You know what else takes jobs away? Free. Free apps. Free website. Free TV shows. Free movies. Free music. Free video games. The customers start to be conditioned to the word 'free', and slowly refuses to pay for anything in those categories. The cumulative market shrinks as result, leading to more companies shutting down and more layoffs.
Oh, but there's advertising, one say. And there's the unlimited amount of venture capital funding these 'free' companies. Well, if we keep losing jobs in valuable sectors because we keep giving things away for free, how will people pay for products that will sustain advertising budgets in those companies? Will we just keep selling advertising to each other? And at a certain point in the economy, consumer is more conscious about price than brand (like now), in which case advertising will start to falter.
So the next time you give away products for free, you should think about whether or not it'll cause you to lose your company/job in the future.
at the same time, you're describing an economy generating a whole lot of wellbeing and welfare. Unemployment and redundancy are dirty words, but if part of a stable economy generating what we need, perhaps we should reconceptualise redundancy as a good thing? Individuals have always wanted robots doing our chores so they have more time with our families. Can't society think the same way?
Perhaps in a perfect world, we won't need jobs or money. But in our current state/world, we (everyone in the world) still need jobs and money for limited resources to survive like energy, clean water, food, stable infrastructure, materials and people's time. And everybody is competing for those right now, hence worldwide inflation and companies/governments reducing jobs to stay afloat.
Your reply was regarding efficiency. My reply has to do with free. Let me put it in an example. Electric cars are more efficient than gas vehicles. So consumers switch to electric cars. Those workers whose jobs were rendered useless transitioned into higher knowledge jobs in the electric cars industry. There might be more jobs in the new industry. And customers will likely pay the same amount for the new electric cars (IMPORTANT: demand, the willingness to pay for said utility, still exists). So net loss is neglible. As for the oil/gas industry, the consumer pays for less oil/gas for their cars, so the oil/gas industry switches market to focus on other utilities for their oil/gas.
On the other hand, if the electric cars were free !? People would not have to buy cars ever anymore. Therefore an existing market was destroyed.
But I don't have to explain this to you, you spent lots of money on your economic classes!
In theory, all those jobless people would now also not need to buy cars and could spend the savings on learning a how to do the new jobs created by all that extra money that's being spent on stuff besides cars.
In reality, changing careers is hard. Fortunately the government supports this some with low-interest loans, unemployment benefits, etc. Yet evidently it's not enough.
I'm not even sure where to begin on your confusion here.
1. Firstly, efficiency concerns the ability to more with less. Zero is less, and there's no reason why zero is substantively different than paying $0.01 per car - it's on a continuity that affords the same analysis. So saying you reply "has to do with free" speaks absolutely nothing about my initial arguments focused on efficiency.
2. Money is a veil. Like the discredited mercantilist beliefs century ago, you're confusing output with money. What matters for prosperity is the quantity of goods and services being produced in an economy. You may not realize it, but your argument is essentially granting authority of money over output in estimating prosperity. Output - the actual goods and services produced in an economy - is what matters (and the consumption we enjoy therefrom), not whatever dollar value we assign to them. This by the way is an extremely common confusion among non-economists, so don't feel bad about misunderstanding it.
3. Since you seem so fixated on this concept of "free" sidestepping my arguments, let me take your analogy and present another similar one. Imagine that it's the year 1910 and the price for buggy whips is $25, with a thriving industry producing them. It's already clear that I'm claiming efficiency improvements resulting in a price reduction is a good thing. Now let's introduce your concern: buggy whips are free! "Therefore an existing market was destroyed." Yes, this market would be destroyed. And in fact it was - buggy whips were free in the sense that cars displacing buggies simply did not require them. There is no economic difference here. Yet no one with the knowledge of hindsight today wouldn't even think about arguing that the production of value which is essentially "free" in that case is something "bad", and it's not clear whatsoever that there is some net decline in jobs (in fact all evidence points to this being precisely the opposite - touched upon by your point "There might be more jobs in the new industry").
