Via Tyler Cowen, Jason Lanier says
Once again, whenever you improve efficiency, when you save money, it’s only the same thing as making money if you’re already rich. If there are people who aren’t rich enough to benefit from that, it just makes them poorer because they have less to do, and less ways to earn money.
I want to keep my rep for epistemic openness but my immediate response is to say no, no, no.
What you are describing is a monetary contraction. We talk like this: Lots of efficiencies drive down costs for everyone but now there is not enough work to do.
What you are saying really is that the rate of inflation collapsed and the central bank did not offset this by printing up more money. Consequently several things happened.
1) People who borrowed X fraction of total human satisfaction in say 1990 believed that their labor would be responsible for Y amount of the total human satisfaction in 2010. However, when 2010 came their labor was only responsible for Y/10 of total human satisfaction and hence they cannot make good on their debts. The solution is to cut the value of bonds by 1/10th.
Bondholders will not be screwed on net because satisfaction is so much cheaper and easier to get in 2010 than it was in 1990. However, if you fail to do this bondholders will be living the highlife, clipping coupons and surfing the net for free.
2) The rapidly falling cost of tech pushes up the real interest rate and causes a sharp reduction in spending. An professor of mine in grad school used to tell a story about the donut seller from hell.
You walk in and ask for a donut. It costs $1. The donut seller says you know, if you are getting one you might as well get two $1.80. That sounds good to you so you say, Ok. Then he says well if you are getting two you might as well get three for $2.40. You say OK. He says well how about 4 for $2.80. Every time you agree he marches further down the demand curve to increase the sale. It doesn’t stop until you wind up with 5 dozen donuts for breakfast.
Similarly an economy could face technological deflation from hell. You could by an LED TV today. Or, you could wait for a 3D TV in six months.. Or you could wait for a no-glasses 3D TV in a year. Or, you could wait for 4D TV in two years. Or you could wait for complete emersion VR in 3 years, Or, . . .
It just goes on, and on and there is never a good idea to buy now, no matter when now is.
That’s obviously an extreme example, but the point is that deflation increases the value of waiting. New and better forms of consumption being created for low prices increases the value of holding on to your money today.
This must be offset by monetary increases.
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Monday ~ September 5th, 2011 at 3:20 pm
david
I think Lanier is making a point more similar to zero-marginal-product than the real interest rate: it may be that a worker with unskilled labor and no capital may have genuinely nothing to sell or lease to gain an income, or at least nothing enough to fund some given minimal standard of living.
There’s that passage about unemployed horses in A Farewell to Alms…
Monday ~ September 5th, 2011 at 4:01 pm
david
On the other hand, such technological unemployment only comes about where capital is so productive compared to unskilled labor (automation, etc.) – so hopefully there is plenty of wealth to redistribute!
The market socialists wrote much about distributing shares of the means of production, were they on to something?
Monday ~ September 5th, 2011 at 3:39 pm
Rick Russell
I’ve been confronted with this question a few times myself and I never really felt that I gave a compelling answer. Like Karl, I made some general statements about overall (wealth/satisfaction/quality of life) requiring less labor to obtain, etc. He’s put some more specific math about money into it, but it boils down the same thing: people should be happy that survival has a lower effective cost, and we should make appropriate changes to the money supply to make sure cash is available to fund new operations and innovation, etc.
Unless, as David points out, you’re one of the workers whose skill set was *entirely* supplanted by technology or outsourcing. A friend of mine started working for the LA Times at just about the exact moment major city newspapers switched from printing presses to mimeographic technology. Within a scant 2-3 period, tens of thousands of people across the US who proudly called themselves “printers” were released with nothing more than the ability to read backwards really, really, well.
For those that didn’t plan ahead to better their own human capital, what followed was massive income loss and a long and agonizing churn through different low-end service jobs until they developed new skills.
More generally, I’ve wondered: what happens when just about everything can be obtained more cheaply by increased technology and/or outsourcing? Is the productivity-maximizing solution in that case to stop making things and just buy them?
That seems to be an increasingly common situation in the US, where companies pay Pacific-rim companies to build for them, only to find that in a few short years, the Pacific-rim companies control the manufacturing technology, they are now the market leaders and the US company is just a hollowed-out husk (e.g. HP, Dell).