Tag Archives: post scarcity

Gatekeepers and Scarcity Will Always Exist

Errata: In yesterday’s post on NRx, it should have been ‘secession’ instead of ‘succession’ for #3.

From tressiemc: The Logic of Stupid Poor People

And not intermittently poor or formerly not-poor, but born poor, expected to be poor and treated by bureaucracies, gatekeepers and well-meaning respectability authorities as inherently poor.

To be honest, many gatekeepers bar the upper-middle class, too. Being poor may make you eligible for ‘sympathy points’, financial aid, and other programs, whereas those who are well-to-do but not super-rich may find themselves being snubbed and having to compete with everyone else.

But overall, there just seems to be a general misconception that everyone who isn’t poor is privileged and just coasts by, and that’s hardly true unless you’re in the top .015% or something.

America is drowning in financial aid, and elite universities such as Brown and Princeton are practically waiving tuition for anyone who isn’t in the top 1% of household income:

Getting accepted is the hardest part, obviously, and no amount of financial aid will change that, given that these colleges only accept the top 5% or so applicants by IQ (test-score equivalent), and then even after eliminating those who fail to exceed the IQ threshold, they still have more applicants than slots. The same for almost everything though – publishing houses, academic journals, and many job openings – all, to some extent, screen for IQ (average-intelligence people, unless they are already famous, typically do not get book deals, prestigious ‘creative class’ jobs, or papers published). Unless you have enough money to buy a publishing house, being well-to-do still won’t get a math paper or economics paper published or a book published, if the quality isn’t up to standards. Nor will it guarantee admission to prestigious schools if your scores are not high enough, unless you have enough money to make a ‘donation’.

In a hypothetical post-scarcity economy, where all essential services – and more – are paid for, status and prestige will always be scarce. Gatekeepers will always exist – some gatekeepers tangible (competitors, such as in self-publishing), others biological (based on one’s biological limitations such as IQ, in which insufficiency leads to failure).

The cruel twist of post-scarcity, where it backfires for the ‘left’, is that by eliminating one barrier (financial), another (biological) takes over. The left is fighting an uphill battle, in their effort to eliminate all barriers. This is explains why the left wants to discontinue the SAT or dumb it down to such an extent as to render it useless at identifying top talent. But, finally, there is the ‘economics barrier’ as measured by individual socioeconomic outcomes and differences, and of course the left, through redistributive policy, is trying to erode that one, too.

Jobs, Basic Income, Post Scarcity, and all that Jazz

There have been a smattering of wealth inequality/economics articles lately:

THREE GREAT ARTICLES ON POVERTY, AND WHY I DISAGREE WITH ALL OF THEM

Economics Has Failed America

Scott goes on about the unrealistic expectations of trying to teach everyone high-IQ skills, when biology imposes barriers to such hopes:

The QZ article warns that it might create a calcified “perpetually under-employed stagnant underclass”. But of course we already have such an underclass, and it’s terrible. I can neither imagine them all learning to code, nor a sudden revival of the non-coding jobs they used to enjoy. Throwing money at them is a pretty subpar solution, but it’s better than leaving everything the way it is and not throwing money at them.

It’s hard enough teaching young people algebra; coding is many magnitudes harder. A frequently voiced concern that the cognitive requirements to perform entry-level labor may rise to a sufficiently high threshold that it excludes too many people from the labor market. This may mean that while the total number of jobs does not fall, the IQ requirement rises. Another issue is the ‘hollowing out‘ of the middle, where there are too many low-paying jobs and lucrative creative-class jobs, but not enough middle-income ones. ‘Luddite Fallacy’ and ‘Lump of Labor’ may ignore job pay or cognitive demands.

As I explain in The Economics Debate: Jobs and Automation and Coming to Terms With Our New Economy, however, there is reason for hope:

New technologies seem to spawn jobs for all skill levels. Cars are much more complicated the carriages, yet there are jobs for all intelligence levels, from people who clean the interiors of cars to those who solve differential equations to model airflow. Also, the fruits of economic progress tend to be shared with everyone, even with rising wealth inequality, in the form of better technologies, larger social safety nets, and rising standards of living, as “Nathaniel_Bude” points out (this is such a good comments that I pasted the entire thing):

“Cost of living” is a misleading term, because the cost of staying alive has gone up much less. 1 kg of rice still costs about $1 in rich areas, rich people only choose to buy much more expensive food. And similar reasoning applies to all the other “necessities” that people somehow manage to spend so much less on in poor areas than in rich areas
.
But this increase in spending has absolute benefits. Homes with screen windows, non-leaky roofs, clean tap water, and flushing toilets – that are all factored into “cost of living” here – really can make the difference between early death and long life. It is not a “red queen’s race”. Rich people do not need these things any more than poor people. Poor people need them just as much, but can’t afford them.
So there have been huge benefits from rising GDP, and there would be huge benefits to raising levels of consumption in the poorest areas toward the levels typical in the developed world. Which is why it frankly offends me to discuss handing out more money to the poorest people in the richest areas.

