unemployment

Post-Scarcity Economics by Tom Streihorst

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Tom Streihorst, a filmmaker and writer who publishes articles on finance and economics, pens an excellent essay titled “Post-Scarcity Economics” in The Los Angeles Review of Books:

We fly across oceans in airplanes, we eat tropical fruit in December, we have machines that sing us songs, clean our house, take pictures of Mars. Much the total accumulated knowledge of our species can fit on a hard drive that fits in our pocket. Even the poorest among us own electronic toys that millionaires and kings would have lusted for a decade ago. Our ancestors would be amazed. For most of our time on the planet, humans lived on the knife-edge of survival. A crop failure could mean starvation and even in good times, we worked from sun up to sundown to earn our daily bread. In 1600, a typical workman spent almost half his income on nourishment, and that food wasn’t crème brûlée with passion fruit or organically raised filet mignon, it was gruel and the occasional turnip. Send us back to ancient Greece with an AK-47, a home brewing kit, or a battery-powered vibrator, and startled peasants would worship at our feet.

And yet we are not happy, we expected more, we were promised better. Our economy is a shambles, millions are out of work, and few of us think things are going to get better soon. When I graduated high school, in 1975, I assumed that whatever I did, I would end up somewhere in the great American middle class, and that I would live better than my father, who lived better than his. Today, my son doesn’t have nearly the same confidence. Back in those days, you could go off to India for seven years, sit around in an ashram, smoke pot and seek spiritual fulfilment, and still come home and get a good job as a copywriter at Ogilvy and Mather. Today kids need a spectacular resume just to get an unpaid internship at IBM. Our children fear any moment not on a career path could ruin their prospects for a successful future. Back in the 1970s, pop stars sang songs about of the tedium and anomie of factory work. Today the sons of laid-off autoworkers would trade anything for that security and steady wage.

Most of us are working harder, for less money and with no job security. My father and I both worked at the same large corporation but there was a difference, a difference determined by our respective eras: he was staff, I was freelance. When he got sick, the company found him doctors, paid his salary, put considerable effort into his recovery. Had I ever gotten sick, they would have simply forgotten my name. He yelled at the CEO habitually without any fear of losing his job. I mouthed off once to a middle manager and was never hired again. He had a defined benefit pension paid for by the corporation, the government gave me a tax break should I choose to save for my own retirement. The company had legal and moral responsibilities to him, which both he and they viewed as sacrosanct. All they owed me was a day’s pay for a day’s work. His generation gave their you to a corporation, and the corporation took care of them in their old age. Today loyalty, if it exists at all, goes just one way. Many of my college buddies, are unemployed at 50, or earning less than they did ten years ago.

He discusses economics in the context of Paul Krugman, Keynes, and Alan Greenspan. Worth a read.

Germany: America of Yesteryear

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This piece in The Los Angeles Times highlights how Germany of today is like America in the 1970s:

In 1975, manufacturing accounted for about 20% of the United States’ economic output, or gross domestic product, about the same as in Germany today. Since then, U.S. manufacturing’s share of GDP has slid to about 12%.

In 1975, the U.S. budget deficit was a manageable 1% of the economy, about the same as Germany’s now. Last year, the U.S. deficit was about 10%.

American families in the 1970s and early ’80s typically saved about 10% of their take-home pay, about the same as in Germany today. The U.S. savings rate these days is in the low single digits.

There story follows a couple in their 50s, the Krugers; the couple has two children. They have paid off their debts and are living much better on a combined $40,000 income than most Americans who earn twice as much.

On More Servants

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Megan McCardle, over at The Atlantic, answers the question “With so many unemployed, and income increasing faster among the affluent, why aren’t people hiring more servants?” It’s an interesting thought experiment. The answers:

1.  Various forms of public assistance, and wealthier families, have increased the reservation wage.  A servant in 1900 worked at least 10 hours a day, at least 5.5 days a week, and according to our archives, cost at least $25 a month for a “passable” one.  Many middle class people could probably afford to pay about $500 a month, plus a room and some food, for someone who would take care of all the housework, all the time.  But how many Americans would work for such a sum?  Our house was built in that era, and either they didn’t have live-in servants, or the help was sleeping in a pretty gnarly unfinished basement.  You’d have to be fairly desperate to take the equivalent job today, and almost no one is that desperate.
2.  There’s a tax wedge.  If servants were more common, the IRS would be more assiduous about auditing for payroll taxes, etc.  (Already a problem for working women with nannies who end up in public service). My mother actually paid taxes for her cleaning lady, and it was not only expensive, but an administrative nightmare–somehow, the numbers never added up right, the paperwork got lost, etc. Taxes reduce the differential between the value of your labor and someone else’s, because you don’t have to tax you.
3.  Regulatory overhead  See above.  The modern labor regulatory system is set up to deal with corporations, not individuals contracting for informal labor.  Either the work ends up in the gray economy (illegals), or it’s contracted out to companies that can amortize the regulatory overhead over a lot of workers (Merry Maids)
4.  Management. Workers have to be managed.  They leave.  (Hance Saki’s memorable epigram: “She was a good cook, as cooks go.  And as cooks go, she went.”)  They need to be replaced.  Sometimes the replacement doesn’t work out.  All of this takes time.  For the mistress of a house in the era before labor-saving appliances, managing servants was undoubtedly more pleasant than scrubbing the coal scuttles. But it was a job.  And many high-paid women in the sub-Gates class have full-time jobs; they don’t have the time to take on full time employees.  A large servant class may have presupposed the existence of a large class of women at home.
More here.