Issue Briefs
Low Skills Workers Needed in Order to Strengthen Productive Economies
By Martin Hutchinson
August 25, 2017
Many of Maynard Keynes’ dreams were destructive to civilization. The euthanasia of the rentier, which central bankers worldwide are still trying to achieve, has hopelessly corrupted the capital allocation process and brought productivity growth to a halt.
But perhaps Keynes’ most destructive vision was that of a universally leisured society, in which only a few worked, while the great majority drew an income from the efforts of innumerable machines. It is a vision that has not gone away in Silicon Valley and, if seriously pursued, it will end human civilization.
Fallacy
The central fallacy of Silicon Valley’s call for a universal basic income is the lack of understanding that non-workers generally do not have a zero cost beyond the subsistence you pay them.
The fact is that, deprived of a meaningful role in society, these people who will be living on subsidies will become thoroughly miserable. They will develop expensive illnesses, both mental and physical, ingest harmful drugs and commit crimes that hugely damage the lives of those around them. Hence a society in which –say– a third of the population did not work and drew a universal basic income would be one that had enormous social problems, with “social costs” far above the out-of-pocket cost of the basic income bestowed on them by the state, and living standards for those who did work correspondingly depressed.
Is leisure the goal?
Maynard Keynes, in his 1930 essay “Economic Possibilities for our Grandchildren” had looked forward to 2030, seen the possibility of almost infinite leisure, and had welcomed it. “The economic problem” as he defined it of “the struggle for existence” would be solved by 2030, as Europeans and Americans would be eight times as rich as in 1930, and all non-status goods would therefore be abundant. He believed it would set us free to follow the dictates of religion and traditional virtue – abolish usury and abhor the love of money.
Of course, Keynes’ worldview had certain lacunae: “The absence of important technical inventions between the prehistoric age and comparatively modern times (he referenced 1700) is truly remarkable” suggests they did not study the history of science and technology much at Eton in Keynes’ day.
Keynes admitted that most of the leisured class members of his day had “failed disastrously” in using their leisure. Nevertheless, he felt that abolishing the “distasteful” urge to acquire money would greatly improve the human race’s behavior.
Plenty of money, useless lives
The upper classes in Keynes’ days had plenty of money, a good education and at least reasonable exposure to the best in Western culture. Yet most of them were unable to prevent themselves leading lives of useless dissipation.
With that in mind, consider that the recipients of Silicon Valley’s Universal Basic Income will have had none of these advantages, and you can see that the great majority of them will lead lives that are not only damaging to the economy, in terms of petty crime and increased medical costs (both for them and for those with whom they come in contact) but also very uninspiring.
What kind of life?
Doubtless, Keynes envisioned a future perfected human race with a much better education and a high appreciation of culture reveling in performances like his wife’s ballet or his Bloomsbury friends’ unattractive paintings and unreadable books. In reality, few if any of the people forced into moderately impoverished idleness today, armed only with the appallingly modest educational offerings of the U.S. public school system, will have those intellectual tastes and opportunities.
Encourage participation
A society with a Universal Basic Income is thus a dangerous dystopia, not a utopia. Rather than discouraging participation in the economy by the modestly skilled, we must do our best to encourage it. In the current economy, this can best be done by implementing the policies of President Trump: restricting entry to low-skill foreigners and pressuring companies to bring manufacturing jobs back to the United States.
President Obama’s policy mix, of funny money, high immigration, legal and illegal, of low-skilled people and infinite regulation of sectors such as energy where blue-collar jobs abound, was precisely wrong for the welfare of the modestly skilled. Conversely, Trump’s policy is pretty well spot on right, however much it may be disdained by the intelligentsia with three ever-more-useless college degrees.
Machines taking over
However, preserving the participation of the modestly skilled is going to become increasingly difficult as robotization arrives. The availability of robotized servers in fast food joints and supermarkets, for example, has the potential to eliminate the jobs of many modestly skilled and modestly paid humans. Hence the job of government is to lean against this trend. This should not be done by regulation, by limiting the availability of fast food robot servers – this would merely make the economy suboptimal, as did so much regulation during the Obama years and before.
Instead, legislation should include a lower minimum wage for those under 20. In that way, disadvantaged teenagers would get access to their first step on the jobs ladder and thereby be introduced to the world of work. In most fast food joints, most customers prefer to deal with a human being rather than a machine (the exception is high-volume outlets in business districts, where the lunchers are above all looking for the “fast” element in fast food.) In most instances, with young people in entry level positions, the disadvantage of employing human staff is not too great, and fast food outlets will continue to use them.
Lower taxes
The cost playing field can also be tilted on the other side. First of all, remove the excessive tax incentives for capital investments; they incentivize replacing humans with machines.
More important, restore real interest rates to a substantially positive level, and keep them there. In the 1982-86 recovery, when real interest rates were high, the incentives for hiring more staff as compared to installing more machines were substantial; they should be that way today.
More service jobs
Retail and fast food jobs are crucial to the employment of the less skilled, because it is impossible to outsource them overseas (except to a limited extent through Internet services like Amazon, which will take market share from retailers; but will not replace them altogether, because of the need to “touch” merchandise and choose between alternative offerings.) The initial jobs obtained by the less skilled in fast food or retail will give them some work experience, and will thus make them more valuable employees, who later on will be able to earn a decent wage.
Discourage the use of robots
In all sectors, policy must tilt towards the employment of low-skills humans and against the employment of robots. Removing once and for all Amazon’s sales tax advantage against bricks and mortar retailers, as President Trump has proposed, is another very substantial step in the right direction. Trucking, too will remain largely human-occupied because of the difficulty of “last mile” delivery of goods.
More local business are needed
In general, localization is a very good way to improve low-skill employment. For this, however the Trump administration cannot point the policy way forward. This must be done by state and local authorities. But here we have the problem of leftist municipal governments in cities such as New York, Chicago and Los Angeles.
By adding regulation and taxes and encouraging crazed real estate bubbles, they drive small business out of their cities and concentrate wealth in a very few hands, most of which employ limited numbers of low-skill people, except as maids.
These municipalities also act as “sanctuary cities” for low-skill illegal immigrants, thus artificially depressing the demand for low-skill domestic workers, forcing many of them onto welfare dependency. The problem is made worse by hyped-up real estate prices, which make it next to impossible for low-skill workers to support themselves in major cities.
Big cities against low-skill people
Big cities are in any case the enemy to low-skill people, because of their high cost of living. To the extent possible, good pro-business policy will support new employment in dying communities like Binghamton N.Y., for example by removing the disgraceful rules that prevent a fracking boom around that city. Currently, Binghamton and many other medium sized and small towns are haunts of unemployment and addiction. With proper economic policy, national and local, they can regenerate employment and turn their citizens into happy and productive members of the community.
Create opportunity
Under Presidents Bush and Obama, globalist, funny money, over-regulatory economic policies of all kinds were designed to reward large organizations, the extensively (if often badly) educated and the rich, while driving the less-skilled population onto welfare, drugs and destitution. We have now begun to reverse these policies. With robots in the offing, we must tilt the playing field further in the new Trumpist direction, to ensure that all our citizens remain productive and contented members of the community.
Martin Hutchinson is a GPI Fellow. He was a merchant banker with more than 25 years’ experience before moving into financial journalism. Since October 2000 he has been writing “The Bear’s Lair,” a weekly financial and economic column. He earned his undergraduate degree in mathematics from Trinity College, Cambridge, and an MBA from Harvard Business School.
This article was originally published on the True Blue Will Never Stain http://www.tbwns.com
The views and opinions expressed in this issue brief are those of the authors and do not necessarily reflect the policy of GPI.