In an interview on the Today Show yesterday, President Obama again exhibited his woeful lack of economic understanding.
According to Obama, our economic woes are structural problems that have resulted from large increases in productivity – like installing ATM machines and getting rid of bank tellers. Yes, that’s probably it: machines cause unemployment. Instead of using Caterpillar dozers to build roads, we should put 5,000 workers out there with shovels.
Let’s discuss one of the most basic economic fallacies that, apparently, even an Ivy League education can’t overcome: that of the scourge of machines. This one has been haunting public discussion since the dawn of civilization. This fallacy claims that machines, or productivity increases in general, are undesirable because they displace workers.
While it’s true that the immediate situation for the workers who lose their jobs will be negative, it’s not at all true for society as a whole.
Let’s carry this fallacy to its logical conclusion. If all machines and time savers are harmful to the economy, then clearly the ideal situation is one in which individuals spends their entire day rooting around for food, hopeful that they will find enough to survive, and repeat the process again the next day. No problems with employment here. But would happen to the standard of living?
If you haven’t read Henry Hazlitt’s Economics in One Lesson, then please do so (download pdf copy). As Mr. Hazlitt points out, the classic mistake of economists is to only consider effects on a small group in the short term, while ignoring the long term effects on society as a whole.
So what happens to our wanderer-gatherer society when someone discovers how to produce enough food for ten people each day? Ninety percent of the population is now out of work. But the cost of food (in terms of time and effort) has plummeted. So much so that the labor of the other ninety percent has been freed up to produce other desirable items such as wheels or houses or big screen TVs. Society as a whole is richer because of the increases in productivity.
The fact is economic growth, or a rising standard of living, is due to increased productivity. The more goods and services each individual is able to produce, the more that is available to society as a whole. Clearly machines and technology are great enablers of economic growth and not the other way around, as, sadly, our president believes.
Your statements ignore the fact that without funds to pay for the higher productivity, since workers are out of work, and inflation devalues the currency, higher production of goods merely flood the market. Supply increases above demand thereby increasing costs of goods, and services whereas the consumer cannot afford those goods, or services. Companies lose in this scenario because consumer do not purchase their products.
Stan, could you name the text book or school where you learned these economic principles (sic)?
I don’t remember reading anywhere that supply increases above demand increases the costs of goods. An increase in the supply of anything above demand lowers the costs as suppliers cut prices to move inventory.
Obama turned out to be worse than an empty suit. His basic logic is flawed, he favors Muslims over Jews, he places Government over Private Industry, and he has accomplished only one good thing: A black man was elected President.
Sorry, but wrong man. We’d better stick to the candidates’ actions and practical belief systems from now on, not how well one can speak, albeit with the aid of a teleprompter.
Bad art. High Unemployment. China is leading the 21st Century. We must purge a Government with too many self serving miscreants aboard and go from there…
That Guy Gary
Please keep one thought in mind for the rest of your modern-day life for this hypothetical example of inventing new technology that would reduce the necessary labor 90% to get the same volume of food: If the advantage was distributed to EVERYONE, so that they all were allowed to keep their jobs, get paid the SAME, and only work 10% as much each, then we’d all live in an amazing society with essentially little to no poverty, unemployment, homelessness, and greatly reduced poverty-driven violent crime. Everyone would get paid very well, work 1 hour a day, and spend time with their families, friends, vacation, exercise, have more hobbies and produce more art, learn more, etc. Less stress, less medical problems, etc.
Instead, nearly every single company would fire 9 out of 10 workers, and make the tenth do it all, and if it was more than one job’s worth of work, tell that worker that if he/she didn’t want to work 1.5 jobs with no increase in pay, that plenty of the unemployed would. The article is flawed in its implying that the cost of things (like food) drop in that scenario. It doesn’t. You just have more hungry unemployed people.