4. Speaking of net decline in jobs, I'm disputing this being necessarily a problem at all. To say otherwise is to ignore trade-offs and categorically value one thing over another as a society. Jobs are another thing people routinely confuse with prosperity, and they also tend to believe that they are somehow assets instead of transactions. It's like saying "buying a car" is an asset, instead of the car itself. With labor, the software we produce is the asset, not our job that allows such production to take place via a quid-pro-quo. If I could purchase everything I wanted to live by for $1, I'd only work one hour the entire year doing some freelance, and not have a job. Is "not having a job" bad in that sense? Not really - but the point is it depends on the amount of consumption I'm able to enjoy, and the job is just a transaction that effectively grants me consumption purchasing power. It's the seen vs. the unseen that makes thinking about these issues (and really most things in economics) very difficult.
5. You made an important point about willingness to pay, but drew the wrong lesson from it. You seem to think that having a high willingness to pay and a low price ($0 in your example) is a bad thing, but this is precisely the opposite of the truth. In fact this is the very definition of "Consumer Surplus", the net increase of which is a good thing. See my point (1) concerning actual output/consumption being what matters.
6. Really this all boils down to your closing argument, "Therefore an existing market was destroyed", and focusing on some costs and benefits while completely ignoring others. Whether or not destruction of any particular industry is good or bad is not relevant unless you fully account for all costs/benefits. Actual accounting for this empirically is difficult, but axiomatic economics shows that advances in efficiency and producing more with less is precisely the way growth occurs - a net benefit.
To fully explore all the issues here would require muc...
2. If money doesn't matter, can I have all of yours, because I've found I don't have enough recently.
3. No, buggy whips were never free. People stopped wanting them. The problem now is that the things in highest demand, and which people want more of, and the same things which are free.
2. I claimed "money is a veil", not "money doesn't matter". People focus too much on money when discussing macroeconomics and the effects of complex changes in the economy, and not on the true measure of prosperity. As a simple example, if the Fed started printing even more obscene amounts of money than it does not, our GDP next might be twice what it is in 2011. Wow, 100% growth! What an easy way to prosperity!
3. In the economic analysis I made, I've pointed out that the effects that he is so worried about are identical, in much the same way that the effect of increasing trade patterns and specialization is very similar to the effect of increasing technological efficiency. Sure people stopped wanting them instead of them literally being free, but that doesn't change the analysis regarding the effects.
1.) No, you're confused on the very basic demand/supply. Efficiency = provides cheaper supply for a demand. Essentially shifting the supply line down. Free = wiping out demand altogether (market no longer needed). Two different thing.
2.) No. No. No. Money is a store of value. Only governments and economist believes otherwise (and prints money and reduces the value of them. That's why people buy gold/silver). "What matters for prosperity is the quantity of goods and services being produced in an economy" You're kidding me. So empty cities in Spain and China is prosperous? Walmart full of Chinese items is prosperous? Then why are we not prosperous now, instead of 44M Americans on food stamps.
3.) Buggy whip is not a substantial market. Therefore nobody cared about it. If a major market like software/music/movie/tv/website, worth hundreds of billions, is threatened by free, people care.
4.) Until we have a perfect world where everything is free, then we can talk about it. Otherwise we still need jobs for money to fight for food/clean energy/materials/infrastructure.
5.) free is $0. Company receives $0. Has to shut down. Lay off everyone.
6.) if we keep losing jobs to free, the net effect is negative. Not hard to figure it out.
1. "provides cheaper supply for a demand" - Nice ;-). I'm not disagreeing with you that if it's free there is no market. But that's an entirely different question from asking whether or not the value of goods and services produced is a net increase or decrease, and this is the relevant question. You're also treading very close to confusing "supply" with "quantity supplied", which is ironic as you simultaneously accuse me of misunderstanding supply and demand: http://econperspectives.blogspot.com/2008/05/supply-vs-quant...
2. Huh? Of course money is a store of value, and it's a medium of exchange. And I'm totally with you on skepticism of the Fed/printing money. All of that is completely tangential to my original argument. Your comments on Spain and China could deserve another ten paragraphs of explanation concerning comparative advantage and the benefits of unilateral free trade. It would not be a worthwhile debate.
3. The size of the market doesn't have anything to do with the economics I'm explaining to you. This is another common fallacy where people confuse magnitudes of the parameters in reasoning with the reasoning itself. We're talking at the margin.
