Monday, September 5, 2011

When Jobs Disappear for Good

Work's Disappearance Signals the Start of a New Economy
By Son of Bastiat

Today September 5, millions of Americans take a day off in observance of Labor Day, the one day in in the year when they pause to think about the nature and prospects of the task that engages their time and attention more than any other. It will not be a positive assessment given the dreary facts and prospects pertaining to US employment; last Friday the government reported zero job growth. But as this essay will attempt to do, such introspection can also provide the perspective so necessary to survive this looming (and inevitable) tragedy so man can face a future wherein work finally disappears.

Some Dimensions of this Problem

While this essay focuses on American employment performance, its conclusions have universal applicability – some of the trends identified here have earlier been observed in the UK, then in Europe and Japan, and now in the US as well; it will also become the fate of China, Korea and the rest of the NIEs as their economies mature. One cause is demographics (“the quiet leveler of all proud peoples”); others are subtle changes in cultural attitudes towards work, as well as in the fundamental assumptions that underpin the market economy. While this conveys a flavor of inevitability to this problem, in fact the causes run deeper, all the way to metaphysical issues that sages have debated for the last 2000 yrs. 

For one, the US true unemployment rate is not the 14 million who are not working (for 9.1 %) that makes the news, but the 16.5 % that doesn’t. This higher figure includes 8.8 million part timers (5.7%) who report themselves as “actively looking for permanent work but can’t find one”, and a further 2.6 million (1.7 %) of frictionally unemployed folks who have stopped looking for work because they have given up or are sorting out problems that keep them from looking for either part or full time work. In the underdeveloped countries, reported unemployment rates usually hover between 10-15 %; unofficial rates that include under and frictionally employed could reach up to as high as 30-40 %. Dry statistics on unemployment describe but one aspect of this multi-faceted problem but not its meaning.

For another, absolute numbers of unemployed and unemployment rates omit what labor economists call the “growth elasticity of employment” meaning the responsiveness of job creation to the growth of the overall economy. The author has not calculated the post-recession values for the US but at the last time he did (back in early 2000s) this was less than 1.5 (ie, a percentage increase in GDP creates less than 1.5 % in new jobs); and more problematically, this has been on a secular decline from 2.6 to 2.2 and then 1.7 from the 80s to the late 1990s. This figure could only have worsened to perhaps less than 1.0 immediately after the onset of the financial crisis; with today’s 1.5 % GDP growth, employment could be growing at less than 1 % if not fairly close to zero.

Just like its capital-to-GDP counterpart, these statistics serve handily for sizing up the relative efficiencies of alternative job creation proposals. Had the Obama economists done their homework, they would have had second thoughts before pushing for the $ 787 billion stimulus that flopped miserably, in some instances spending $ 500,000 to $ 1 MM to create a single job. This stickiness of job creation has structural and institutional issues that underlie them. Why the Obama administration believes that another $ 250 billion of stimulus spending will finally nudge employment growth is a sign of their desperation, akin to throwing money to see if something sprouts.

The Negative Forces Behind Unemployment

In increasing orders of “controllability” the following are the principal causes of the current (and most recent) unemployment problems:

a). Recession. Naturally, the slump in economic activity should explain the largest and most recent drop in job creation performance. The post-crisis US economy which is now clocked as growing anemically between 1-2% is the dominant reason for its lackluster job creation performance (both due to real job losses and slow job growth relative to its long term norm), which are entirely two separate things even though they are caused by the same economic weakness. It is interesting to isolate though, how much of US’ dismal job creation is due to the recession, and how much is due to an apparent slowdown in the global economy as well – which based on Maddison’s secular studies have declined from 2-3 % prior to 1970s to less than 2 % since then. This latter phenomenon, seldom factored in job creation programs, underscores the even more intractable nature of job creation in today’s highly globalized economies.

b). Structural/Frictional. Many studies of long term job creation have identified a core amount of a country’s labor force that will never leave its “unemployed” or “underemployed’ workers’ ranks. In the post-recession US economy, this rate hovers at a high of 45 % of the total labor force, a figure likely to be skewed by the excessively bad economy, but in the past has stayed at around half that figure. This rate though has crept upwards from single digits (during the 60s boom) to the low double digits (12-15 %) of the 80s, to the middle 20%s range since late 90s. The main reason for this is globalization’s leveling effects on wages and benefits, wherein newly hired and lower paid (relative to developed nations’) workers in emerging and developing countries act as an overhang (a put option) on the latter countries’ abilities to hire workers at higher wage and benefit levels. A similar but difficult to quantify factor is the palpable deterioration in Western cultural values and attitudes towards work, which have tended to increase supervision and hiring costs (due to worker lifestyle and location choices). Together these propel the arbitraging of work offshore, and the trend towards contingent (part time) jobs domestically. 