Especially when there is a better alternative. Negative income taxes at the low end (like the earned-income tax credit) are not zero sum! They directly redistribute to the relatively poor, while incentivising more work and greater labor force participation rate, which raises their total income even more; and fuels economic growth, which produces a bigger pot of money that we can tax and redistribute as we see fit (like, say, to the absolutely poor).

The poor benefit as much as rich from new technologies, and new technologies create deflationary forces on prices and raise living standards. There’s perhaps a misconception that capitalists only cater to the rich. However, capitalists want to make their innovations and services as accessible to as many people as possible, provided capitalists can turn a profit. Consider an experimental cancer drug, for, say, liver cancer. Should it become successful, the potential market is enormous – tens of billions of dollars a year or even more. It does drug companies no good to restrict cures to the very richest.

From QZ: QZ: The universal basic income is an idea whose time will never come

I’ve written about the UBI here and here.

Regarding the UBI, some thoughts and ideas:

1. Means testing the basic income: those who are deemed unsuitable for a UBI are excluded.

2. Compliance: those who abuse or fritter their income are bumped back to regular welfare. If a UBI is supposed to replace most welfare, a UBI recipient going on welfare indicates a failure of the program.

3. Find ways to reduce living expenses, making a UBI more effective.

In “Average is Over”, economist Tyler Cowen floats the idea of the unemployed, unable to adapt to a changing economy, moving to low-cost regions or ‘camps’, subsiding on inexpensive food and cheap entertainment. Automation wrought by technology may make enough goods cheap enough that such a post-scarcity society may be possible. These ‘camps’ may be a much cheaper alternative to rent, which can be very expensive.

People could leave the camps when they have the financial means or motivation to do so, but the location of the camps may make getting work difficult unless the work is online or on the camp itself. It may end up resembling something like Kiryas Joel.

The resurgence of nuclear families are another possibility. Millennials living with their parents longer to save money, for example. Families would form multi-generational domiciles or clans, passed-down from one generation to the next, rather than everyone splintering off.

4. Unfortunately, a UBI will not make much of dent in healthcare or education, given that those can easily cost tens or even hundreds of thousands of dollars a year for a single person.

5. Will a UBI replace the minimum wage? Eliminating the minimum wage could be deflationary, auguring well with #3.

The future will be one where there is an abundance of free time, for all socioeconomic levels, with fewer hours worked, a shrinking labor participation rate, and possibly even a shorter workweek. There is a tendency among some on the ‘left’ to want to ‘put everyone to work’ when it’s not necessary or possible.

Even if there is enough abundance created by technology and a generous, paternalistic ‘elite’ to give everyone, both working and permanently unemployed, a comfortable standard of living that would rival that of kings 500 years ago, people may still complain about wealth inequality and lack of fulfillment, because someone will always have more. Studies have shown that relative wealth is as important, if not more, than absolute wealth (also known as big fish in a little pond vs. being a small fish in a big pond). That’s why a solution involving camps may be effective, by lumping everyone together and thus eliminating class envy.

Post scarcity also won’t provide status, ‘ownership’ ,or ‘participation’. The paradox, I suppose, is that you have all this technology and economic expansion, but the average person’s contribution to the process is becoming less and less. People generally want to believe that they are valued, that they have some sort of ‘agency and purpose’, that they have some sort of ‘stake’ in society, that they are contributing, and that they have some form of control. A post-scarcity ‘system’ will need to provide and or emulate those things.

Post-Labor Capitalism

In my post about conservatives being smarter than liberals, I ended on cliffhanger, leaving the solution open:

Solutions are hard to come by. Simply getting rid of democracy won’t change the fact there are already millions of people dependent on govt. aid.

I also discuss the ‘un-participatory’ underclass here (why collapse can wait) :

Entitlement spending could be problematic. Immigration control won’t stop the millions who are already citizens and producing negative economic value. That leads to the e-word, eugenics, which few have the bravery to endorse, but I see it as possibly the only long-term viable solution to the entitlement spending problem, in addition to restricting low-IQ immigration. Boosting the national IQ by just a handful of points can help remedy a multitude of problems.

