My father has long been fascinated with the notion that human society is going to have to rethink how it distributes wealth some day when almost no human labor is needed. Given that our economic system is mostly based on work as the means of collecting money as the means of buying goods and services, what do we do when we simply don’t need anybody to do anything?
I’m not willing to dismiss this challenge out of hand, but I’ve always thought it missed something in the way the economy works. As it becomes easier to produce things, the price should go down, meaning that it takes less work. When people are able to buy with less money all that they need and want, then they’ll work less, leaving opportunities for others. If some person decides that he really wants to keep working to make even more money, then others can work a little more than they otherwise would have for a little lower pay than the go-getter wants and price him down.
Naturally, this is all very easy to write in the abstract, but the fact that I can’t predict what people will value in the future doesn’t make the economics disappear. At most, it illustrates why I’m not a billionaire investor.
These ideas have been near the surface of my thinking in the past day or two because Northwestern social sciences professor Robert Gordon has an essay making the Internet rounds titled, “Goodbye, Golden Age of Growth:”
Growth in output per person, our best measure of the rate of improvement in the standard of living, can proceed no faster than growth in output per hour, unless hours worked per person exhibit an increase. Yet the retirement of the baby-boom generation is already causing a decline in hours worked per person, and that’s likely to continue for another 25 years. Future growth in output per person, therefore, will fall short of growth in output per hour, bringing labor productivity growth and its ultimate source, the pace of innovation as measured by TFP [total factor productivity growth], to center stage in any discussion of the future of growth in American well-being.
Maybe long, fruitless discussion of such matters with my father have dulled my senses on the topic, but a phrase floats around in my head while reading such warnings: “So what?” Either the necessity to increase production per person will drive innovation and technology or wages will have to increase, to draw people away from whatever it is they’re doing instead of producing what the economy wants (perhaps in part by creating incentive to give up costly vices and laziness) or some combination of the two.
Arguably, the core problem that makes this all see so daunting is the very belief that we have to figure it all out and make public policy that avoids it. That brings us protectionism and regulation that prevents people from finding ways to be economically useful, which in turn makes it impossible for prices to adjust and move resources around. The vulnerable suffer because they’re unable to make themselves economically useful. (This applies even to social ills. A person who is not willing to overcome a vice or foible for the benefit of holding a minimum-wage job might very well find inner strength when the upside is rapid entry into the middle class.)
If Baby Boomers want to retire en masse without a significant reduction in their consumption, and if they leave gaps in the workforce that aren’t filled with automation, then wages will have to go up, and Baby Boomers will have to pay more for their leisure. The fact that they miscalculated when planning out their multiple decades of retirement may be individually unfortunate, even tragic, in some cases, but that miscalculation doesn’t constitute a guarantee that younger generations are obligated to provide. Again, this is oversimplified and very easy to type in vague fashion, but the basic principle is that people who want more leisure can’t expect others to give up leisure without compensation.
Of course, as much as locking the economy in place and allowing only well-vetted change serves those who currently hold the wealth, creating the illusion of continual growth is the only way that non-productive organizations like governments can grow their own take without people’s feeling like they’re having to give something up.