c). Policy Errors and Hubris. A very odd but quite powerful contributor to long term unemployment is the predilection of politicians to design and emplace policies that adversely affect incentives to create jobs and/or maintain them. Mainly these policies inhibit hiring because of their impact on costs (of legal compliance and job compensation) but recently the uncertainties stoked by regulations and government interference in the private sector have outweighed even those costs, which are difficult to pass on to consumers. Obama’s recent policies exemplify this job destroying and job growth inhibiting tendencies: Obama Care which will greatly increase employers’ staffing costs; air quality standards that will saddle factories’ with higher operating costs and capital outlays; prohibition on oil drilling and transportation which will make the US hostage to extortionate oil prices; onerous reporting burdens and compliance costs in order to track cash transactions and implement a VAT type tax (both of which were fortunately abandoned). But of even more serious import to business are the current administration’s heavy handed and unprecedented interference in private business in such matters as: cramming down and brazenly eliminating creditors’ interest in the Chrysler restructuring; the forcible bearing by businesses and households of high energy costs in order to subsidize alternative energy; the decision to penalize Boeing for trying to take its aircraft assembly operation to a “right-to-work state” and lately suing to intimidate banks for alleged fraudulent sales of MBS to FHA and Fannie/Freddie, on top of earlier policies to control banks’ internal compensation policies and operations through restrictive laws like Dodd-Frank which along with SarBox have discouraged risk taking and innovation, and likely explains their reticence to lend to businesses. Few of these concerns seem to deter with the bureaucracies that push them aggressively.  

It must be frankly admitted that some of these policies have great merit in light of evidence showing that ineffective enforcement (of existing regulations) have contributed to the financial crises and the worsening of the environment. But sudden implementation and even more seriously, incorrectly timed and non-transparent (intimidating) enforcement calculated to please interest groups such as unions and environmentalists, have created so much uncertainty and hesitation among businesses to create jobs that further hampered the recovery of the US economy. It is seriously indicative of a severe dearth of experienced business hands in the Obama administration, a further indictment of its naivety and hubris if not delusiveness about the real prospects of reforming US society under the dire situation it is in.

These three negative forces conspire to artificially eliminate work before its naturally sanctioned time.

The Final (Positive) Destiny of Work is Its Disappearance

All the preceding factors can be viewed as “cyclical” in the sense that much of their adverse impacts on employment could quickly ease up once the global economy snaps out of its funk and leaps onto a higher growth trajectory. While this happens every now and then (“cyclical”) the chance of this event secularly persisting, while not zero, is not very high, as Angus Maddison’s long term (from 1000 AD) growth studies have shown. If this is correct, then a sustained growth of jobs is itself a chimera. The only task remaining is to explain why this is so, and the author believes that ultimately the reason is rooted in technological and metaphysical forces that are happening beyond anyone’s power to control:

       i. Dematerialization. The world has entered into a phase (of its evolution as a cosmic entity) whereby growth is no longer anchored on increasing consumption of material goods and processing of resources as had been its mode since the Industrial Revolution. It is too soon to say that this confirms what mystic writers have divined ten centuries ago, whereby increasing intelligence and not materiality will be the driving force towards the final destiny of the cosmos. As employment is but the tangible result and manifestation of materiality, it should thus be expected to decline and diminish in the long run future.

       ii. Speed and Mobility. The accelerating rate of change (that dematerialization makes possible) is nature’s way of coping with the complexity that poses as the ultimate challenge to human intelligence. Unfortunately, such speeds as are made possible by the internet also cut out the intermediation and value of information that provides the last refuge for job seekers (if they have not been eliminated by reducing the length of the work cycle and physical stocks that are essential for dealing with uncertainty).    
      iii. Automata. A culmination of the trend towards increasing complexity and intelligence it is the final process that will abolish work, and it occurs when most human activities are performed by robots and mind-machine interfaces so that the only labor needed will be that which is required to maintain these man-machine systems, health, artistic expression and entertainment (human creativity). There will be no other need for work and consequently work will not serve the same purpose as it has served man so far – the means for survival. Instead, work will serve as the creative vehicle for expressing man’s quest for perfection. At this stage after de-mass and velocity have eliminated work, only creativity remains.   

Since life did not endure eons of severe mutation and selection pressure only to vanish meaninglessly, there must be something superior that will make it possible for Man to survive after work disappears.  After all, Nature abhors a vacuum and perfection is an upward (never downward) moving spiral. What exactly is this ingredient the absence of which will mean that the 14.5 billon year Cosmic Experiment must have all been for naught, or at best a burst of randomness?  

The Natural Forces that Will Replace Work (After Jobs are Gone)

It all seems so far-fetched considering the problems sprouting all around him but if one thinks about it deep enough considering the above premises, there is only one logical outcome for modern Man: he can only go so far by dividing the remaining work to its even more basic elements (hoping to somehow “spread” it but at the cost of greater loss of satisfaction and meaning. Ultimately he will have no choice but to change himself and society’s (including the economy’s) basic foundations beginning from purpose to means, to make him survive in a dematerialized, volatile and uncertain world. He must do this because such a change is needed to offset the negative forces that made work disappear unnaturally.

The author has come to accept what seems strange to say especially in this Age of Separation (between Matter and the Spirit) but it is really nothing else but the transcendent values of love and concern for fellowmen that will let man survive the loss of employment and fill this huge void created as the cosmos hurtles towards its destiny. A society and economy restructured along transcendent lines will not only dispense of work but banish this materialistic concern for survival. Weird it sounds but quite very logical.

P. T. de Chardin called it Spirituality. Only a sense of wonder and utter amazement constrains the author from using this term lightly; despite all the flourish that came with it, it all refers to one and the same thing: God who made Man to work by the sweat of his brow if he wanted to survive, is now showing the path to perfection by eliminating that albatross around his neck called work.

Work, especially at meager wages, rather than liberating (“Arbeit macht Frei”) man, has actually condemned him to obscurity.    

Copyrights: VRR@NYC@2011