4. Once again, a total evasion of any substance. Not even worth it.
5. Sure. Clearly the there is not a net benefit to that particular company and its employees. And? Does analysis of net economic costs and benefits befall one particular company or the economy as a whole? You haven't thought past stage 1, nor does what you said address my (5) whatsoever.
6. Still no argument here, as you completely evade accounting for all costs and benefits over the costs and benefits which are either 1) very visible to you and everyone else, or 2) extreme for one particular group of (special interest) people.
"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."
His definition for "ephemeralization" is "doing more with less", which is strange since my academic background in economics teaches me the word for this is nothing more than "efficiency".
So many of his claims supporting his "net destroyer of jobs argument" contain no real analysis are amount to fallacies exposed by the history of economic progress. At almost any point in history you could make an almost identical argument about something else where efficiency improvements reduce the number of jobs in one particular industry. People used to also worry that more women getting into the work force would reduce the jobs "available for men". Classic "lump of labor fallacy":
http://en.wikipedia.org/wiki/Lump_of_labour_fallacy
Even all this aside, and sweeping away any historical parallels (one of which he mentions - Ford) where the ultimate conclusion flatly contradicts his pessimism, there's a healthy dose of "make work bias" implicit in the entire article. It's still puzzling to me why people focus so much on work as being something desirable to per-sue in it's own right. Work is the price we have to pay for consumption:
http://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter:...
This statement alone completely blows away his credibility to speak on economics: "And for all its vaunted technological prowess, the United States hasn’t outpaced the rest of the world in GDP growth". It's well understood in growth economics that we wouldn't expect advanced economics such as the United States to outpace growth of 3rd world countries playing "catch up". He could do the same analysis against modern, industrialized countries instead and come to a very different conclusion. Even if this statement was accurate, it's a complete non-sequitur in support of his overall claim.
It's funny that the second part of his article back-tracks from his original claims and contains far more sense than the first part. "Ephemeralization [READ: efficiency] itself might eventually give rise to new types of jobs." That's exactly right, and has been true for centuries without fail.
Finally, it's embarrassing that he chooses to quote Tyler Cowen, a respectable economist who would would surely call out this article more forcefully than I.
Invent something, do something, so you never have to do it again, or any one else. Enjoy life. Meet people, talk about ideas and new inventions, if you like programming all day, do it. If you like singing and dancing all day do it. If you like making movies, giving healthcare to people do it. Unconstrained by employment.
Its good technology is taking away jobs, if it is not, that means we are all doing something really really wrong.
Who in their right minds would like to do things just to do more things? People always come up with new things so they can stop doing what they are doing. Lazy programmers are the best, the ones that dont want to do things when a computer can do it for them.
People should stop working. We have enough technology to feed everyone on the planet, and maintain and develop our current rate of progress, even without aiming for full employment. We have to strive for lesser work days. Why is 8 hours acceptable? We are designed to work only 2 hours per day, maximum. That is why we invent.
Not only do we need to reduce working hours, we need to provide a basic income guarantee (http://en.wikipedia.org/wiki/Basic_income_guarantee). This is what the promise of technological progress is about, and is one of the tenets of Marxian communism. Ironically, the basic income guarantee is also something that is advocated by many liberal and libertarian economists.
These two factors are IMO key to further accelerating the rate of technological innovation. They enable anyone who is interested in science and technology to freely pursue these interests, whereas today many people are driven away from science by huge disincentives (massive student loans and poor career prospects).
The problem as I see it (and I've probably said this before) is that not all jobs are equal... or rather that not all people are equal. Increasing technology doesn't take away jobs, it increases the amount of wealth you can create with the same amount of labour, at least up to a certain point. But it also makes the jobs that do exist harder (intellectually speaking), because as the jobs switch from "assembly line worker" to "guy who supervises the robots that work on the assembly line" the brainpower needed to do the job increases.
Roughly half the population has two-digit IQs, half the population has three-digit IQs. Two thousand years ago, 90% of all jobs were in the fields and could easily be done with a two-digit IQ. A hundred years ago, jobs had started to shift to the cities, but probably still 75% of 'em could be done with a two-digit IQ. Nowadays I'm worried that we're reaching the point where 60% of the jobs which actually and economically exist require a three-digit IQ to be done properly, and that this will only continue to increase as the easy jobs get automated away. What, then, do we do with the world's stupid people?
