You probably saw the hook for this on InstaPundit yesterday, but I finally had a little time this morning to read past it to the responses and counterarguments later in the piece. That's the part that's worth reading, because the optimist case is almost as bleak as the hook. The problem is one we often have discussed here: technology continues to improve, and we are learning to do amazing new things, but they aren't likely to produce jobs for people. They're likely to produce jobs for robots. Yet if they are going to provide goods and services that are economically viable, people have to be able to afford to buy the goods and the services.
They don't talk about biotech, which is what I would have thought the optimist's case would revolve around. People will pay for biotech if they can, because it is literally about life and death. So there's a potential for very robust, strong economic growth even with an aging society -- provided that the aging (and, ideally, everyone else) can afford to pay for the evolving goods and services. Standards of living may rise more in terms of health and longevity than in moving from ice boxes to refrigerators, but that still represents a huge potential for improvement.
If, that is, the market will bear the cost of the innovations at an adequate rate. It will, if it can, because the people in the market will absolutely want the good. The question is whether, or rather just how, we make sure that they can themselves be wealthy enough to afford to constitute a market that will bear the costs.
20 comments:
Thought. If one buys longevity, then one will need retirement income in proportionally greater amounts. Will that be a leveler, in that people will live fairly similar lives, some for 80 years and some for 120?
Or will the funnel narrow and the few who have value-added skills have both?
Perhaps there's some optimism to be found in this- when is the last time you heard a prediction of the future that later turned out to be pretty accurate?
Schumpeter's worked out pretty well, both for good and ill. But yes, it's a field fraught with hazards.
Ha! I knew Schumpeter was coming in one way or another.
So you did. I posted that before I read your comment, which makes it even funnier to me. :)
But here's a chance to prove Schumpeter wrong. He thought capitalism would have to collapse, not because of market forces, but because of the contempt of the intellectual class that would grow up out of the children of successful capitalists. So here we have some gloomy predictions about growth, but a possible way forward.
We just need some mechanism to ensure that those 'small pools of capital' are out there, so that individuals can afford to constitute a market that can sustain the costs of innovation at the rate we'd like to innovate. Then the only limit is science: how fast can we progress? But that seems solvable too, given continuing increases in the processing power of computers and its consequent support of analysis.
So maybe we just have the distribution problem to solve, and we can enjoy a future of economic boom and ever-increasing health and longevity. That's a relatively small hurdle, right?
If one buys longevity, then one will need retirement income in proportionally greater amounts.
Or one will need to work longer--a proportionately longer period of savings (of some form) to support a proportionately longer retirement. Of course, the longer work life of one works to the detriment of work opportunities for the next generation. Except that technology always finds a way....
As to the small pools of capital, I'm not too worried about their existence--these pools are how black markets exist, and generally thrive. The advantage of free markets/capitalism is that it brings those black markets into the sunlight, where everyone can participate and so thrive.
But black markets will always exist, especially where an economy is more regulated.
Eric Hines
You know, maybe the libertarians are right - the less you try to engineer huge complex systems like economies, the better- they're beyond us, as individuals. Hasn't Climate Science pretty well proved this by being so wrong about everything?
I'm not sure that economies, as one example, however complex they are, are beyond us, as individuals (which is not to say that no complex system is beyond us as individuals; maybe one or two are...). As Adam Smith recognized, we are the economy, and the economy is us--and it works best when we're free to act on our own greedy nature in interaction with our similarly greedy neighbor.
As well engineer us as engineer the economy--and since the central managers only work the economy, they're doomed to failure. Could they succeed better could they engineer us, too? I doubt it--we may be a complexity that's beyond us, as individuals.
There's a nearby thread that's niggling at that question. Cloning the body--or tweaking its design, to make it "better"--is likely insufficient. What makes us individuals--or what makes us at all--isn't our bodies.
Eric Hines
Black markets don't sustain industrial-revolution-style mass prosperity, though. They sustain African-style prosperity, or Mexican-drug-cartel-style prosperity: vast wealth for a few, but poverty for the many.
If we can't find a way to ensure distribution adequate to support a free market, you won't get the growth rates that can sustain prosperity. We used to do this with jobs, such that the core industries effectively distributed resources as a normal part of their operations. That won't happen with the new economy, because it won't produce enough jobs, and because the class who will create the greatest demand for the products will be too old to work anyway.
So one thing you could look at is the kind of thing GWB did: expanding Medicare to new classes of products, so that the elderly can consume in a more-or-less unrestricted manner. But that money has to come from taxes at some point, because we can't spend on borrowed credit forever.
Black markets exist because of the drive of every individual to improve his own lot. They circumscribe that effort because the free market that is the core of a black market is badly constrained by "authority"--usually government.
...won't happen with the new economy, because it won't produce enough jobs....
There's no more reason to believe this today than there was when Malthus first posited limits or more recently when computers and robots were going to kill/eliminate the need for employment. Eliminating classes of jobs isn't at all the same as eliminating jobs. And we haven't run out of very many resources, either--least of all, for instance, food or hydrocarbons.
