It’s Labor Day. And, on this day, it occurs to me that I could use a new job. Not because I’m unhappy with my current job; it’s just that I see a connection between a few of my previous posts that it’d be great to have a couple of months to think about and tie together into a book or something. So, the new job would have to be one that grants sabbaticals right of the gate. Maybe I’d better stick with what I’ve got.
The first post was “Technology and the Future of Work” from last April. The second was just the other day, “Liberty, Laws, and Property.” And, the third, was from last October entitled “Fred Clark: Unemployed in the Affluent Society.”
The problem I see, this Labor Day, is that compared to recent centuries, wealth is fairly abundant, but the amount of labor necessary to create that wealth is very much diminished. And, yet, because of the history of how wealth was traditionally created, we generally tie the legitimacy of one’s claim to property to some sort of labor that goes into creating that wealth. Then, we allow (even encourage) the laborer to contract away much of that claim to an employer – someone with specialized access to tools needed to create wealth (large machines, in many cases) or maybe specialized access to the demand or markets for certain types of labor.
But, now, with the demand for labor at very low levels, the individual has very little leverage when negotiating away their claim to property (e.g. the employment contract). This leverage is further reduced by the fact that the person has certain basic needs – food, shelter, health care, etc; and, by and large, can’t simply walk away from the table in most cases. (If demand for labor is high, then you can simply go on to the next employer; if not, you have to take what you can get.)
Meanwhile, employers (those with specialized access to tools or markets) can accumulate great wealth because they can bundle together the shares of access to property traded away by the laborers (value created by labor but not retained by the laborer) and pocket that value for themselves. They’re able to do this because they are operating in an environment featuring a cocoon of infrastructure and property laws; among other things. Absent this environment, their deals with laborers (and with makers of the specialized tools and with the markets they have specialized access to) would be worth precisely nothing. Without this cocoon, you get Somalia. Which is why, despite Randian fantasies of “going Galt,” the employer class never seems to voluntarily absent itself from “government oppression.” They benefit from the rights decreed in their favor and burdening everyone else as described by Jeremy Bentham:
Rights and obligations, though distinct and opposite in their nature, are simultaneous in their origin, and inseparable in their existence. According to the nature of things, the law cannot grant a benefit to any, without, at the same time, imposing a burden on some one else; or, in other words, a right cannot be created in favour of any one, without imposing a corresponding obligation on another. In what manner is a right of property in land conferred on me? By imposing upon every body, except myself the obligation not to touch its produce. Rights and obligations, though distinct and opposite in their nature, are simultaneous in their origin, and inseparable in their existence. According to the nature of things, the law cannot grant a benefit to any, without, at the same time, imposing a burden on some one else; or, in other words, a right cannot be created in favour of any one, without imposing a corresponding obligation on another. In what manner is a right of property in land conferred on me? By imposing upon every body, except myself the obligation not to touch its produce.
So, because the people who profit by contracting with laborers are dependent on the cocoon of infrastructure and property laws, laborers acting through their government are not entirely powerless to leverage a new deal. And, because of the disparity of profits made possible by this system, it’s not entirely unjust to use that leverage. I tend to envision such a system featuring secure access to necessities such as food, shelter, and health care; but it should not be so luxurious as to turn our current hyper-abundance of labor into a shortage.
On the other hand, drawing off some of the labor force would, to some extent, be a feature, not a bug. If labor were not quite so abundant, that would increase the negotiating leverage of the remaining laborers. This line of thinking runs deeply, deeply against our Puritan roots. Sloth! Idle hands are the devil’s work shop! Back in the days when those roots were taking hold, the situation was different. As described by Fred Clark, channeling John Galbraith:
Goods were vitally necessary; the loss of available labor to produce those goods was extremely detrimental to society; and, therefore, the penalty – deprivation of all or most of an individual’s income – was appropriate. The penalty was so justified that there was no moral obligation to help someone who wasn’t helping themselves by working.
Those conditions are no longer so operative. Maybe it’s time we consider a new New Deal; even if it makes John Calvin cry.
Very good discussion and good points. This is definitely a “new economy”, which is less labor-dependent. From one perspective — that of a father with kids who are entering their high school years and starting to think about what they will do with their lives — I think that the advice is still the same: prepare yourself to have a skill that will be valuable to others. You just have to think through the application of that differently now.
