Criticism of Cornucopia
A reader with the royal yet Hibernian name of King McDee asked whether the unemployment caused by automation should be counteracted by welfare payments from the public till to the poor. I replied that a greater help to the poor would be to lower income tax.
He asked four questions:
“1. I don’t understand how removing income tax will benefit people with no sources of income.”
The prices of all goods and services in the economy will fall, including those bought by jobseekers living off savings or charity.
Moreover, people with no sources of income, such as housewives and children, are dependent on those with income, workingmen, so would benefit by lowering the household expenses by lowering the tax burden.
Moreover, any jobseeker once finding a job will be benefitted twofold: his employer and customers can afford to spend more, his wage will be higher, and his expenses will be less, as the various goods and services he buys, makes, or sells, will not be burdened by the extra cost of exacting taxes at every step of the exchange.
He will also inherit a larger legacy when his parents pass away.
“2. You state that automation leads to higher productivity and thus higher wages, which is true in theory, but has not been borne out in practice, at least not proportionally. Since 1979, productivity has risen by roughly 80%, but wages have only risen by 29%. Instead, the extra profits have simply been pocketed, leading to higher wealth gaps between the rich and poor. What reason is there to believe that employers won’t simply do the same this time?”
I am not sure where you are getting your figures, and I cannot speak to them.
I am not making the claim that there is a one to one correlation between productivity and a given man’s given wage, particularly where, as here, the wage is not being compare to the cost of living.
There is no such thing as profits being simply pocketed. Companies that do not compete for workers by offering acceptable wages only flourish when government policy prevent the otherwise natural competition.
When something is true in theory but not bourn out in practice, this occurs when the theory fails to take into account some local and accidental factor which leads not to the expected result. You have not identified that factor here, so I cannot speak to it. If a government policy is preventing the natural operation of the marketplace in this case, concern for the poor would suggest repealing the policy, once it is identified.
Let us examine the theory once more:
Imagine an economy where every other price for goods and services, wages and so on remains the same — all else being equal — but one worker, equipped with automated tools, can do the work of ten. The efficiency of his labor increases tenfold. He can command higher wage than a worker of equal skill not equipped with automated tools, because he produces ten times the final goods given the same time and resources.
How the profits from this efficiency is distributed between workers and employers is set the by supply and demand of their resources, including the skill and availability of their labor, and the available capital for investment, and markets for sale.
In a non-imaginary economy all else is never equal. Automation could make certain labor available to the less skilled, meaning more workers would compete for the job, driving wages down.
Or, in the case of the last few year, government corruption with plutocratic businesses could install a system of inflation that benefits stock marketeers and robs the rest of the economy to their benefit. This is a political, not an economic consideration, and must be addressed politically, that is, by returning to the goal standard.
“3. Even if new jobs are found, there may simply not be enough, or those which exist may be displaced to places and occupations such that those made redundant cannot obtain them.”
There is no such thing as not enough nor cannot obtain them, except in cases where war or calamity physically destroys the raw materials of production, as when Atlantis sank, or WWII bombed the factories of Europe, or when government policy hinders the market and prevents its operation, as when “easy credit” inflationary policy triggered the Great Depression, or Stalin orchestrated the Ukraine Holodomor famine.
There is always work to do as long as human beings have desires. The question is whether work can be found at time and places and under conditions acceptable to employer and employees.
This is a fact of the human condition government policy cannot change. Government policy can do four things to influence the economy:
1. establish standardized weights and measures, standardized currency, and to render contracts more secure by punishing fraud, or rendering the transfer of titles to property (including intellectual property) more secure. The government can protect the marketplace.
The cost of this protection includes the operation of the apparatus of government itself, fielding armies, launching navies, training policemen, seating judges, building prisons. These are the core nightwatchman duties of government.
2. Certain policies can remove obstacles to trade and employment, such as when Jim Crow laws are repealed, tariffs are lowered, or minimum wage laws abolished. These are laissez-faire policies.
3. The government can use coercion to transfer goods and services from one man to another, as when a poor man is taxed, and his funds go to a rich man, allegedly to serve some public good or political necessity. These are general political policies, and always involve a loss to the efficiency of the economy.
4. The government can force goods and services to be used for some public project, such as a dam or railroad, which private industry lacks the willingness or ability to profitably erect, which allegedly has long term benefits to the general welfare. Since the government can only fund itself from the goods and services available to be taxed, or the value expressed in the currency available to be inflated, which is a type of tax, all such public works are for political, military, or spiritual benefit to the public, not for their economic benefit or the whole. Certain interested parties benefit at the expense of the taxpayer, i.e. railroad stockholders, downstream riparian owners able to exploit land below the dam. These are public works policies, and always involve a loss to the efficiency of the economy.
Government expense for glorification of heroes, erecting monuments, holding parades and games, royal weddings, are meant for purposes of morale, or other spiritual purposes. There may by some gain to trade from tourism or fairs runs by merchants. But, in general, public monuments and entertainments always involve a loss to the efficiency of the economy.
The government cannot create jobs. When politicians speak of such things, either they mean one of the four policy types.
Your proposal is to fund the idle poor during such periods as they are unemployed, which incentivizes idleness, and the theory that employment suitable to them does not exist in their chosen field, or at a location, or under such wages, as they find acceptable. The funds are taken from the taxes levied on the goods and services, work and property, employed by the working sectors of the economy.
This is neither a nightwatchman function, nor a public good, nor laissez faire. It is a transfer payment from one group to another. Whatever you incentivize you get more of.
As a temporary measure to prevent food riots, it might be politically prudent, but it shows a dark hardheartedness on the part of recommend such a thing, because the longterm social ills created by such policy include every social pathology known to man: broken families, bastardy, drug addiction, gangland violence, graffiti, ignorance, degradation.
Poverty is a bad thing, and the government is morally obligated to do what it can do, within reason, to encourage prosperity in the people. The suggestion will have the side effect of deliberately creating a ghetto of dependent poor. It is immoral and violates one of the core functions of government.
“This would create a great unemployable underclass.”
In fact, the exact opposite is true. Unemployment created by automation is undetectable in history. True poverty is created by convulsions such as enclosure laws, looting monasteries, political revolutions.
“4. The tremendous social unrest thereby created would greatly empower the Socialist movement, much as the First Industrial Revolution did.”
The is a logical self-contradiction. Forestalling socialist policies by creating socialists policies creates the vary policies allegedly to be forestalled. The comment is irrational.
About John C Wright
John C. Wright is a practicing philosopher, a retired attorney, newspaperman, and newspaper editor, and a published author of science fiction. Once a Houyhnhnm, he was expelled from the august ranks of purely rational beings when he fell in love; but retains an honorary title.