The way to ensure distribution adequate to support a free market is for government to get the H out of the way of of men and our economy and let us get about our own business without its interference. There really are only two laws a government needs to foster such an economy (attempting to control it in any way is at best amoral): a law against lying in a negotiation and a law requiring an agreed contract to be honored by all parties, absent actual bankruptcy.
There's no more reason to believe this today than there was when Malthus first posited limits or more recently when computers and robots were going to kill/eliminate the need for employment.
There's a very good reason to believe it, and I just said what it was: the people who are going to need to drive demand (because their natural demand will be highest) will be the very ones who are too old to take jobs even if the jobs exist (which they may well not). Demand for biotech will be highest among the elderly, second-highest among the near-elderly, and so forth. But these are going to be least-well positioned for continuing employment. They'll also be the least well-adapted to jobs based on brand-new technologies. But that's where resources need to be allocated so that they can drive demand for biotech.
The only reason we're limited to demand for [biotech] is because government keeps trying to manipulate the economy and what government thinks we want or ought to want.
Of course there'll be disruptions, but anyone who could be trained can be retrained. The only impediments are reluctance by the potential retrainees and government interference with market incentives.
Of course there are those who can't (say, actual retirees), but they are a different population--who also would be better off if government would get out of their way (and out of the way of future retirees).
Eric Hines
It's not clear at all that actual retirees would be better if the government got out of their way (e.g., stopped providing them with Medicare, given that they have no capacity to generate new income to cover the shortfall).
But what's even less clear is that we would be better off. The point of supporting their capacity to consume biotech isn't first and foremost to help them live longer and happier lives. That's just a very nice side effect of the policy.
The point of the policy is to enable a robust demand that can drive a market for biotech at a high enough level to reward innovation and investment. That's what will create the kind of wealth that could sustain a third (no-longer-industrial) revolution.
But we can't expect them to earn the wealth they will need to consume at the rate that will sustain investment and innovation. Nor are they wealthy enough to do it on their own, even though they are the wealthiest subset of society, because they can no longer produce new wealth themselves. Nor will their savings be of much use to them in this environment, because interest rates are so low that they are experiencing near-zero-growth.
It's the existence of a government policy of manipulating demand--or any other part of our economy--that is the LIMFAC, not anything inherent in a free market economy.
It's certainly true that our current retirees and near-retirees (say, 55 and older) are in no position to see to their own futures unaided, having been dragooned for a lifetime into participating in the travesty of government "care." The rest of us have a duty to make good on their shortfall.
But continuing government manipulation of our economy---in any guise, for any purpose--will only perpetuate the present failure.
The rest of us, left to our own devices (and a proper education that includes budgeting, finance, and economics in K-12, to pound one of my drums), certainly can, nearly universally, successfully see to our own long-term futures. And do so the better for lack of government...participation...in our seeing to.
Eric Hines
The rest of us, left to our own devices (and a proper education that includes budgeting, finance, and economics in K-12, to pound one of my drums), certainly can, nearly universally, successfully see to our own long-term futures.
Why would you think that, if growth rates are going to be in the range of what the optimists predict in this article -- AND we have to devote resources to 'making good the shortfall' of our immediate ancestors?
To make that work, we'd need robust growth -- the kind of growth that can come from something like the biotech revolution, if there's adequately resourced demand.
Why would I not think it? I'm a conservative--I have faith in the ability of the ordinary man to get about his own business without Big Government babysitters.
I also am not limited to "something like the biotech revolution." A free market will produce whatever the free market participants desire or need.
As to the resources, I've written a bit about that in other venues. The idea centers on a flat tax in the range of 10% that everyone pays (we can argue about a single exemption equal to half the then-year Federal Poverty Guideline), with no other carve-outs of any sort. The increase in revenue that results from that (and that's just from a static analysis; it ignores the growth curve in those revenues resulting from the resultant robust and growing economy) will easily make up a shortfall that need only last for a generation, or generation and a half.
Eric Hines
I also am not limited to "something like the biotech revolution." A free market will produce whatever the free market participants desire or need.
They will, in theory, if and only if adequate resources exist to make the effort worthwhile. But if you do no more than this -- itself a stretch, if the wealth of the community is at zero or declining -- you have a zero-growth economy. Now that's very sustainable, but it means that on average increases in standards of living fall to zero also.
Which is what the theory of these economists predict.
What constitutes needed resources, worthwhile effort, and so on all evolve as the mechanics of the economy change.
And yes, many of those economists also are capable of producing a lot of fancy arithmetic with which to gussy up their claims. "This time it's different" is a...suboptimal...claim in the stock market, too.
Eric Hines
Yeah, right, OK. But we can go one stronger than 'the black market.' If the resources I need to invest in drug development, clinical trials, etc., aren't vastly smaller than expected returns if it works -- given the high percentage chance that it won't -- I won't do it.
We can input all sorts of variables. Some of them we can even avoid, on the grounds of avoiding excess government influence. But there needs to be a pool of buyers out there who can make it worth my while. If I can't see that, I won't go the game.
Exactly. Unless government manipulates demand. Or supply. All for only the best of reasons.
Absent that, you'll put your resources, and/or those resources you can lay your hands on, into some other endeavor. Or sit on the resources. Your choice, not government's, in a free market.
But you, and everyone else, will find something to do with your resources.
Eric Hines
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