Monday, November 14, 2011

Virtual jobs

I'm discussing Martin Ford's book The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future.

He believes that the structural unemployment caused by automation could tip the mass market into decline, as a matter of straight arithmetic.

And he stresses the importance of the mass market. Warren Buffet is never going to buy a million cellphones for his own use, for example. If you lose the mass market, you lose the bulk of consumer demand.

So he argues consumer demand is the fundamental necessity for the economy. Production is not the problem. Generating enough demand to sustain that production is.

What, then, is the solution? Ford proposes new taxes, especially on capital-intensive industries to reflect the negative externality they have on the mass market.

When a business eliminates a job as the result of automation technology, the income that was previously paid to that worker does not simply vaporize. In fact, it is redirected in two ways: (1) Some of the income accrues to the owners and managers of the business, and (2) some of the income is redirected to the consumers of the business’s products or services in the form of lower prices. Therefore, the government can recapture the wages from the automated job with some combination of two types of taxes. First, higher business taxes, capital gains taxes and more progressive income taxes on wealthy individuals can be used to recapture the income that goes to the business’s owners.

Secondly, some form of consumption tax could be used to recapture that portion of the lost wages that results in lower prices. This consumption tax might be a simple sales tax or a value added tax (VAT) similar to the ones already popular in Europe. It would also be possible to design a wage recapture scheme which de-emphasizes direct taxes on business and relies more on a consumption tax.

This much is interesting but not that unusual. Hundreds of tax reform schemes exist.

Of course many people would hate the idea, he says, because it seems more progressive, a sort of Robin Hood scheme to take from the successful and productive. But the wealthiest and most successful would lose if the mass market goes into a tailspin as well, he argues.

More interesting is what he says should be done with the money.

While it is conceptually not difficult to envision how the government might recapture lost wages through special taxes, it is much harder to design an effective way to direct that income to consumers in the absence of jobs. The lack of these incentives is a primary problem with current welfare programs. Welfare, as it is currently implemented, provides few incentives for self improvement and little hope for the future.

So government and welfare redistribution is not the answer, he argues. Instead - and this is a wonderful phrase - we need to create "virtual jobs".

A program in which everyone is provided with a relatively equal income—in return for doing nothing—provides no motivation for self improvement, no sense of self-worth and no hope for a better future. This is the problem with existing welfare programs. What we need then is a mechanism that provides for unequal (but not unfair) incomes. We need to synthetically recreate the rewards and incentives that are currently tied to jobs. ... Most importantly, we need to insure that the incentives built into the system motivate individuals to do what is best for themselves and for society as a whole.

At the most basic level, a job is essentially a set of incentives.

So the really important thing then becomes - what are the incentives? He proposes three main criteria - level of education, participation in "activities that enhance community, civic and cultural development. ", and reducing externalities like environmental damage.

It is, of course, easy to laugh or sneer at the idea that people should be paid to read instead of to work. But, as I have tried to point out here again and again, if we transition into an automated economy, we will have to pay people to do something—or we will have a general collapse of consumer demand.

He cites Keynes' Economic Possibilities essay, and concludes with ideas about transitional arrangements. There should be more work-sharing, more decoupling of benefits like heath care from employment, and more streams of income based on his alternative incentives. He then discusses the impact on developing countries.

It is the idea of a virtual job which is the really interesting thing here, where incentives are decoupled from production and exchange of basic goods and services. It is a different idea altogether from government planning or rights-based welfare transfers. It replaces the 20th century idea of the welfare state, which really did transfer money to people in return for nothing,

But it will encounter much of the same skepticism about government. People will fear elites will hijack the incentives to create a stifling liberal paradise - for a while - before it all turns into Greece.

However, I think there really is something very important here. It focuses attention on the incentives we believe we ought to have in society, rather than the labor market in isolation.

The problem is we have deep problems talking about incentives, because the standard liberal framework forbids discussion of ends.

I've argued throughout this blog that people need a new sense of purpose, and we need to think more about the fact that our economic needs change as we saturate our needs for basic goods and services.

This is one way to think about setting up society and a new economy for achieving broader stimulation, engagement and purpose, rather than maximizing the dollar value of GDP.

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