We now have life, liberty, free emergency room treatment, ebt, education, section 8 housing, and the purist of happiness…for all. The government won’t allow sick people die in the streets, nor will it deny certain services. Or maybe there will be enough abundance created by technology and the productive class to take care of everyone…hard to know.

And here (hive mind, immigration, and IQ):

Booting the nation’s IQ will likely boost exports, GPD, profits, and technological innovation – but not necessarily real median wages. But that may be OK, though, because new technologies lead to more utility, as in the example I give of TV sets or movie tickets. Technology may improve living standards, so much so that wealth inequality and stagnant wages may not matter. The result, however, may be an ‘un-participatory’ economy where a lot of people are not contributing much to economic growth, nor are participating in the gains such as measured by real wages, in accordance with the Pareto Principle.

As I explain in collapse can wait and other posts, I am optimistic about the US economy and stock market – both in the long-term and short-term – in spite of this large (and growing) underclass. But I don’t sufficiently explain the mechanism for how the economy and stock market is supposed to thrive even when a lot of people are a net-negative as indicated by negative effective tax rate:

The result may be a post-labor capitalist society, and we’re already headed in that direction. This is similar to the Marxist post-labor utopia, but with capitalism, too, as I explain here:

…while Marxists may support technology to bring about a post-labor society, not everyone who supports technology and post-labor is a Marxist. There will always be capitalism, scarcity, and markets, even if the labor force shrinks and or a lot of job become automated (which is assuming the Luddite Fallacy stops being a fallacy). Rapid gains in technology hasn’t made healthcare or tuition more affordable. Same for insurance, day care, and other services. There will always be demand for positional goods to signal status. There may even be a form of capitalism that exists between apps and robots, excluding almost all people.

As the labor force participation rate sinks and the ‘number of hours worked’ falls, we’re also seeing the rise of unconventional labor such as gig and freelancer jobs. At the same time, information technology companies, apps, biotechnology, and multinationals will continue to thrive. Just because we become a post-labor or post-salary society doesn’t mean that capitalism will fail or become obsoleted.

Some characteristics of America’s post-labor society:

1. fewer hours worked
2. falling labor force participation rate
3. rise of gig and temp jobs , neither of which may be counted in official labor statistics
4. ‘hollowing out‘ of middle/bifurcation of economy
5. less job security
6. fewer job openings, but also fewer job seekers as able-bodied individuals choose to dropout of labor force

The doom and gloomers argue that this large underclass will drain the economy and cause a debt crisis due to runaway entitlement spending, but another possibility is that an equilibrium will be attained due to factors such as technology, US reserve currency status, huge demand for low-yielding US debt, and surging taxable profits from multinationals that helps pay for the entitlement spending programs. This way, income taxes need not have to rise in order to fund these programs. In fact, taxes are historically low, only rising in 1993 and in 2013 due to partisan pressure, not out of economic necessity.

The interest paid on debt relative to GDP is historically low:

Part of what makes America exceptional is not just its superior economy or superior military, but the insatiable demand for its debt, especially compared to other countries.

America also has the petrodollar. This is a huge deal, and partly explains why the dollar is so strong in spite of the debt. Whenever oil exporters sell oil, they get dollars. This boosts the dollar.

So what about those net-negative people? As it turns out, while they may be a drain on the treasury, they are boon for large corporations that derive revenue from consumer spending and population growth – companies like Disney, Nike, Facebook, Netflix, and Google. That’s why stock prices, profits, and earnings keep going up, and why they will continue to do so. * And also why the US economy, contrary to the doom and gloom, is doing alright. Because the US government can finance these net-negative people at virtually no cost due to reserve currency status, corporations can reap all of the top-line profits from consumer spending.

The result is that many economic metrics can remain strong even with a low labor force participation rate and a high level of debt.

Economies of scale and rapid gains in technology also helps by increasing utility, meaning that even if real wages remain stagnant and the labor force participation continues to decline, technology will provide enough utility to keep people satiated. Technological progress provides a deflationary force by making things cheaper, better (more utility), and more abundant. Cheap food, electricity, and clean water are available to everyone of all income levels, whereas generations ago there was more scarcity. But this is not the same as post-scarcity economy, because there will always be some scarcity such as for status-signaling goods, as well as costs for services like insurance, daycare, gas, cable, and internet. This is also why a basic income is unnecessary, because of existing entitlement spending programs and abundance due to technology and mass production.

