Why Economics Is Like a Horror Movie

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It seems that no matter what is done, no matter how many articles are written, how many books are published, how many lectures are given…some economic fallacies never die. They keep coming back, every time scarier than the last. And so it did today, right on the top of the front page of the Idaho Statesman (or Statist-man). It has the fearful title of “Millions of jobs lost – forever“. And what is the culprit? The Great Recession and technology, of course, but mostly technology.

Here are some choice excerpts:

Year after year, the software that runs computers and an array of other machines and devices becomes more sophisticated and powerful and capable of doing more efficiently tasks that humans have always done. For decades, science fiction warned of a future when we would be architects of our own obsolescence, replaced by our machines; an Associated Press analysis finds that the future has arrived.

“It doesn’t have political appeal to say the reason we have a problem is we’re so successful in technology,” says Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University. “There’s no enemy there.”

Unless you count family and friends and the person staring at you in the mirror. The uncomfortable truth is technology is killing jobs with the help of ordinary consumers by enabling them to quickly do tasks that workers used to do full time, for salaries.

Use a self-checkout lane at the supermarket or drugstore? A worker behind a cash register used to do that.

Buy clothes without visiting a store? You’ve taken work from a salesman.

Click “accept” in an email invitation to attend a meeting? You’ve pushed an office assistant closer to unemployment.

Book your vacation using an online program? You’ve helped lay off a travel agent.

I could just leave this to Henry Hazlitt, who destroyed this and many other economic fallacies in his 1946 classic, Economics in One Lesson (the relevant chapter here is Ch.7, The Curse of Machinery). I would urge everyone to check out his book if they want to gain a basic understanding of economic reasoning.

Hazlitt does not exaggerate when he uses the term “technophobe” as made clear by the writers of this article. Indeed, they say we are now in a dystopian future where we are “replaced by our machines.” Not only that, but the article is saying the YOU, the reader, are the enemy! You’ve taken work from a salesman! You are responsible for the unemployment of an office assistant! You’ve helped lay off a travel agent!

Hazlitt details numerous examples in history where people feared unemployment as a result of labor-saving devices and yet employment in those industries increased. But perhaps even more important, he recognizes that no number of appeals to history will suffice unless we understand why it was the case, “for statistics and facts are useless in economics unless accompanied by a basic deductive understanding of the facts…” (Indeed, Hazlitt anticipates the authors’ inclusion of the rebuttal that “this time is different.”) This is why logic is so important. If the authors of this article thought through the implications of their statements, they would find it would only result in absurdity.

To see why, let’s take their logic further for them. If you buy clothes at all, it is likely that the materials they are made of were harvested by large farm machinery, instead of a laborer with a hoe (which is itself a labor-saving device over using one’s hands), that they were made  with the aid of a machine, instead of full manual labor, and were transported by truck, instead of by wagon (or even better yet, a band of walking carriers since a wagon is also a labor-saving device). Look at all the people you have put out of work, you fiend! Literally, all acts that do something more efficient are to be seen with disdain, if Bernard Condon and Paul Wiseman are to be taken seriously.

It should be quite easy to recognize that technology and capital equipment make labor more productive, which makes goods and services cheaper and raises our standards of living.

What is interesting is that Condon and Wiseman almost stray near a better explanation of part of the unemployment problem, but then pass by it obliviously. Notice how they talk about small business being an engine of job creation:

Historically, new companies and new industries have been the incubator of new jobs. Start-up companies no more than five years old are big sources of new jobs in developed economies. In the U.S., they accounted for 99 percent of new private sector jobs in 2005, according to a study by the University of Maryland’s John Haltiwanger and two other economists.

But even these companies are hiring fewer people. The average new business employed 4.7 workers when it opened its doors in 2011, down from 7.6 in the 1990s, according to a Labor Department study released last March.

And then they have this:

Entrepreneur Andrew Schrage started the financial advice website Money Crashers in 2009 with a partner and one freelance writer. The bare-bones start-up was only possible, Schrage says, because of technology that allowed the company to get online help with accounting and payroll and other support functions without hiring staff.

“Had I not had access to cloud computing and outsourcing, I estimate that I would have needed 5-10 employees to begin this venture,” Schrage says. “I doubt I would have been able to launch my business.”

Hmm…so entrepreneurs are creating businesses with the help of technology (that they claim they wouldn’t be able to do without) and are hiring fewer employees in doing so (because they wouldn’t have been able to launch with such an expense). It would seem to be the case that the costs of employing people has increased. And why? Maybe it’s because of increases in payroll taxes, regulations requiring employers to provide health insurance, those types of things. Obviously they are not costless. Governments do many things that increase the cost of hiring employees.

Above all, I think we need to remember the following lesson: jobs are a means, not ends in themselves. We don’t work for the sake of work, we work to produce goods and services so that we can consume them. If we can produce the same amount of goods with less work, or more goods with the same amount of work, or more goods with less work, then we have gained. This is economic progress. This is why we don’t have to work 7 days a week anymore to make a living. Let us finally kill this fallacy of the curse of technology.

 

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5 responses »

  1. I do agree with most of what you said. Although I do believe that there are, maybe currently, technological transition periods where the economy on the aggregate is re-equaliberating (if I can use that word :P). It may have an effect on the number of jobs within a particular market; however, there is always demand for problems, and technology always introduces new ones.

    • Of course, economic adjustments aren’t instantaneous (if they were, we would always be in a state of equilibrium). There are transition periods and some people may have to find work in new industries. But in the long run, everyone is better off because goods are being more efficiently produced.

      No one laments that American farmers aren’t in the fields with a plow being pulled by an ox, that there ought to be more employment in agriculture if not for technology. We can see how silly such an idea is from our vantage point in history, just as people in the future will see how silly it was that people today are lamenting that human labor is no longer necessary for tasks that can be automated.

  2. “Hazlitt details numerous examples in history where people feared unemployment as a result of labor-saving devices and yet employment in those industries increased.” How does employment in these industries increase? Will employment always increase.

    • It is not always the case that employment in those sectors increases, but this should not be thought of as a bad thing since, as stated above, requiring less inputs for more outputs is economic progress. As such, I can make no a priori statement as to how employment in such industries increases. But I can offer some plausible examples, such as when Henry Ford introduced the assembly line method for manufacturing automobiles. His innovations were able to dramatically decrease the cost of owning a car, so much so that industry demand for labor increased. In other words, it could likely be the case that an innovation that makes a former “luxury” item affordable for the masses also increases the quantity demanded so much so that the only way to meet such demand is to increase the amount of labor employed in its manufacture.

  3. Pingback: Automation: Destroying Jobs or Creating Productivity? « Laymanomics

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