it makes no never mind that certain kinds of jobs will be redundant in future years.  The government gun can insure that we keep idle farmers on farms, automakers in auto plants, just like we kept idle brakemen in cabooses for years after pneumatic brakes became standard equipment on trains.

Confusing the medium with the message, he blindly quotes the well-known line by browser inventor Marc Andreessen that “software is eating the world”, apparently because software is the current medium for executing computational algorithms.  (Actually, algorithmics is eating the world.  The software code is a throwaway that changes more rapidly today than ever.  In the near future adaptive computational structures that learn will implement manmade algorithms, and soon thereafter develop better ones the workings of which will be invisible to us.)

Summers correctly identifies “troubling trends” in the labor markets, some of which I highlighted in the broadcast piece above.  But the real details of how to look at how many are needed to produce, how many must then consume, and where will the money come from to pay for it all involves the indefinite and, hopefully, robust growth in an economy’s GDP.  I have expounded on the requirements for this in numbers and graphs (here and here), and the picture doesn’t look pretty.  (For a more complete list of postings and comments on the problem, please search RR with ‘systemic unemployment’.)

The bottom line is that we have no clue on how to grow GDP at the rates required to absorb the onslaught of new people seeking jobs, AND redistribute wealth so that the overall quality of life is not drastically reduced.  In these pre-Singularity years we can hope that this will not be a long-term problem, that smarter machines will be able to suggest (impose?) new social orders in which humans can live lives of dignified and meaningful plenty.  Any such solution will of need require some means of stabilizing earth’s population, and therein lies the rub.  Who gets to be stabilized and who gets to be ‘released’ (per Lois Lowry)

Dr Summers sees none of this in his crystal ball, but concludes with only a murky hope that at best hearkens to business as in yesteryear – “So the challenge for economic policy will increasingly be generating enough work for all who need work for income, purchasing power and dignity. What will this require? The role of government was transformed to meet the needs of an industrial age by Gladstone, Bismarck and the two Roosevelts. We will need their equivalent if we are to meet the needs of the information age.”

Sadly, as the industrial age advanced, the solutions for universal employment got worse, interrupted only sporadically by wars and by region.  The “two Roosevelts” did little to stem unemployment through public policy.  And the most recent of them was an unqualified disaster when it came to taking his inheritance from President Hoover to rebuild an awful economy and put people back to work as witnessed by the unemployment rates at his inauguration and at the dawn of WW2.  The attributed (here) SecTreas Henry Morgenthau’s plaintive plea to Congress in 1939 said it all.