The chart below, from NPR, shows what happened to unemployment in previous recessions: each line starts at the time of highest employment level before a recession, and shows what happened in the next 60 months (five years). In all recessions before 1980, employment levels fully recovered in about two years. Since then, however:
The 1980 recession recovered all jobs after 3.5 years
The 1990 recession, after 2.75 years
The 2001 recession, 4 years
The 2007 recession: it’s been more than 5 years and we’re still not there yet
NPR’s original chart is interactive — click on the image to go to it.
As we’ve seen before, the GDP (along with productivity measures) has pretty much continued to climb this entire time, unabated by the high unemployment levels. (The Dow recently hit record highs, having recovered all losses following the crashes of 2007.) What this means is that businesses are doing just fine with less employees, due in part to outsourcing, and in part to automation.
A study by the Reserve Bank of Australia found out that their economic predictions could’ve just as easily been done by a monkey throwing darts at a chart:
Only 70% of inflation forecasts were accurate
Unemployment estimates were as good as a roll of the dice
Economic growth predictions were somewhere in between
They looked at 20 years’ worth of forecasts for the year ahead to get that data. Bottom line: forecasting the economy is like trying to forecast the dice in craps, but instead of losing money to the casino, you get paid a high salary and get mentioned in the news every year. Why? Because we need to plan for something in the future… even if those plans are based on fiction.
As we’ve seen before, in the year 2000 the Congressional Budget Office, which does official economic forecasting for Congress, predicted that by 2012 the national debt would be wiped out. What actually happened is that the debt increased five times over. To explain how that once-likely prediction became just another unrealistic dream, the left-leaning Center For American Progress broke down the numbers in a short video; of the 12 trillion dollar difference between projected and actual revenue:
4.7 trillion (40%) went to extra Bush spending (wars in Iraq and Afghanistan, increased Medicare coverage, increased domestic security, debt repayment)
3.3 trillion (26%) disappeared due to two economic downturns — the Internet bubble in 2001 and the real estate bubble in 2008
2.3 trillion (20%) went to pay for Bush tax cuts
1 trillion (8%) went to extra Obama spending (continuation of Bush tax cuts, new Obama tax cuts and other policies)
0.7 trillion (6%) went to the 2008 stimulus to bail the country out
For the past 60 years, the American economy has been growing steadily. We know this mostly due to four important economic indicators:
GDP: the value of all the stuff a country produces
Productivity: how efficiently that country produces its stuff
Private employment: how many people are employed by businesses which add to the GDP
Median household income: how much money each family makes
During the first half of those 60 years, from about 1950 to 1980, all four indicators rose together. Which makes sense: people have jobs, they do good work, they make a lot of stuff, and their salaries go up. But in the 1980s, median household income started to lose steam. People still had jobs, lots of stuff was still being made, and it was made efficiently, but salaries started to stagnate. In the 2000s, private employment started falling behind also. You’d expect that less people, working for less money would create less things less efficiently, but in reality, the GDP and productivity levels kept going up as if nothing had happened.
One of the authors of Race Against The Machine, an MIT scientist named Andrew McAfee, has an intriguing post on his blog about this trend, which he calls the “The Great Decoupling of the US Economy” — the observation that employment and income have become unhinged from the well-being of the economy. Why the GDP barely blinked while unemployment has shot up and wages have gone down, is partly due to tax changes and globalization — but also due to automation. Machines have been stealing jobs for decades, though until recently, they’ve been low-skill jobs that could be easily automated. Employees that lost those jobs were retrained and became supervisors of the machines, and their income even went up.
But now, machines have crossed another threshold and have begun taking high-skill, high-wage jobs: secretaries, travel agents, accountants, paralegals, researchers, translators, etc. And, as we’ve seen before, even better artificial intelligence is knocking on our door: soon, systems like IBM’s Watson will begin doing the work of doctors, lawyers and clerks. But, they won’t, and don’t, do it for their own sake: they do it at the behest of wealthy industrialists, who find it cheaper to buy a machine than to hire an employee. He still gets the same output from either the machine or the person, but at a cheaper price. And so the profits still roll in, while the value of the human worker is diminished, since there is now competition from a cheap robot.
