Continuing on yesterday’s post Has democracy become too expensive for capitalism? Part 1, in reference to the article Has Western-style democracy become too expensive for capitalism?, by the Financial Times:
This subsidisation process has become so ingrained in modern Western social democracy that few can imagine a world without it. What was originally a stop-gap measure has morphed into an addiction, one of chronic proportions. And, as Kenneth Rogoff and Carmen Reinhart have shown, once government debt exceeds around 90 per cent of GDP, it clogs up the arteries of growth. Once the ensuing slowdown of GDP growth happens, the growth in the surpluses available for redistribution shrinks too.
I agree and disagree. Social democracy leads to sub-optimal spending, but the Kenneth Rogoff and Carmen Reinhart study has been thoroughly debunked. It’s not that the spending clogs the growth; rather, these countries are already in recession and then the slow growth coincides with the spending. Simple confusion of cause and effect.
Meanwhile, the second driver of GDP growth, increasing productivity, is also barely positive, even in the US. (Note that economists focus more on labour productivity, which is closely linked to average wages, and not capital productivity, which is more akin to corporate profits). Non-farm productivity growth has stalled, especially since 2000, with wage growth weighed down by the twin forces of supply chain globalisation and technological progress.
Again the author cherry picks the weak data and ignores the strong and then uses this weak data to make an inference about the health of the entire economy. Productivity doesn’t matter that much. The author wants it both ways: high productivity and an overabundance of jobs. If hypothetically a simple employee could do the job a million employees and the rest were fired, productivity would surge, but then so would unemployment.
Donald Trump won the US presidential election by convincing disgruntled former factory workers in the critical swing Rust Belt states of Michigan, Wisconsin, Ohio and Pennsylvania that factories translocated from the US to Mexico and China had “stolen” middle class jobs from Middle America. A few factories have migrated, though the main effect of Asian and Mexican competition has been to limit wage increases much more than “steal” jobs. Rather than foreign competition, technological advance has destroyed most jobs. A study by Ball State University’s Michael Hicks found that 88 per cent of manufacturing job losses can be traced not to plants moving to Mexico or China, but to robots moving into US factories.
Not sure if this is due to swing voters using the economy as justification to choose Trump, or because these factory workers were already republicans?
The so-called ‘death of jobs’ is more myth than reality. The long-standing, multi-decade trend of job creation prevails despite free trade:
Although manufacturing jobs have declined, total jobs have not, partially due to the strong growth of the service sector:
Furthermore, total private non-farm payrolls continue to grow despite free trade, suggesting the loss of manufacturing jobs is being replaced by growth in other sectors (such as services, healthcare, and technology).
Related: Drugs and Tariffs
Like the mythical uninsured person who needs Obamacare, the there actually aren’t all that many laid off manufacturing workers who want to work but cannot. Most have by now retired or have found work in other industries. But the pay may not be as good and families may be broken up, and that is potentially a problem at the humanistic/individual level even if the economy as a whole benefits. From Why Socialism for the Rich, Capitalism for the Poor?:
The problem is a lack of stability. Manufacturing jobs provided generational stability for families and children, but with many those jobs gone, people have become more itinerant and atomistic. Construction and energy jobs, although they pay well, are very sensitive to both macro and micro economic conditions, making it hard for workers to settle down. Gig jobs don’t pay well, are demanding, and offer no benefits, unlike salaried jobs–but gig jobs create a lot of economic value–there is no waste, because workers, who are dependent on feedback and referrals, are fully accountable for their success or failure, whereas in corporate america, the cost of individual incompetence and sloth is shared by the entire firm (it’s like those group projects in school, where the smart kids do all the work but everyone gets equal credit).
The crux of the matter is high-IQ jobs are portable and resilient; low-IQ jobs are neither. Low/medium IQ jobs tend to be sensitive to macro and micro factors, whereas high-IQ jobs are more insulated, in addition to paying better. Information technology jobs have been in a 30+ year boom whereas energy, manufacturing, retail, and construction jobs either pay poorly and or are dwindling. Other blue collar jobs have so much regulation and initial costs that getting started is hard. This goes for plumbing and electrician trades.
Regarding portability, a coder can work anywhere he has an internet connection. Physics and math are also unconstrained. But manufacturing jobs are anchored to factories. And many service sectors jobs require physical stores. Both potentially involve long commutes. For low-IQ jobs, workers go to the jobs (the worker is subservient). For high-IQ jobs, the jobs go to the worker (the worker has more leverage). Professors can always find new universities to teach at; the same cannot be said for laid off factory workers looking for new factories.
A software or app company can be run in a bedroom, garage, or a tiny office. Blue collar businesses that require physical space–auto repair, retail, and restaurants–have much higher start-up costs due to ballooning real estate, rent, insurance, and advertising costs, all of which for the past few decades have vastly exceeded inflation. It would seem like success and physical space are inversely correlated. A hedge fund that manages billions of dollars need little more than a computer to operate. Bitcoin, which is presently valued at $40+ billion, is entirely digital. Amazon transitioned a significant chunk of their business from warehousing stuff to being a middleman between buyers and sellers, but also cloud hosting.
Most of the jobs created since 2009 are in the low-paying service sector. The problem is the financial crisis permanently gutted a lot of good-paying middle-class professional jobs–jobs that only required an average IQ to attain. (Related: The Inescapable Pull of Biology)
These fractures threaten the very fabric of democracy. The latter is predicated on the assumption that a clear majority of citizens must think that the democratic system works for them if they are to continue supporting it. In the US, with a majority of its citizens now predicting that their children’s generation will be worse off than their own, the American dream and with it, American democracy, is surely faltering.
When you consider that 7% of voters believe that chocolate milk comes from brown cows, and 47-50% know how to use an EBT card, I see this as a welcome development. But if things become as bad as they can hypothetically get, the decline of democracy will be the least of concerns.