However – through the creation of industries, technologies, and research – smart people tend to produce more economic value than everyone else, so as to not let cognitive capital go to waste, I support a high-IQ basic income. It’s like a government Mensa that pays its members. Very un-egalitarian, but seems only fair given that the fate of the economy hinges on the ability of these smart, productive people to support the millions of net-negative people.

Can the equilibrium be disrupted? Technically, anything is possible, but I don’t see it happening. Globalization and reserve currency status changes the rules of macroeconomics, allowing the US government to perpetually fund deficits without the usual side effect of bond-based inflation. This is because America is able to export its inflation.

The US economy is a sweet spot where growth can help inflate the debt away, but a slowdown will cause yields to plunge. Thus in either scenario, debt interest as a percentage of GDP is unchanged. A recession would probably cause medium and long-term treasury bonds to fall as much as 30% such as in 2001, 2008, and 2011.

Despite steady GDP growth, debt forecasts are already being lowered:

Still, the nonpartisan Congressional Budget Office, in its annual long-term budget outlook, projected that by the fiscal year 2040 the government’s debt would be equal to 107 percent of the country’s annual economic activity — up from the current 74 percent of gross domestic product. Last year the budget office projected the 2040 debt level would reach 111 percent of G.D.P.

A gain of 33% over a quarter century doesn’t seem too scary. The fact that Japan, which has a weaker economy than America, is stable despite a much higher debt to GDP ratio ratio than America, is reason enough to not be too concerned about America’s debt. Like America, Japan’s labor force participation is a multi-decade lows, falling from 73% in 1955 to around 60% today.

Furthermore, according to a data compiled by Joe Wiesenthal of Business Insider, America has substantially more assets than debt:

Total assets are around 1300% of GDP. Some of these assets are non-performing and should be sold.

…the budget office shaved a half-percentage point from its forecast of last year, putting the cost of interest on the debt at 4.2 percent of G.D.P., down from a projected 4.7 percent last year.

By comparison, interest costs in this fiscal year are 1.3 percent of G.D.P.

It’s worth reminding that interest payments are still ridiculously low. Should medium and long term interest rates remain as low as they are now, debt forecasts will continue to fall. A lot of these scary debt forecasts were made in 2012 & 2013, when it was predicted that interest rates would quickly rise, but with the fed forever dovish, and due to deflationary forces from falling oil and weakness in Europe, China, and emerging markets – treasury yields keep falling. It seems like every time the ‘experts’ predict inflation, deflation strikes instead. Everyone is expecting things to return to how they were in a pre-2008 world, where 4-6% interest rates were the norm, but those days are most likely gone forever. There’s just too much deflation, too much fear and flight to safety. Due to globalization, we’re in an era of currency wars and the ‘race to the bottom’ as countries depress their currencies to boost growth, with the US dollar the winner. China is trying to depress the Yuan, so dumping their holdings of dollars would be counterproductive, helping to keep interest rates and inflation low in America.

The slight reduction in the economy’s predicted growth is “primarily because of the slowdown that C.B.O. anticipates in the growth of the labor force,” the office said, as “the fraction of the population that is of working age shrinks.”

Fewer people working means less inflation , hence lower interest payments. But consumer spending and economic activity doesn’t fall even though fewer people are working. **

But that does not mean I condone wasteful entitlement spending – I don’t – but I don’t see a crisis anytime soon. I’m guessing what will happen instead is that the economic contributions from the most productive will be able to compensate for the least. The future is one where a decreasingly small percentage of individuals and corporations contribute to the bulk of economic output and activity – the Pareto Principle again, in which 20% contributes 80%, as shown below:

In the future, the curve will become steeper – possibly until a singularity is attained – one company to rule all- the Matrix? This could be the ‘other’ singularity, but instead of AI and computing power, it’s a company or economic entity.

* A more detailed explanation involving Modern Monetary Theory can be found here. To sum it up, when the government runs a deficit, it helps corporations. When it runs a surplus, it hurts them.

** This is due to the US govt. running a deficit, which helps corporations; various entitlement spending programs; private sector spending even if it adds to the deficit; and rich consumers both domestic and foreign compensating for weakness in America’s middle and lower class. The Pareto Principle also applies to consumer spending, with the richest 20% contributing 80% to consumption. Also, rise of the BRIC ‘middle class’, with billions of new consumers to supplant America’s middle class.