As cheap technology takes over the skilled labor on which the middle class is based, that middle class will start to disappear. The social makeup of the year 2100 could very well reflect that of the year 1800: a small aristocratic class which controls almost all wealth, and an impoverished working class which does whatever it can to get by — nevermind live comfortably. In such a world, most employment would be in the service industry, with smaller numbers in the arts.
Dinner at Downton Abbey
We would effectively live in Downton Abbey, a castle in which there is no actual need for as many employees as it has: a cook and a maid would serve just fine. In fact, the castle itself is much, much too big for a family of six. But rather than live with scores of unemployed beggars, the aristocracy created jobs out of thin air by means of useless, elaborate rituals: extravagant dinners which require multiple cooks and multiple servants; needlessly complicated fashions which require maintenance by valets and maids; and management to keep these employees organized and “productive”. Besides these human roles around the mansion, our 22nd century aristocracy would likely also demand human service when going out, of course: waiters, clerks, salespersons. Besides service jobs, the only other employment that will never be replaced by machines are artists: writers, painters, sculptors, filmmakers — that industry is likely to see little change through the robotic revolution, since their products are subjective.
For the past 150 years, since steam-powered machines started replacing human labor, new inventions and new industries have always saved the day by bringing ever more need for skilled labor. However, as machines replicate more and more of our versatility, intelligence and skill, that road is coming to an end. And so, we need to start the discussion on the end of employment as we know it, and what humanity’s role will be in a world in which very few humans are needed to make the goods and services they use.
For several weeks, especially since the election ended, the media has been focusing its attention on the coming fiscal cliff. Most reporting talks about one thing: that the cliff will push the country into another recession. What very few stories mention is that the recession would be short, that it would balance the budget and set the economy up for expansion.
That is the opinion of the non-partisan Congressional Budget Office, which has been publishing economic projections for Congress since 1985. It puts out two scenarios: a baseline, in which the current economic policies continue, and an alternative, which considers other popular policies. Its latest publication makes it clear that the fiscal cliff is bad for the short term, but necessary for the long term. The alternative scenario, in which we avoid a fiscal-cliff-type of event, would have the public debt rise to 90% of GDP — levels unseen since WWII.
Source: The Committee For A Responsible Federal Budget. Credit: Lam Thuy Vo / NPR
The current debt level is at 77% of GDP – the highest since 1950. If the fiscal cliff does happen, over the next decade that figure would drop to 58%, instead of rising to 90%. (Which is still not good since, historically, it’s been around 40%.) Before that would happen, however, the economy would go into recession in 2013 and the unemployment rate would rise 9%. But, the next year, the economy would start to grow again, unemployment would drop to 5.7% by 2017, and further to 5.0% by 2022. Alternatively, without the fiscal cliff, says the CBO:
Austerity measures are desperately needed, and it’s quite amazing that a do-nothing Congress as polarized as this one was able to pass a pretty good solution to our budgetary woes in the form of this fiscal cliff. But it’s clear that even it won’t be good enough: the national debt needs to drop even further. This becomes obvious after realizing that the fiscal cliff provides only 0.5 trillion extra funds, on a 4 trillion dollar budget. Ten years ago, the budget was 2 trillion. Five years ago, almost 3 trillion. The fiscal cliff would see that 4 trillion dollar budget shrink by just 2.5%, when it really should shrink ten times as much.
When Clinton left office in 2000, public debt was projected to be zero in 2012 — instead it multiplied five times over. If Congress and the President come to an agreement to avoid the fiscal cliff, it should be only to make even deeper budgetary cuts.
The United States, and almost every country in the Americas, has more economic inequality than the rest of the world. A good way to measure this is the Gini Coefficient, which is expressed as a percentage: 0% means total income equality, where everyone has the same income, and 100% means total inequality, where one person makes all the money. The range we see in the real world goes from about 25% for the Nordic countries, to 60%+ for some African countries. The coefficient is hard to calculate, so it’s mostly an estimate and varies from source to source; the numbers used here are the latest ones in the CIA’s World Factbook, which gives the US a Gini Coefficient of 45%. In the same neighborhood: The Philippines, Argentina, Mozambique, Jamaica, Bulgaria, Cameroon, Iran, Cambodia, Uganda and Macedonia. Most of Europe is in the high 20s and low 30s; Sweden is the lowest, at 23%.