Mine them for data after making them share as much about their life as possible.
More seriously, those three-digit IQ jobs will turn to two-digit IQ jobs as technology makes them easier. There's a predictable cycle for technological progress, until a certain point at least.
>it increases the amount of wealth you can create with the same amount of labour,
The end result of this is that there are fewer jobs. There is a certain amount of "production" (for lack of a better word) needed to maintain the same quality of life. As production becomes more efficient, it takes less and less labor for the same output. This inevitably reduces the amount of jobs available.
Knowledge work can't fill the gap, partially because most people just aren't capable, and partially because it takes an order of magnitude fewer knowledge workers than manual laborers for a given amount of output.
>What, then, do we do with the world's stupid people?
The answer is that we're going to have to change our attitudes towards "redistribution of wealth" for society not to fall apart.
I think what you're trying to say is that technological progress brings highly increasing returns to intelligence such that one person has the capability to produce an extremely high amount of value relative to their peers (increase in income inequality, perhaps).
And I agree, this is most likely the case. But inequality as a side-effect is something that can be dealt with via relatively inefficient policies that do not distort too heavily the division of labor as it exists.
In other words, we should let this grand increase in efficiency happen, but correct perhaps for inequality resulting therefrom in a relatively efficient way as we need too.
Far too many people use the inequality argument to prove too much (that we should attempt to slow specialization of flat-ouf efficiency at its source), and this argument is deeply flawed IMO. In other words, don't shoot the messenger. Intelligent people are creating enormous amounts of value, but their income/price is just a messenger of this information.
28 comments
[ 4.2 ms ] story [ 96.8 ms ] threadOh, but there's advertising, one say. And there's the unlimited amount of venture capital funding these 'free' companies. Well, if we keep losing jobs in valuable sectors because we keep giving things away for free, how will people pay for products that will sustain advertising budgets in those companies? Will we just keep selling advertising to each other? And at a certain point in the economy, consumer is more conscious about price than brand (like now), in which case advertising will start to falter.
So the next time you give away products for free, you should think about whether or not it'll cause you to lose your company/job in the future.
When are we going to starting teaching more Economics and less Literature in high school?
It's also hilarious that this comment commits the very fallacy you seek to expose!
On the other hand, if the electric cars were free !? People would not have to buy cars ever anymore. Therefore an existing market was destroyed.
But I don't have to explain this to you, you spent lots of money on your economic classes!
In reality, changing careers is hard. Fortunately the government supports this some with low-interest loans, unemployment benefits, etc. Yet evidently it's not enough.
1. Firstly, efficiency concerns the ability to more with less. Zero is less, and there's no reason why zero is substantively different than paying $0.01 per car - it's on a continuity that affords the same analysis. So saying you reply "has to do with free" speaks absolutely nothing about my initial arguments focused on efficiency.
2. Money is a veil. Like the discredited mercantilist beliefs century ago, you're confusing output with money. What matters for prosperity is the quantity of goods and services being produced in an economy. You may not realize it, but your argument is essentially granting authority of money over output in estimating prosperity. Output - the actual goods and services produced in an economy - is what matters (and the consumption we enjoy therefrom), not whatever dollar value we assign to them. This by the way is an extremely common confusion among non-economists, so don't feel bad about misunderstanding it.
3. Since you seem so fixated on this concept of "free" sidestepping my arguments, let me take your analogy and present another similar one. Imagine that it's the year 1910 and the price for buggy whips is $25, with a thriving industry producing them. It's already clear that I'm claiming efficiency improvements resulting in a price reduction is a good thing. Now let's introduce your concern: buggy whips are free! "Therefore an existing market was destroyed." Yes, this market would be destroyed. And in fact it was - buggy whips were free in the sense that cars displacing buggies simply did not require them. There is no economic difference here. Yet no one with the knowledge of hindsight today wouldn't even think about arguing that the production of value which is essentially "free" in that case is something "bad", and it's not clear whatsoever that there is some net decline in jobs (in fact all evidence points to this being precisely the opposite - touched upon by your point "There might be more jobs in the new industry").