From another perspective, a sociological perspective, I am intrigued by your thoughts about where the new economy is headed. In reality, our economy, our society, is not linear. It exists in (at least) three dimensions and is a mix of various parts of Calvinism, Adam Smith, and welfare state, which is continually re-calibrating based upon the influx of new people, new ideas, and new means of communication (and, let’s face it, the modern effect of limiting Malthusian controls on population). I think that we are at a fork in the road, to collectively determine how much of each of those ingredients (or some others) we want in the pie.
For what it’s worth, I do NOT favor the re-animation of Malthus to control population. I have some libertarian leanings, but neither to I favor a tea-party-style answer to the question. Yet, at the same time, I think that “New New Deal” is something that’s not sustainable.
Anyway, thanks for the space to pontificate.
Doug: cool post. There are some very true musings on the changes of the labor market. Still, I can’t help but notice that you stated:
“Meanwhile, employers (those with specialized access to tools or markets) can accumulate great wealth because they can bundle together the shares of access to property traded away by the laborers (value created by labor but not retained by the laborer) and pocket that value for themselves. ”
Where is this “great wealth” created by employers? It certainly hasn’t enhanced the value of these employers over the last decade, as the stock market’s performance in the U.S. has trailed inflation. Why is that?
Thanks Paul.
At a guess, I’d say it’s getting sucked up the food chain. In my discussion, I was dealing with a pretty simplistic model: guy with strong back combines with guy who owns machinery and has deals with retail stores to produce and sell widgets. Guy with strong back is at a bargaining disadvantage, so the guy with the machines gets to pocket the lion’s share of the profit.
But, the reality is that the guy who owns the machines and has the distribution network probably has to cut deals of his own — to get financing for those big machines, for example; so he has to pass a lot of the wealth upstream.
So, my suspicion is that a lot of the value being created by these people is ultimately being accumulated in places that aren’t necessarily measured by the stock market.
Doug: the financer of the big machines is typically a bank, which is also (usually) part of the stock market. About the only industries/wealth accumulation places that aren’t part of the stock market that I can think of are CPA’s, lawyers, and other service organizations. The problem is that these organizations really are “labor”.
And to Carlitos’s point below, the stock market’s backwards Price/Earnings over the last 10-20 years has not decreased significantly. If Price/Earnings has not decreased, and the stock market has stayed somewhat flat, then profits are not increasing at corporations at a high rate, as one might expect if capital was getting the advantage over labor.
Just to be clear, I am not saying the evidence above completely refutes Doug’s comments that labor is at a crossroads and is potentially in a downward spiral. I just don’t believe all of labor’s loss has beceome capital’s gain.
Paul, the S & P returns over the last ten years have swung wildly.
2000 ?9.10%
2001 ?11.89%
2002 ?22.10%
2003 28.69%
2004 10.88%
2005 4.91%
2006 15.79%
2007 5.49%
2008 ?37.00%
2009 26.46%
2010 15.06%
2011 2.05%
The stock market is only a rough proxy for economic performance. Stocks are investment vehicles that are always in competition with commodities, bonds, futures, real estate.
It is reported that publically traded corporations are sitting on hoardes of cash. They are not reinvesting it because of numerous reasons, lack of demand, uncertainty, whatever. And they are apparently not too concerned with their stock prices because I have not read about massive stock buy-backs. And they are not paying it out in extra dividends.
The best explanation of stock price movements I have seen is the secular bull and bear cycles of approximately 17 years, when stocks move from being widely under-valued to widely overvalued. http://www.crestmontresearch.com/faqs/#20-secular-stock-market-cycles
Crestmont Research covers this phenomena well. We are currently in a secular bear cycle that began in 2000 with the Internet Bubble collapse.
Preceding that was a Secular Bull that ran from 1982. 1964 to 1982 was another Bear with a bottom in the mid-1970s. And these cycles continue back through history. Within these secular bulls and bears will be a year or two of cyclical bull and bear markets. BTW, secular refers to periods of time, not religous or nonreligous.
Maybe a different question than you asked, but I have learned never to read the day’s stock market returns as short-term GDP report.
Don’t discount the need for “labor” when you heed the advice ” prepare yourself to have a skill that will be valuable to others. “.
At recent Economic Development roundtable in Hamilton County, where something like 90% of kids go to college, there is a desperate need for technicians in manufacturing and automotive/machinery repair. A good mechanic at John Deere, Hare Chevy, etc, it going to make around $60k. It requires some post-secondary training, but it doesn’t need college.
Excellent point. The economy may be less dependent upon labor, but it will never be completely independent. Your point is a good illustrtion of thinking through the application of your training and education differently. I just don’t think that you can reflexively get a job on an assembly line or head off to get a four-year degree at a private liberal arts college. You have to think through it a bit more.