Wealth Distribution in the USA and Equalden (really, Sweden)
Two economists, one of which is the author of Predictably Irrational, asked Americans to choose between two unnamed countries’ economic equality. The two countries were actually the United States and Sweden, and those surveyed overwhelmingly chose Sweden’s demographics: 92% of them liked it more, and there was no appreciable difference between Democrats and Republicans, between genders, age groups or income levels. This, of course, should come as no surprise, since few people in their right mind would say “I wish the rich were richer and the poor, poorer.” The question is, how do we get to a state in which the gap between the richest and poorest people is as small as possible?
The simple, and only proven solution thus far, is the redistribution of wealth: take the rich people’s money and maybe not give it directly to the poor people, but use it to fund government services like free universal healthcare, which in concert with low taxes on poor people, will put them on a more equal footing. This Robin Hood approach is par for the course in Europe, and is why the Gini coefficient in countries like Sweden, Finland and Germany is so low. In the United States, however, it’s not as simple because for many Americans, the end does not justify the means: people are not property of the state, so it’s not morally justifiable to take their possessions for any reason, including improving or even saving someone else’s life. However, giving to the less fortunate is highly encouraged as a moral duty, which is why the United States is the most charitable nation in the world, according to the World Giving Index. Sweden, on the other hand, is 40th, Norway is 32nd and Germany, 26th. Charity, of course, does not factor into the Gini coefficient.
Robin Hood Memorial in Nottingham
Redistribution of wealth does happen in America — the top 10% of earners paid 71% of the nation’s taxes for 2009, but only earned 43% of its income — but due to conservatives, redistribution on the scale of Western Europe will likely not occur here. So what are other ways of achieving higher economic equality? If taking money from the rich and giving it to the poor isn’t an option, then the poor would have to make more money and generate wealth on a bigger scale. The easiest way to make this happen is education: more educated people tend to earn more, so we should be encouraging people to go to college, and offering the ones that do cheap ways to do it, via grants, scholarships, and cheap student loans.
But, not all higher education translates into higher income. And while educated people make more money than those who aren’t, the vast majority of them make a good, but not great income. The millionaires and billionaires don’t amass their wealth through education, but rather through entrepreneurship. Steve Jobs, Bill Gates and Mark Zuckerberg are all college dropouts. So more than education, what we should be encouraging is that drive which makes for a successful entrepreneur. Our society should foster an environment in which people see opportunities around them, have the willpower and dedication to take them, and the tools to turn them into success stories.
And we do a decent job at this already: the United States really is the land of opportunity, and it’s the reason why, even though the American Gini coefficient is the same as Cameroon’s, the American lifestyle is orders of magnitude better, and in many respects even better than countries like Sweden. However, we should be doing more to close the gap between the rich and the poor. The easy way would be to take from the rich and give to the poor, but the smarter way would be a win/win solution in which the poor become richer through their own merits. A way in which, rather than making everyone’s income average, we make lower incomes obsolete.
NPR has a very interesting article about the modest and illegal beginnings of China’s booming economy. Way back before the agricultural reforms of the 1980s, farmers didn’t own anything: they worked on farms, but whatever they produced was given to the collective, which then redistributed the goods. It was a communist utopia: from each according to his ability, to each according to his need. And it would’ve worked fantastically, if it wasn’t for human nature; as one of the farmers in a village in central-eastern China put it:
“Work hard, don’t work hard — everyone gets the same,” he says. “So people don’t want to work.”
