PARDON THE DISRUPTION - CHAPTER 17

f. The Case for Change

America is a charitable country. Our churches, United Way campaigns, and philanthropic institutions raise billions of dollars to help people in need both here and abroad. Heartfelt giving to the aid of a neighbor is commonplace. We even ensconce assistance to the poor, disabled, and elderly in our federal budget. We come by this naturally. Both our pioneering heritage, which forced us to rely on others for survival, and our immigrant ancestry, where taking care of one’s own was essential to survival, have encoded it in our DNA.

Those elements of our heritage made it feel right to help others, to give, to work towards a level playing field. Their origins go very far back indeed.

Dating back to biblical times, there is ample evidence of public support for those less well-off. From the Old Testament, Deuteronomy 24:15:

“You shall pay him [the hired man or servant] each day's wages before sundown on the day itself, since he is poor and looks forward to them. Otherwise he will cry to the Lord against you, and you will be held guilty.”

From The Catholic Eye (May 28, 2009):

“In view of this passage and others, such as James 5:4, the Church has taught that depriving a worker of his just wages, whether by withholding them or failing to pay a just wage, is gravely sinful (CCC 2434), and in fact has called it one of the four ‘sins that cry to heaven for vengeance.’ This is the case, as Leo XIII wrote, because ‘the laboring man is, as a rule, weak and unprotected, and because his slender means should in proportion to their scantiness be accounted sacred’ (RN 20). ‘Workers are due their wages as a matter of justice. The Catechism tells us that "a just wage is the legitimate fruit of work’ (2434). But a just wage is not that which will merely provide sufficient food, clothing, and shelter. To live at a subsistence level is to live at the minimum condition of human dignity, and, as St. Thomas Aquinas wrote in the Summa Theologica, ‘No one is obliged to live unbecomingly.’”

Fairness, in wages and in the way people are treated, is one of the basic tenets of American society. The American adult, almost universally, wants to work and would prefer that to a life on the public dole. But something happened in our cultural evolution that mutated our DNA, transforming “a hard work for a fair day’s wages” to “I’m willing to work so I’m entitled to a job and it’s the politicians’ fault if I can’t find one.” As I’ve already said, in today’s economy, politicians have virtually no control over employment levels. The playing field has changed, and these guys can’t even find the stadium.

In a recent article, Thomas Friedman puts this issue in context from both political and economic perspectives. He relates a concern shared by both Bill Clinton and President Obama – that if you “work hard and play by the rules,” the American ideal of a good life and even better chances for your children are within reach. Friedman openly questions whether the idea of “working hard and playing by the rules” is relevant anymore. He cites the educational efforts of places like China and Estonia, where children are learning computer programming and coding beginning in elementary school.

Those efforts are a world apart from the typical American attitude of today – a proud, even belligerent stance that says, “I’m gonna work harder than you,” or, “We’re gonna kick your a**!” This is the worst version of American exceptionalism, unaccompanied by any serious determination to do what the competitive world stage requires. The world has changed so dramatically in the face of disruptive technologies that the old rules rarely apply. Friedman writes, “The truth is, if you want a decent job that will lead to a decent life today you have to work harder, regularly reinvent yourself, obtain at least some form of postsecondary education, make sure that you’re engaged in lifelong learning and play by the rules. That’s not a bumper sticker, but we terribly mislead people by saying otherwise. “

Friedman's right. So that we don't continue our grand mistake of continuing down the wrong path, we must change – or risk becoming increasingly bitter as we haplessly watch the success of others. The postwar educational and industrial models that affirmed (allowed us to get away with) that we didn't need to learn anything more after the highest level sheepskin on our wall ultimately did us a great disservice. This is the misleading role played by U.S. leadership to which Friedman is referring. We have now fallen behind other countries, and the clock is ticking.

The lasting impact of this is, as I’ve stated before, that potential employers will not need and may not want fresh blood as their businesses evolve. Three scenarios are converging that will force the United States to jettison the economy we’ve come to know: 1) a worse than normal recession, 2) an economy afflicted with deflation, 3) an economy impacted by the exponential advance of technology, in which we choose our own educations, produce our livelihoods in the near-absence of “jobs,” slowly withdraw from the consumption society, and witness an employer mindset that prefers robots and technology over people for most labor.

It creates a perfect storm, a situation in which whatever we do produce (any real tangible object) will be made without ordinary, human labor. That will change what it means to be an American. And the social impact of it will force a political shift in how our capitalist economy and social welfare systems operate. This won’t be an incremental change, a Simpson-Bowles-style solution of cutting some spending and raising some taxes. Both systems will be altered abruptly and dramatically, and how we handle this may determine the standing of the U.S. in the world forever after.

