“Just get us to Shop more”? Is that all we need to do?

9-11 attacks.  We were told- Just Shop.

2008 meltdown:   Solution?  Just Shop.

Much ink has been spent on the need to restart the consumption engine, and that difficult task is certainly necessary to restore the economy to some level of normalcy.  Yet a return to our economic status prior to 2007 threatens to put us right back on a flight path that threatens to convert America into a third class nation.   Prior to the 2008 fiasco, consumption spiked to unnatural highs as people used their homes as ATMs.  The flood of consumer spending raised water levels to heights that obscured a multitude of sins.

Since the 1970s, income of working age men has declined.  Household income has gone up slightly, but only because of the surge in women entering the workforce.  So why are incomes stagnating and declining?  Let’s review 3 other  commonly cited factors driving income stagnation and consider the proposed solutions:

  1. growth in GDP wealth generated since the 90s has flowed to the top 2%, while middle class income has stagnated or falled. Is solution making the tax rates more fair: For example higher rates on the rich under the fairness argument that is easier to make money when you have money, therefore a higher rate on the wealthy is in order.
  2. Automation creating polarization incomes, eliminating middle class jobs. Everyone says the future is high tech- But even if there were no outsourcing, is it really helping? David Autor, an economist at MIT doesn’t think so (source- warning slow- pdf). Take Twitter. 300 employees account for $150 million in revenues in 2011. That’s a half million per employee. And it is true for high tech physical products too. For example iPod employees in the US earned 7.5 billion in sales in 2006, but Apple paid back into the US economy barely 10% of that- $750 million in wages. (source)
  3. Outsourcing/ Trade policy. Are we proposing protectionism? If so, history reveals a pretty bad track record for this approach. There are localization strategies that use network effects to keep jobs local, but I am not aware of anyone advocating such an industrial policy. Actually, it is rare for anyone in the US to talk about explicit government involvement in industrial policy. Something nearly all OECD countries do with the exception of the US.

The crux of the problem is that the river of purchasing power that supplies the consumption economy is being pumped dry by the export of jobs and automation and other productivity innovations.  The solution to this problem must recognize that technology has finally reached the state feared by workers in the much misunderstood and short lived Luddite movement at the dawn of industrialization in the UK.  This is not an expression of a phobia of technology, but a recognition that it has so magnified our power that from the production perspective of the corporation, a large portion of the work force is obsolete and irrelevant to their near term self interest.  Systemically, of course they are dependent on a large worforce-consumer base but this factor is not visible to them in terms of their self interest in their measurable bottom lines.  A further discussion of the metaphor of the purchasing power river may be found here.  Discussion of the failure of self-interest and how Obama’s Osawatomie speech illuminates the path out of this fundamental economic blind spot may be found here.

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About John JMesserly

Mostly harmless

Posted on 2011-10-26, in automation, income inequality, job loss, outsourcing, purchasing power. Bookmark the permalink. Leave a comment.

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