Yen Jingchang, one of the original capitalist Chinese farmers
As a result, that village didn’t have enough food. So one day in 1978, the farmers got together and came up with a plan to illegally divide the farms up into plots; they all had to give food to the collective, but the farmers that met a certain quota could keep some food for themselves. They then signed a secret contract formalizing the agreement, and included a clause saying that in the event a farmer got arrested for the practice, the other villagers would raise their children. The result of this risky enterprise would make Ayn Rand proud: that season’s harvest was more than the previous five years combined.
When the government eventually got wind of what they were doing, the farmers were hauled in front of officials; but since you can’t argue with results, the government decided that instead of punishment, they deserved praise. So the economy was reformed, the farmers were held up as heroes, and the secret contract is now in a museum. Since then, 500 million Chinese have risen out of poverty.
But it was just a start: the government still takes businesses away from their owners once they become too profitable, and a lot of wealthy Chinese are looking to move their money abroad, out of governmental reach.
The peak of the American economy before the recent recession happened at the end of 2007, when the GDP was 13.33 trillion$ and 138 million people were employed. After almost 4 years (three times longer than our average recovery time), the GDP is finally back above that level, to 13.35 M$ — but with 7 million fewer workers. Those people have been replaced partly by their former, more productive co-workers who picked up the slack, partly by cheaper workers in India, China and the like, and partly by computers who have gotten a lot more adept at doing sophisticated things around the office.
For example, there’s a lot less need for secretaries these days: between Outlook, GMail, the decline of postal mail, easy-to-use calendars with reminders on all the smartphones, files becoming electronic without need for filing (thanks to Google desktop search), and now even Siri, a lot of a secretary’s job has been largely replaced by software from Google and Apple. Travel agents have been replaced by Travelocity and Expedia (dot cooom). Accountants, by Excel, Turbotax, and Mint. Broadcast engineers, by streaming Internet video. Police and security officers, by cameras and security systems. Paralegals, by scanners, optical recognition, text search software, and the Internet. Librarians, by Google Books and Amazon. Bank tellers, by ATMs. Even bakers, by vending machines. All middle class jobs that are disappearing.
And that’s just the beginning: Watson – the IBM computer that mopped the floor at Jeopardy! with the two best people that ever played the game — is going to replace all kinds of Jeopardy! contestant-like jobs that depend on recalling trivia from large amounts of knowledge: doctors, lawyers, government employees, etc. Of course, technology doesn’t eliminate those jobs completely: we’ll need surgeons, trial lawyers and DMV clerks for the foreseeable future. Same goes for the other jobs (e.g., we’ll always need some accountants and traffic cops), because we’re unlikely to ever automate everything, but what will happen is that one person will be able to do the job of several. Agriculture was one of the first industries to become automated, and now a couple of people can run an entire giant farm that used to take dozens; over the past century, those jobs went from 38% to 2% of the workforce.
Watson on Jeopardy!
As a specific example of what’s coming, NPR has an article that highlights how disruptive automation will be to the auto industry: in the past 30 years more Americans have been killed by cars than by all the wars in the past 300 years — 1.5 million people. Because of that, and also because they’re really cool, driverless cars are coming to improve safety and efficiency. When they do, right off the bat, they’ll put a lot of people out of work: taxi drivers, valets, bus drivers, traffic cops, etc. And people that don’t drive too often may forego owning a car altogether and just use services like Zipcar; this means less need for mechanics and parking maids, less government revenue from drivers license fees, registration fees, traffic tickets, parking tickets, etc.
Google's driverless car. Illustration by The Globe And Mail
One interesting thing is that lower-skill jobs are not yet being targeted by robots, because those jobs tend to pay too little and aren’t worth replacing by an expensive machine that does them probably much worse: all kinds of cleaning jobs (janitors and maids, garbage men, bus boys), fast food cooks, animal caretakers, etc. And then there are the jobs no one wants to see a machine doing, mostly in the service industry: waiters, receptionists, nannies, hair dressers, retail salesfolk. Because of the high-cost and largely impersonal nature of middle-class jobs, it’s mostly those that are at risk for being replaced by machines.