Technology COULD make ALL workers’ lives better, not just the elites. Run your business that way and expect others to do the same. Not exploit further and further every living person. Any company that has CEO’s making THOUSANDS of times more money than its lowest workers is wrong. Bastards. I’m not saying we should keep a ceiling on the over-paid elites because their egos apparently need the “high scores.” I’m that we should keep a floor to bring the bottom up. Not welfare, not handouts, but fair distribution of the advances that improved technology brings. Is that REALLY so much to ask?
Perrywrinkle’s comments contain much flawed thinking that cannot go unanswered.
First, he assumes a stagnant workforce in which once employment is obtained workers never leave for other jobs or pursuits. He says, “If the advantage was distributed to EVERYONE, so that they all were allowed to keep their jobs, get paid the SAME, and only work 10% as much each. . .” If, as in the example, suddenly 10% of the workforce could produce enough food to meet demand, the excess workforce would be released to be employed in other sectors of the economy, thereby providing more labor, which would lower costs of production that would lead to still lower consumption costs. Further, should such technological changes come about, there would be increased demand for employees to produce the new technological devices (innovations?) that resulted in the increased productivity. Since we’re talking about food, let’s be specific.
The invention of the gasoline-powered tractor greatly increased farm productivity. Does anyone suggest we go back to horse-drawn plows (I’m old enough to have seen them.) because the advent of the tractor caused a decreased demand for horses and for horse harnesses? Of course, not. The horsemen had to shift their economic activities to other areas just as the harness makers have to use their capacity to produce other goods. The result was lower food costs and lower-priced goods in the areas where the economic activity was shifted. Perhaps the harness makers shifted his production to the manufacture of seats for all the trucks needed to carry the lower-cost food further distances. Perhaps the horsemen opened gas station to provide fuel for the trucks hauling the food. The possibilities are endless when people are free to pursue other pursuits and are not locked into one endeavor as they would be in a stagnant workforce as they are in some socialist countries.
Finally, Perrywinkle says he advocates “not welfare, not handouts, but fair distribution of the advances that improved technology brings.” That’s just what a free market does, distributes the benefits of advances to the greatest number of people without government bureaucrats determining who gets what. When bureaucrats determine who get what, there is no way that the benefits are fairly distributed.
A free economy is what made America the wealthiest nation the world has ever seen. Our tendency to move toward more government intervention (determining what is “fair”) can move us only toward a lower standard of living and eventually serfdom.
It doesn’t sound like you disagree with the fact that increased productivity is that basis of a higher standard of living. Instead, you are concerned with how this increased productivity is distributed, which is an entirely different issue.
Yes, we are currently at an extreme in this country with regard to the concentration of wealth. But this is not the fault of a free market, it is rather the inevitable result of no longer having a free market. Excessive profit is the signal that directs resources in a free market. Competition enters to create additional supply until the price (and profit) is lowered to a minimum required for the companies to operate.
The situation you describe, in which profits are forcibly held high and competition is prevented, is exactly what has occurred in our centrally planned economy. The government has become a tool of the largest corporate and banking interests to cartelize these industries and prevent competition.
I highly recommend you read Rothbard’s Origins of the Federal Reserve. (You can download it for free from the Essential Readings sections of this site.) He details the dawn of the Progressive era in this country and how the so called reforms to protect people from big business were actually created by the big business themselves in order to exclude competition and keep their profits high. Something that their private cartel efforts completely failed to do in the relatively free market of the late nineteenth century.
Mr. Obama must suffer from hearing loss. That great sucking sound of Americas’ economic stability is unmistakable when the cry of displaced workers and their families is carried in the winds of the wars that are breaking the backs of the people, by the military industry and the politicians that are selling us as cheaply as a greedy pimp sells to the degenerate bidding client…while the fed prints counterfeit. This occupant of my House in Washington is indeed without acumen, integrity or substance. We really went for the oakey-doke on this one folks. What’s on the horizon?
It’s time for some American ingenuity, innovation and re-thinking the “I need someone to boss me around” mentality. The jobs aren’t there anymore and wishing and complaining about it won’t change that. Times are changing and we must change, too. Asking anyone outside of ourselves to support and sustain us is a recipe for disaster, suffering and heartache.