My second heretical disagreement with Peter Zeihan
The Productivity Apocalypse and Universal Basic Income
Peter Zeihan thinks military power is important. I tried to show why it isn’t in my previous article. This installment explains why I disagree with Zeihan about the future of productivity and trade. I also provide a bonus heresy about Universal Basic Income (UBI). Here’s the issue…
Much of the world is worried about job loss due to automation. But Peter Zeihan is worried about productivity shortfalls and the collapse of world trade due to aging populations and a dearth of young workers.
One of these concerns is wrong. They cannot both be right. But in fact…
They can both be wrong!
Zeihan is correct about aging populations of course, but (probably) wrong about what that will mean.
The Y2K scare can illuminate why. In that case millions of people did trillions of things to solve the problem before it cratered the world economy. By the way…
The same thing would have happened during the covid pandemic if the political class had butted out. In that case billions of people were already taking trillions of actions that would have curtailed the death rate without having to shut down the world economy. But that’s a subject for another day. In this case…
Millions of people are already doing trillions of things to keep productivity soaring ever higher.
We’re constantly learning how to do more things with less. This process (called ephemeralization or dematerialization) includes labor. This is why some people worry about job loss due to automation. They want a tax-funded Universal Basic Income (UBI) to compensate for those lost jobs. Now think about this carefully…
There can only be (possible) job loss if automation can match or exceed the productivity that was formerly achieved by human workers. But…
If that happens there will be no Zeihan-style productivity apocalypse due to an aging workforce. Instead, productivity will continue to increase even though fewer people are working.
I think this is exactly what will happen.
The machines will equal and exceed the productivity lost from the dearth of new young workers.
If that were not true then there would be no advantage to using the machines. The machines are only useful if they can exceed the efficiency of human workers.
So that takes care of the Zeihan concern. But…
What about those who think we’ll need Universal Basic Income (UBI)?
If declining birthrates reduce the workforce then the machines will simply compensate for the missing workers without causing unemployment. That means the case for UBI collapses instantly. But it gets worse for UBI…
Increased automation probably means increased productivity, otherwise businesses would continue using humans instead of machines. That increased production would then lead to three powerful benefits…
- Human wages would rise for the many human jobs that would still exist or be created in the new economic environment
- The stock investments that underlie retirement portfolios would become more valuable.
- The cost of living would shrink
This is exactly what happened during an earlier automation episode in human history, the Industrial Revolution.
People find it easy to think about jobs, wages, and profits, but the relationship between productivity and the cost of living is more subtle and abstract.
The cost of living shrinks because increased productivity expands the availability of goods and services relative to the money supply. To make supply and demand balance prices must fall. This means the cost of living falls, even while your wages and profits are rising.
This effect can be obscured because the money supply, as managed by the Federal Reserve, is almost always increasing. This is why prices have usually risen since the Federal Reserve was created, in spite of constant productivity gains that should have driven prices downward.
If prices are rising due to Federal Reserve money creation (legalized counterfeiting), then how can we know that productivity gains have decreased the cost of living?
Simple. Look at how long you must work to buy a good or service compared to the amount of time your parents had to work for the same item. This will show the combined impact of wage gains and price decreases relative to increases in the money supply.*
The Human Progress site run by Cato Institue shows many examples where the time-cost for products has gone down in spite of monetary inflation. The book Superabundance also deals with this topic.
Of course, there are three major areas of life where this has not been true — housing, healthcare, and higher education. These are sectors where “government” regulations have either artificially restricted supply and/or tax-funded subsidies have driven up prices by artificially stimulating demand.
If we removed the government distortions from these areas (and others), it would become very clear that increased productivity lowers the cost of living, even while wages and profits rise. Plus, the quality of the things we buy also improves. But I’ve saved the best for last.
Shorter workdays and workweeks
Farm labor was long and hard. The same was true of factory work at first, but that didn’t last long. Instead, wages rose. investment values increased, the cost of living fell, and the hours people had to work became shorter.
When you no longer have to work so hard to fund the products and services you desire then increased leisure time quite often becomes the next thing you want. Thus…
I predict there will be no job loss due to automation. Instead, there will be fewer full-time jobs and more part-time jobs that will nevertheless still provide sufficient income to cover the massively reduced cost of living.
Those are my predictions. Now reality will judge them.
*****
* There are some complicated nuances involving money velocity but I think those are mostly compensated for by price competition between businesses. So we don’t need to bog ourselves down discussing that here.
Copyright © Perry Willis 2024
Perry Willis is the co-founder of Downsize DC and the Zero Aggression Project. He co-created, with Jim Babka, the Read the Bills Act, the One Subject at a Time Act, and the Write the Laws Act, all of which have been introduced in Congress. He is a past Executive Director of the national Libertarian Party and was the campaign manager for Harry Browne for President in 2000.