4. Speaking of net decline in jobs, I'm disputing this being necessarily a problem at all. To say otherwise is to ignore trade-offs and categorically value one thing over another as a society. Jobs are another thing people routinely confuse with prosperity, and they also tend to believe that they are somehow assets instead of transactions. It's like saying "buying a car" is an asset, instead of the car itself. With labor, the software we produce is the asset, not our job that allows such production to take place via a quid-pro-quo. If I could purchase everything I wanted to live by for $1, I'd only work one hour the entire year doing some freelance, and not have a job. Is "not having a job" bad in that sense? Not really - but the point is it depends on the amount of consumption I'm able to enjoy, and the job is just a transaction that effectively grants me consumption purchasing power. It's the seen vs. the unseen that makes thinking about these issues (and really most things in economics) very difficult.
5. You made an important point about willingness to pay, but drew the wrong lesson from it. You seem to think that having a high willingness to pay and a low price ($0 in your example) is a bad thing, but this is precisely the opposite of the truth. In fact this is the very definition of "Consumer Surplus", the net increase of which is a good thing. See my point (1) concerning actual output/consumption being what matters.
6. Really this all boils down to your closing argument, "Therefore an existing market was destroyed", and focusing on some costs and benefits while completely ignoring others. Whether or not destruction of any particular industry is good or bad is not relevant unless you fully account for all costs/benefits. Actual accounting for this empirically is difficult, but axiomatic economics shows that advances in efficiency and producing more with less is precisely the way growth occurs - a net benefit.
To fully explore all the issues here would require muc...
3. No, buggy whips were never free. People stopped wanting them. The problem now is that the things in highest demand, and which people want more of, and the same things which are free.
3. In the economic analysis I made, I've pointed out that the effects that he is so worried about are identical, in much the same way that the effect of increasing trade patterns and specialization is very similar to the effect of increasing technological efficiency. Sure people stopped wanting them instead of them literally being free, but that doesn't change the analysis regarding the effects.
2.) No. No. No. Money is a store of value. Only governments and economist believes otherwise (and prints money and reduces the value of them. That's why people buy gold/silver). "What matters for prosperity is the quantity of goods and services being produced in an economy" You're kidding me. So empty cities in Spain and China is prosperous? Walmart full of Chinese items is prosperous? Then why are we not prosperous now, instead of 44M Americans on food stamps.
3.) Buggy whip is not a substantial market. Therefore nobody cared about it. If a major market like software/music/movie/tv/website, worth hundreds of billions, is threatened by free, people care.
4.) Until we have a perfect world where everything is free, then we can talk about it. Otherwise we still need jobs for money to fight for food/clean energy/materials/infrastructure.
5.) free is $0. Company receives $0. Has to shut down. Lay off everyone.
6.) if we keep losing jobs to free, the net effect is negative. Not hard to figure it out.
2. Huh? Of course money is a store of value, and it's a medium of exchange. And I'm totally with you on skepticism of the Fed/printing money. All of that is completely tangential to my original argument. Your comments on Spain and China could deserve another ten paragraphs of explanation concerning comparative advantage and the benefits of unilateral free trade. It would not be a worthwhile debate.
3. The size of the market doesn't have anything to do with the economics I'm explaining to you. This is another common fallacy where people confuse magnitudes of the parameters in reasoning with the reasoning itself. We're talking at the margin.
4. Once again, a total evasion of any substance. Not even worth it.
5. Sure. Clearly the there is not a net benefit to that particular company and its employees. And? Does analysis of net economic costs and benefits befall one particular company or the economy as a whole? You haven't thought past stage 1, nor does what you said address my (5) whatsoever.
6. Still no argument here, as you completely evade accounting for all costs and benefits over the costs and benefits which are either 1) very visible to you and everyone else, or 2) extreme for one particular group of (special interest) people.
You might enjoy this article: http://www.econlib.org/library/Bastiat/basEss1.html
"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."
http://cafehayek.com/2011/05/the-problem-began-when-the-inve...
How fitting to this discussion.