The tremendous power of exponentially advancing technology, the impact on manufacturing (through robotics and 3-D printing) and the engagement of so many international players that could never reach the markets before (largely over the Internet), coupled with the social reality of the slower "clock" of some people’s ability to keep up with technology, will likely have an extremely adverse impact on the employment capacity of Americans. Exacerbated by potential employers’ unwillingness to take on additional payroll expense and a deflationary wage spiral that will make millions of Americans low-wage free agents, this phenomenon is going to be painful for many of us.

Much like the confluence of a normal recession with a massive change in business attitudes, the near future may be marked by a different set of intersecting economic factors that confuse the marketplace and create additional turmoil. These factors are the price-lowering impact of improved technology and a period of deflation caused by, on the one hand, the massive inability of major debtors to fulfill their obligations, and, on the other, the downstream effect of so many people being out of work, creating a huge labor surplus that reduces wage rates, and therefore purchasing power, ultimately diminishing the value of all tangible property.

Though there have been some periods of disinflation in the United States since the 1930s, America hasn't seen true deflation since the Great Depression. Growth and inflation (at some level) are all most of us have ever known. Inflation is part of our expectations. Contracts are routinely written to include a CPI increase escalator. In lieu of merit increases, municipal employees are often given increased cost-of-living raises.

Very similar to today's efforts to alleviate unemployment through economic stimulus, efforts to reverse a deflationary slide will prove ineffective – just another case of treating a disease with the wrong medicine.

There are, however, several mitigating factors that may minimize the negative impact. Number one: the baby boomers are retiring – they began hitting age 65 in 2011 – and, though their retirements may not be spent nearly as richly as they had hoped, their departure leaves millions of open slots in the workforce. Number two: not nearly as many people are entering the job market as are leaving it – simply put, there are more people turning 65 than 21. The commonly-cited statistic that 150,000 new jobs per month are needed to maintain consistent employment may need revising. The numbers likely will change to about 90,000 (assuming we continue to accept the old measurement of jobs and unemployment in the new paradigm of free-agent workplace engagement). Lastly: community colleges and online courses have made it easier to acquire skills for the employment market. This retooling can take a fraction of the time it used to, and is good news for those who are quick studies and entering the right fields.

However, the inability to be prepared for the next economic shift – because it is all uncharted and no one truly has the answer (we just know that it will change – dramatically – because of the exponential impact of Moore’s Law) – creates a high level of uncertainty and that will be a dominant trait in the economy of the foreseeable future. No, this isn’t fair. No, there really isn’t anyone else to blame. It is a changed world we weren’t ready for. And the impact goes far beyond simple wage earning.

Bill Watkins is a professor at California Lutheran University who runs the Center for Economic Research and Forecasting. He wrote a column that appeared in NewGeography.com on March 26, 2012, entitled “Inequality and Economic Growth.”
Here’s a choice excerpt:

“So, why do we need economic growth?

“We need economic growth because people need more than consumption.

“The great cartoonist Al Capp, the creator of Li’l Abner, understood this. Li’l Abner, his wife Daisy Mae, and the other residents of Dogpatch sometimes benefitted from the presence of a creature called a Shmoo. Shmoos bred prolifically, and could create or serve as anything humans wanted. They were perfectly happy, ecstatic in fact, to be dinner. With Shmoos around, all human consumption needs were fulfilled, with no effort on the part of the humans. It didn’t work out so well. The Shmoos were eventually killed by extermination teams to save humanity and the economy, except for two saved by Li’l Abner and returned to repopulate the Valley of the Shmoon.

“We have similar real-world examples, and it doesn’t work out so well here either. It turns out that when all consumption needs are provided with little or no effort on the part of the recipient, something is lost. Drug and alcohol abuse abounds in these populations. Traditional families are destroyed. Crime is high. Violence, including domestic violence, is high. Morals are abandoned. Relationships are fluid, frequently violent, and always temporary. Health is poor, even when healthcare is provided.

“It turns out that when people are provided everything they need, self-destructive behavior is the norm. It’s almost as if they have no reason to live, and it is a terrible price to pay for consumption.

“It turns out that a job costs less than dependency, and that’s why we need economic growth. Jobs and opportunity provide us with some things that consumption can’t. I think those are pride, dignity, and purpose.”

If the confluence of all the technological and economic factors we’ve discussed creates the perfect storm, the maladies that Dr. Watkins cites may erupt in a way that our current somewhat-worried-but-mildly-optimistic view of the world cannot fathom.