So what do you do when the metal ones decide to come for you? Besides getting Old Glory Insurance, re-education is pretty much the only alternative to hoping you’re one of the few that get to stay behind. The loss of jobs to automation is nothing new and has been an issue since the days of John Henry, almost 150 years ago. And so far, every time an industry is disrupted by machines, a new industry pops up to take its place and create the new jobs needed. For example, when agriculture started to decline, radio and television were invented, as were cars and airplanes. Now, at the very least, we’re going to need people to design all those new robots… until someone builds one that can reproduce.
And in case you’re interested in some of that robot insurance:
NPR has an article about an economic report from the year 2000 that pretty much foresaw a collapse of the global economy if America ever paid its national debt. And back then, when the economy was booming and there was a budget surplus, it looked like the US would be debt-free in 2012.
The problem with that scenario would have been that the government would no longer sell Treasury bonds (since the proceeds from those sales goes to pay debt), which would probably be catastrophic because much of the national, as well as global, economy is built on those bonds sales. For example, a lot of investors buy bonds because they’re an extremely safe investment: the US government will likely never default on its debts. And pretty much all interest rates are in some way tied to the yield on Treasury bonds. And the government uses bonds to try to steer the economy in one way or another. No more bonds means no more safe investments, the foundation of the interest-bearing banking system collapsing, and no way for the government to control the economy.
The all-seeing eye on the dollar bill
Luckily for the global financial system, that scenario never played out, and instead of being debt free by next year, it now looks like the US will be lucky to ever get back down to a manageable debt level. In other words, Treasury bonds and the modern economic structure are here to stay for as long as anyone can tell.
But any conspiracy theorist worth his salt would look at the way recent history played out and say there was no luck about it and that in fact, this is what actually happened:
The Illuminati (or whomever runs the world from the shadows) saw the report forecasting a debt-free America and the subsequent collapse of the financial system that keeps them in power.
They realized that for that system to remain in place, America had to be plunged into such enormous debt that it would take decades to recover.
For that kind of enormous debt, the country would have to make deep cuts to revenue and massive spending increases.
So they struck a deal with Bush & Cheney and got them elected by coercing the Supreme Court into its landmark decision on the Presidential election in 2000.
They made 9/11 happen in order to bring the US into a state of perpetual war on terror, which would take monstrous amounts of perpetual funding. As a happy coincidence, it would also limit freedom in the name of security and significantly increase federal police powers.
The Bush administration introduced massive tax cuts, supposedly to recover from the Internet bubble, but really in order to cut revenue.
It then invaded Iraq, knowing it would cost untold amounts of money before the war was over.
The Fed cut interest rates to record lows, again supposedly to help the economy grow, but really to create the real estate bubble that would lead to the collapse of the stock market, followed by high unemployment, followed by a bigger decrease in tax revenue on top of the existing tax cuts.
For good measure, the administration also spent money wherever else it could: increasing entitlements (mostly Medicare), federal subsidies, education and discretionary spending.
All told, the second Bush administration vastly increased federal spending while at the same time lowering taxes, leading to the enormous debt devised in step 2.
The government lost money every single year in which the Bush administration created the federal budget: 3.5 trillion dollars total. Federal spending almost doubled from 1.8 trillion in 2001 to 3.5 in 2009. Over the same period, federal tax revenue shrunk: from 20% of the economy to 18%; in dollar amounts, it went from 2 of the 10 trillion dollar economy (by GDP PPP) in 2001, to 2.5 of a 14 trillion dollar economy in 2009. The result: instead of shrinking to zero from 2000 to 2012, the government debt more than tripled, from about 3 to over 10 trillion.
So there you have it: ten easy steps to keep the Illuminati in power by creating enormous American debt in eight short years. The movie version should be riveting.
Update: the New Scientist has a well-timed article about a Swiss study that found, among the world’s companies, a network of some 43,000 interconnected transnational corporations, 1318 of which control about 80% of global revenues. Of those, an even more tightly-knit “super entity” of 147 corporations (mostly banks) control 40% of the network’s wealth; they include JP Morgan, UBS, Merrill Lynch, etc. The Occupy Movement would call them the 1%; conspiracy theorists would probably call them the Illuminati; the Simpsons would call them the Stonecutters.