The Horse and Worker

The Horse and the Worker in Transition

In many ways I am an admirer of Mish Shedlock’s blog “Global Economic Trend Analysis”.   Indeed, the construction of this little “Commentary Corner” is in response to his thoughtful comment on various aspects of the economy.  His recent post on the skills gap offers much to think about.  He makes the following points about the argument that a skills gap exists between the potential working population and the needs of those wanting to employ them.  One writer he quotes there puts it this way:

Eighty percent of the manufacturing companies in the United States say they cannot find enough workers with the proper skills to fill open positions at their facilities. That’s the number President Barack Obama cited, as he announced the Military-to-Civilian Skills Certification Program, in June 2012

Perhaps, needless to say, Mr. Shedlock does not agree with this analysis. Through the quotes of various authors along with his own comments he makes the following points.

Companies cannot afford to pay so much that they lose money.

Companies would rather invest in technology and robots to reduce the need for labor, than to pay workers more money.

Given the preposterously high cost of education in the US, students graduate from college with an expectation they need to make more than they can to pay off student debt.

Why is this the case?  Well, modern American Industry is in competition with low wage countries arguing for substitution of cheaper labor abroad where possible.

Next, technological improvements are reducing the demand for labor.  Computers are triumphant. Nonhuman technological efficiency is rampant.

The Federal Reserve is supplying funds to support the price of assets (i.e. capital)  preventing a decline in prices overall.

The price of purchase of human capital (education) has become exorbitant.  Few can afford it and the returns are diminishing rapidly.  (Consequence of a mindless push of a good idea.)

Thus the use of human beings in the production process in the U.S. is being artificially reduced and the use of new technology of the nonhuman kind is being artificially increased even as overall production in the U.S. declines.  The economy is being maintained in a fundamental disequilibrium for various reasons with the consequence of massive funding for a vast technological shift.

Historically, we have not gone quickly to termination of this line of development because workers have gone from doing the work themselves to becoming tenders of machines who made up for the machine’s limitations. These limitations have lingered due to a slow pace of technological innovation.  It can be argued that the pace of innovation is now quickening.

It is likely that once the transition is made there will be no going back.  Even if price adjustment is allowed to happen and the Fed stops its quantitative easing, lets prices of assets fall, the new equilibrium could still find labor relative expensive.  After all, the drive towards technological improvement has long promised such an outcome.  The only difference is that the current situation is driving us toward it at greater speed.

The economy and society recognize only two basic sources of income.  Income derived from labor and income derived from the ownership of capital.  Now we seem to be on an accelerating trend which will for the foreseeable future diminish incomes derived from labor and enhance those from capital, perhaps, permanently.

Society can be very cruel in its judgments.  Consider what happened in the case of horses when faced with technological competition in terms of the gasoline engine:

 1900 – The Horse in Transition: Overview

The 20th century brought radical changes in the world of the horse. With the steady rise of technology, the horse was eclipsed by the internal combustion engine. In 1915, the horse population in America peaked at over 21 million. Immense numbers of horses were sent to the battlefields of Europe during World War I. This export decreased America’s horse population which steadily declined until recently, when the horse entered new arenas as a pleasure animal.

The implications of this  paragraph should be very frightening.  It first suggests that the natural fate of the unemployed is as cannon fodder in future wars and ultimately as toys for frivolous purposes.

Can’t happen to people you say?  Consider the following:

After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

But if the skills are becoming obsolete then the skills are no longer valuable and the wages paid for them should fall.  This is exactly what happened to the horse.  Horses had one essential skill. They had muscle power to drag things around.  But the gasoline and diesel engine aced them on this one and the result is obvious.

People have more than one skill of course but modern computers are protean and increasingly perform more various and complex tasks.  A plethora of possible tasks to perform will not save people from them as the pace of innovation increases.

The moral?  Possibly get control of real and financial capital as quickly as you can.  Especially all that is tied to fundamental innovation. The fate of people during the 21st century could be unpleasant.