Musings Report #32 8-11-13 The Systemic Crisis of Paid Work
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The Systemic Crisis of Paid Work
The systemic crisis that is on very few radar screens is the structural decline of paid work. Machines have been replacing or reducing human labor since the dawn of the Industrial Revolution, but the fast-evolving power of digital technologies is speeding up the process as jobs that were assumed to be irreplaceable by machines are increasingly exposed to labor-saving devices, processes and software.
As Marx observed in the late 1800s, whatever can be produced by machine with very little human labor falls in price as supply eventually exceeds demand: a mostly automated factory can produce goods 24/7, and any profitable market attracts competitors, pushing production higher and prices lower. We see this in digital memory, flat-screen TVs and many other markets for goods that are not restricted by monopolies or cartels.
Marx saw this dynamic as evidence that profits only flow from labor, and so production that eliminates labor is necessarily low-profit. Even if we disagree with his explanation, the reality is visible everywhere around us: once something can be produced in abundance, production soon exceeds demand and prices and profits plummet.
While production costs fall as digital processing power declines in cost, the cost of human labor rises as social spending on healthcare and other services rise: even if the base wage remains the same, the overhead costs for healthcare benefits and social taxes are climbing steadily. Couple this rising cost of hiring people with a low cost of capital that can be invested in labor-replacing technologies, and you have a powerful set of incentives to reduce labor and increase capital investments in technologies that replace labor and its associated social costs.
This creates a structural problem, as the majority of the revenues that pay for social spending are payroll taxes, i.e. taxes derived from labor (paid work) as opposed to unearned income from financial investments and rents.
The fantasy future envisioned in the 1960s was a world where people worked far fewer hours but enjoyed the same high income and low expenses of the 1960s. What was left out of this vision was the source of this income, and how it would be distributed if paid work declined.
The basic idea was that as machines did the work, humans would reap the profits. But this fantasy clashed with the reality that when automated factories can produce vast surpluses of goods, profits plummet. We can see this most readily in technology, where fully functional Android-powered tablets can be had for $45 in China: the profit margins in everything that can be automated drop to near-zero.
That means the tax base for the higher social spending demanded by higher expectations is shrinking on two fronts: companies in competitive markets are generating smaller profits and paid work is also in decline.
The Status Quo has resolved this by borrowing and printing money to fill the gap between spending and tax revenues. In the U.S., the Federal government borrows and spends about $1 trillion a year (deficit spending), and the Federal Reserve prints about $1 trillion a year ($85 million/month) that it pumps into stocks and bonds and thus into the financial sector.
U.S. Corporate profits are at record annual highs of about $1.9 trillion (12% of GDP), so an effective 50% tax on corporate profits (a political non-starter) might close the deficit gap, but this would only increase the pressure on corporations to lower labor costs.
As the percentage of the national income that goes to labor declines, the social taxes based on wages also decline. As household earnings decline, so does their ability to consume and borrow more money. This reduces demand for goods and services even as production of those goods and services rise.
These structural forces and incentives define "the end of (paid) work." We can see this structural decline in the falling percentage of GDP that goes to labor and in the stagnation of full-time jobs.
The present economic system is founded on wages (paid work) being the primary form of distributing national income and surplus to the populace. Other than wages, the only other distribution mechanism is welfare, which effectively pays people to not be productive because their skills and labor are not needed in the market economy.
As noted above, as digital technologies move up and down the food chain displacing labor, profits and payroll taxes both decline, yielding less tax revenue.
The Progressive vision is for the government to tax the productive sectors and people to pay the less productive to not work. But this is destructive on a number of fronts: work is not just about making money, it is the source of identity, useful skills and meaning. By removing opportunities for work, we deprive them of the means of identity, skills and meaning.
Taxing the productive to pay people not to be productive is a failed system. The productive eventually rebel at the increasing tax burden (by simply not working so much or retiring) and the spiritual drag created by declining opportunities for meaningful work demeans the unemployed and saps the economy and society of vitality and stability.
It seems to me that we will have to develop an entire new genre of work in the forgotten and suppressed community sector of the economy that broadens the opportunities for work and meaning, even if the work does not meet the market standards of high productivity/scarce skills.
The crisis in capitalism Marx foresaw is not just of speculative finance but of paid work, as wages as the means of distributing the surplus generated by the economy is in structural decline. Paying people to stay at home and watch TV is no solution, either; we need a positive alternative system, and at this point it is more vision than reality. That will remain the case until the present system devolves and implodes from its own internal contradictions. Once we have no other choice, an alternative system of work (perhaps based on micro-finance and micro-businesses) will arise out of necessity.
Market Musings
August and September are seasonally weak, and sentiment readings such as the VIX are indicating a high level of complacency and confidence that "buy the dips" will continue to be a surefire way to reap profits.
Beneath the surface of calm (everything's going great in China, the crisis in Europe is over, the U.S. economy is growing slowly but surely, Japan's Abenomics is succeeding, etc.), there is a sense that the slightest real-world tremor could topple the complacency. A number of key supports of the global market euphoria (the yen carry trade, for example) seem increasingly fragile. Some sectors and companies can do very well even as the market as a whole weakens.
The whole contraption seems to be held together by duct tape even as the usual suspects reassure the world everything is rock-solid. Perhaps, but why does one or another representative of the Federal Reserve feel the need to utter reassurances on a weekly basis? This suggests weakness, not strength.
The best thing that happened to me this week
As a writer of both non-fiction and fiction, the fiction-writing side rarely gets any attention (the great abundance of free stories and novels pose a challenge to new work). So when a reader stumbled across my story "How I Fell in Love with a Homeless Woman" and took the time to praise the story, it made my week.
From Left Field
The Urban Grid Management and Police State in China: A Brief Overview (via Maoxian) We have our own version of the Police State....
The Shanghai skyline, 1987/2013. Present-day Pudong looks like science fiction compared to 1987; we went up the Jinmai Tower in 2000, at the time one of the tallest building in the world....
The Miracle Belay: The Federal Reserve's QE programs: Ica Cap Management (via U. Doran)
"We must believe in luck. For how else can we explain the success of those we don't like?" (Jean Cocteau)
Thanks for reading--
charles