So many of his claims supporting his "net destroyer of jobs argument" contain no real analysis are amount to fallacies exposed by the history of economic progress. At almost any point in history you could make an almost identical argument about something else where efficiency improvements reduce the number of jobs in one particular industry. People used to also worry that more women getting into the work force would reduce the jobs "available for men". Classic "lump of labor fallacy": http://en.wikipedia.org/wiki/Lump_of_labour_fallacy
Even all this aside, and sweeping away any historical parallels (one of which he mentions - Ford) where the ultimate conclusion flatly contradicts his pessimism, there's a healthy dose of "make work bias" implicit in the entire article. It's still puzzling to me why people focus so much on work as being something desirable to per-sue in it's own right. Work is the price we have to pay for consumption: http://en.wikipedia.org/wiki/The_Myth_of_the_Rational_Voter:...
This statement alone completely blows away his credibility to speak on economics: "And for all its vaunted technological prowess, the United States hasn’t outpaced the rest of the world in GDP growth". It's well understood in growth economics that we wouldn't expect advanced economics such as the United States to outpace growth of 3rd world countries playing "catch up". He could do the same analysis against modern, industrialized countries instead and come to a very different conclusion. Even if this statement was accurate, it's a complete non-sequitur in support of his overall claim.
It's funny that the second part of his article back-tracks from his original claims and contains far more sense than the first part. "Ephemeralization [READ: efficiency] itself might eventually give rise to new types of jobs." That's exactly right, and has been true for centuries without fail.
Finally, it's embarrassing that he chooses to quote Tyler Cowen, a respectable economist who would would surely call out this article more forcefully than I.
Invent something, do something, so you never have to do it again, or any one else. Enjoy life. Meet people, talk about ideas and new inventions, if you like programming all day, do it. If you like singing and dancing all day do it. If you like making movies, giving healthcare to people do it. Unconstrained by employment.
Who in their right minds would like to do things just to do more things? People always come up with new things so they can stop doing what they are doing. Lazy programmers are the best, the ones that dont want to do things when a computer can do it for them.
People should stop working. We have enough technology to feed everyone on the planet, and maintain and develop our current rate of progress, even without aiming for full employment. We have to strive for lesser work days. Why is 8 hours acceptable? We are designed to work only 2 hours per day, maximum. That is why we invent.
These two factors are IMO key to further accelerating the rate of technological innovation. They enable anyone who is interested in science and technology to freely pursue these interests, whereas today many people are driven away from science by huge disincentives (massive student loans and poor career prospects).
Roughly half the population has two-digit IQs, half the population has three-digit IQs. Two thousand years ago, 90% of all jobs were in the fields and could easily be done with a two-digit IQ. A hundred years ago, jobs had started to shift to the cities, but probably still 75% of 'em could be done with a two-digit IQ. Nowadays I'm worried that we're reaching the point where 60% of the jobs which actually and economically exist require a three-digit IQ to be done properly, and that this will only continue to increase as the easy jobs get automated away. What, then, do we do with the world's stupid people?
More seriously, those three-digit IQ jobs will turn to two-digit IQ jobs as technology makes them easier. There's a predictable cycle for technological progress, until a certain point at least.
Remember, the average level of IQ back then would be considered retarded today.
The end result of this is that there are fewer jobs. There is a certain amount of "production" (for lack of a better word) needed to maintain the same quality of life. As production becomes more efficient, it takes less and less labor for the same output. This inevitably reduces the amount of jobs available.
Knowledge work can't fill the gap, partially because most people just aren't capable, and partially because it takes an order of magnitude fewer knowledge workers than manual laborers for a given amount of output.
>What, then, do we do with the world's stupid people?
The answer is that we're going to have to change our attitudes towards "redistribution of wealth" for society not to fall apart.
And I agree, this is most likely the case. But inequality as a side-effect is something that can be dealt with via relatively inefficient policies that do not distort too heavily the division of labor as it exists.
In other words, we should let this grand increase in efficiency happen, but correct perhaps for inequality resulting therefrom in a relatively efficient way as we need too.
Far too many people use the inequality argument to prove too much (that we should attempt to slow specialization of flat-ouf efficiency at its source), and this argument is deeply flawed IMO. In other words, don't shoot the messenger. Intelligent people are creating enormous amounts of value, but their income/price is just a messenger of this information.