Break the myth: a bad economy has nothing to do with automation

I can remember the 80's and how my siblings and I used to give each other presents as young adults. That went on for awhile when the economy was OK. But then something happened along the way. Times were not so good. We cut the gifts to Secret Santa in the 1990's. Then a few more years later, we stopped doing Secret Santa. I don't know when it really stopped, but it stopped and to me, that is a sign of the economy, the changing times.

I can also remember watching MSNBC business news after work. I clearly remember the stock rallies after a large employer laid off thousands of workers. It was like a celebration of a triumph over the working class. It seemed like every January there would be some kind of rally on Wall Street, but that wasn't about us. It was about them.

Then we had the collapse of the housing bubble. Hardly anyone saw it coming, and the people who did see it coming weren't letting on about what they knew. At least, not the pundits, not the people on Wall Street and certainly not anyone in government. Maybe they really didn't see it.

One of the people who saw the housing bubble coming was economist Dean Baker. I discovered him years ago shortly after the housing bubble. In this video he tells us about how the rest of us were being treated like kids by the elite when it's the elite that missed the housing bubble. He pointed out that we can keep the economy going, even if the big banks failed. On September 29th, 2008, he wrote, Why Bail? The Banks Have a Gun Pointed at Their Head and Are Threatening to Pull the Trigger. Can you think of any other economist so clear and blatant about the state of mind of very wealthy people who didn't see the housing bubble coming?

During the past few years, we've seen a movement for a nationwide $15 an hour minimum wage. In reviewing the debate on the subject, I found numerous conservatives in social media had countered that if we raise the minimum wage that high, most service jobs like fast food, cashiers and bellhops would be replaced by automation. Some are even saying that the economy is already bad because of automation. Baker doesn't see it in the numbers. From his column published in the LA Times on May 6th, 2015:

Turning to the evidence, if technology were rapidly displacing workers then productivity growth—the rate of increase in the value of goods and services produced in an hour of work—should be very high, because machines are more efficient. In the last decade, however, productivity growth has risen at a sluggish 1.4 percent annual rate. In the last two years it has limped along at a pace of less than 1 percent annually. By comparison, in the post-World War II “Golden Age,” from 1947 to 1973, productivity grew at an annual rate of almost 3 percent.

Job killing robots are a myth perpetuated by wealthy people who want to suppress wages for their own profits. Baker continues in his article:

Still, the robots story is important because it perpetuates another myth: that inequality is something that just happened, when in fact it's the consequence of specific policies.

If robots are the problem we could feel bad about it, and maybe look to help those who are on the losing side of the great human-android war. But few would want to be Luddites standing in the path of technological progress. Opposing mechanization seems futile. On the other hand, if the rise in inequality over the last 35 years is due to government action or inaction, then we might try to bring about change. The list of policies that have led to inequality is long. It includes a trade policy designed to whack the middle class; Federal Reserve Board policy that fights inflation at the expense of jobs; a bloated financial sector that relies on government support; and a system of labor-management relations that is skewed against workers.

Wait. What was that again? Inequality is a consequence of certain [public] policies? Yes it is. Baker lists a few of them in his article and has a more complete description in a few of his books like, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, and The End of Loser LiberalismMaking Markets Progressive. In both books, he provides a historical and economic perspective on how the rules were changed to permit inequality on an astronomical scale while keeping much of the public uninformed of the changes (video). What we're learning is that inequality in America is about the rules and who writes them. Self dealing starts at the top.

A team of economists headed by Nobel Prize winner Joseph Stiglitz has written a report dedicated to making the economy work for everyone so that everyone can share the gains in productivity due to technology. It's hosted by the Roosevelt Institute and it's call "Rewrite The Rules".

But even if you think that the market is "free" and that things are as they should be due to natural forces you might want to take a closer look at corporate governance. Over at Alternet, Les Leopold could hardly contain himself with this article, CNN Host’s Attempt to Explain the U.S. Economy Was So Bad I Started Yelling at the TV, (I found it first at Naked Capitalism). Leopold has made some rather interesting points about another capitalist country, Germany:

Fact #1: Germany uses the most advanced technologies in the world.

Fact #2: Manufacturing workers in Germany earn much more than their U.S. counterparts: 44.7% more in textiles, 44.6% more in chemicals, 34.2% more in machine tools, and 66.9% more in the automobile industry.

Fact #3: Manufacturing jobs make up 22% of the German workforce and account for 21% of the GDP. U.S. manufacturing jobs make up only 11% of our workforce and only 13% of our GDP.

Fact #4: The economic gods either speak German or the Germans are doing things differently from their U.S counterparts.

Isn't that interesting? How come we're moving jobs out of the country instead of doing what Germany does? That's because labor has very little say over how our companies are run. From the same article:

The German manufacturing juggernaut depends on vast investments in innovation (by their government), in research and development (by their firms), and in worker education and training (by both the government and the firms).

That's because the Germans are not as fond of stock buybacks as Americans are. I mean, most Americans have no idea that American manufacturers would rather buy back their stocks with their profits than invest in training for their workers and technology needed to increase productivity. Sending jobs across the border or overseas makes sense if you really don't care about your workers.

How did Germans escape our fate? German manufacturing firms are controlled by unions and management. They see a win-win when they invest in the worker and his tools. More from Mr. Leopold:

Germany holds down its wage gap, in part, by discouraging stock buybacks. Through its system of co-determination, workers and their unions have seats on the boards of directors and make sure profits are used to invest in productive employment. As a result, in Germany stock buybacks account for a much smaller percentage of corporate profits.

Wait. Unions have seats on the board of directors in manufacturing firms in Germany? How come we don't do that here? Because labor hardly has a say in how the rules are written.

So the next time someone says that the economy is bad due to robots taking over our jobs, ask them why American manufacturers are moving their plants to Mexico or opening new factories in China or Vietnam. Ask them why American manufacturers are buying their own stock back with their profits rather than investing in their employees or their tools. Ask them who writes the rules.