The Midwesterner has a post entitled The Outsourcing of Santa Claus. The post discusses an article by economist Michael Spence.
There are some notions in here that I’m sure I will muddle, even though the Midwesterner has simplified them for me, but Spence apparently argues that the economy consists of tradable and nontradable goods. (Somewhat confusingly to me, services are a subset of goods in these definitions). Tradable goods appear to hold their value across space (e.g. most manufactured goods). The value of nontradable goods appears to be dependent on proximity between provider and consumer (taxis, haircuts, and healthcare).
Automation and competition against cheap foreign labor has diminished the number of Midwesterners who can be employed producing tradable goods. Focus has been made on nontradable goods.
Many Midwestern cities see their post-industrial future in a combination of health care, education and high-end manufacturing. They may be chasing an impossible dream.
This is a conclusion drawn from recent studies that argue that manufacturing — high-end or not — isn’t coming back, at least as a major source of jobs, while growth in jobs in health care and education is going to slow down or stop, mostly because the governments that fund it are deeply in debt.
For many Midwestern cities, this is like telling them there’s no Santa Claus.
The problem may be that Luddite fears could be coming to pass. Technology is killing jobs. We’re still producing as much as ever – more even. The economy is working just fine. It just doesn’t include as many people.
This has me noodling about the nature of wealth, the nature of money, and the nature of work. I think there is an underlying premise that we can’t sustain a middle class society if we all just go around giving each other haircuts or whatever? The government can’t just give away money. Sounds reasonable, but why not? Because we have to eat and have shelter; we need someone to make the stuff. Who is going to do the hard work to farm and make stuff when they can just get free money from the government? People will stop working, you’ll have more demand than supply, money will be worthless.
But, I wonder. Automation suggests to me that these goods are easier to make. What happens if government is essentially printing money to pay for these non-tradable goods (healthcare and education, for example) and the money supply enters the economy that way instead of through the Federal Reserve?
I think of money as a way of storing value, like a battery stores energy. Instead of trading this service for that product directly, you use money so that you can get more people in on the game at once. Maybe you cut hair and you don’t know a widget producer who needs a haircut. But, if you give a haircut to a lawyer who writes a contract for a boat maker who sells a pontoon to a widget maker, the potential for agreeable exchanges expands exponentially. The key is to make sure that people trust that the money they receive in exchange for their service holds value long enough that they get a fair trade when they’re ready to spend their money.
Seems like if people are willing to work there should be a way to let them do so in a way that lets them hook up with other people who also want to work and let them trade one thing for another. Unemployment due to reasons other than laziness seems like a failure of coordination more than some inevitable byproduct of technology.
I’m mostly thinking out loud with this post, so take it for whatever it’s worth.
A good look out our monetary system is Douglas Rushkoff’s Life, Inc..
I think John Robb’s Resilient Communities is an interesting idea as well. It’s basic thesis is that you produce as much as you can locally and virtualize everything else.
With regard to money there are a variety that Rushkoff looks at. Especially the difference between money like have from a central bank versus a local curreny like a miller would give to farmers for their grain and used within the community.
Very interesting stuff.
During the Great Depression, people wondered why, if they were available to work, and they needed goods and services, factories were shut down behind fences, and those people were unemployed. A lot of the capital necessary to open those factories and pay wages to those people was loaned overseas, in large part to Germany, to pay war reparation from WWI. Taxes here were low and interest on the loans overseas was high, so the rich people invested overseas. Also, farmers had over-extended themselves during WWI, borrowing money to take advantage of the market for grains and other crops necessary for the war. That market disappeared in November, 1918. Also, agriculture had become mechanized. Horses no longer had as much value; nor did pasture for grazing those animals. The Great Depression his mid-north Indiana far earlier than 1929. Tax breaks were given to the wealthy, who promptly invested it overseas. We see the same pattern today. The wealthy will continue that pattern. Reagonomics did not work—he raised taxes and, besides, the economy benefited from the world-wide glut of oil (due to the Iran-Iraq War that we helped fuel/pun intended; and Carter’s tightening of $ from the Fed, bringing an end to stagflation. None of these “pluses” was due to any act Reagan initiated. We should return to a more equitable tax system, like the rates when Clinton was president.