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On Krugman's Epiphany
Paul Krugman is one of the leading “names” in economics today. There are reasons for his stature. He’s got a Nobel Prize, he’s an academic at a leading University, he writes for the NY Times, and not a week goes by without him being on some TV show or another. If you asked the average guy on the street to name an economist, there’s a good chance the answer would be - “Krugman”.
PK has been having a slow motion epiphany over the last month. He has posted four articles on a topic since December 8. (Link, Link, Link and Link) He has identified a “phenomenon” that is occurring in the US economy. This new, powerful force that he has stumbled upon, is keeping him awake at night. Clearly, PK is troubled by what he has uncovered. His words:
“It” has really uncomfortable implications. But I think we’d better start paying attention to those implications.
Are you worried yet?
PK drives home the point that what he has uncovered is not now in mainstream economic thinking. He admits that even he missed the signs that something was amiss in the world of modern economics:
Not enough people (me included!) have looked up to notice that things have changed.
Okay. What is it that PK has found hidden deep below the economic rocks that is causing him such fits? Grab onto your seats - this is big. PK has observed, for the first time in his economic career, the simple fact that technology has reduced the role of labor in the economy.
That’s PK’s epiphany? He just came to that conclusion in the last month? I’m thinking, “What planet has this guy been living on the past 10 years?” But then I realized PK has not been living on Mars, he’s been living in Princeton; amongst the Ivy.
Has PK not gone to a new mechanized distribution center like FedEx, UPS and Amazon have? Does he not know that it takes less printers to make the NYTs these days? Has he not been to a modern assembly plant that makes things with robots? How could he have missed the notion that technology was reducing the demand for human labor all these years? The only way that this could have been missed is if PK had his eyes covered and his head in the sand. He had this to say about his big new "find".
Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.
Forget about why PK has not connected these very important dots over many years; focus on why he's crapping in his pants over his new awareness. It’s simple math. Take two examples A) where Labor = 60% of GDP and B) Labor = 50% of GDP. If GDP = $16T, then A = 9.6T and B = 8T.
The problem is that Social Security (SS) taxes Labor at 12%. The difference between A and B ($1.6T * 12.4%) means that SS ends up with $200 Billion less in annual revenue.
PK went off and pondered his “discovery”. He did the A and B math, then he wrote:
If payrolls lag behind overall national income, this will tend to leave those programs underfunded
Duh….
Then PK went on to really stir the pot by suggesting that the Congressional Budget Office (CBO) was using a rosy long-term estimate for the critical Labor/GDP percentage in its projections. PK says:
CBO could very easily be quite wrong here, and will indeed be very wrong if the rise of smart machines plays out
What’s dawning on PK is that his vision of the future does not take into proper consideration the role that technology has today, and will play in the future, on labor employment. What he's looking at is a structural change; one that can’t be altered. He’s coming to the conclusion that Social Security doesn't “work” when there are not enough workers paying into the scheme. This is a remarkable conclusion from the most liberal economist out there.
Move on a few days and PK does some more deep thinking. He now realizes that the current expectations for future revenue for SS are unrealistic. He knows that the lines will cross more quickly than is now anticipated. He understands that this is a here-and-now problem, but he also has grasped that this is also a 75-year problem. So he comes up with a plan; simple yet elegant. He wants to tax the robots.
There would be no problem, at least in economic terms, by adding revenue (to SS) from dedicated taxes on capital income.
No problem? PK thinks it’s okay to charge 12% FICA taxes on a robot. OMG!
Actually, I don’t think that PK really believes that taxing investments in manufacturing technology is a good idea. The fact is, it’s a terrible idea, and PK knows it. If you want an economy to grow, and be globally competitive, you create incentives (tax breaks) for capital investment; you don’t create disincentives. Period.
I suspect that PK is slowly recognizing that he has put himself in a box. He has come to conclude that SS, as it is currently configured, is not viable. The villain is technology that reduces the long-term demand for labor. His solution, not surprisingly, is more taxes. But there is not a chance in 100 of taxes on capital investments to support SS (nor should there be).
PK is walking a plank, he’s getting close to the edge. When he goes over, he will bring with him a bunch of other liberal economists that believe that the SS “miracle” can be sustained. In his latest missive on this topic PK promises:
I’ll be writing more about this in weeks to come
I can’t wait.
Notes:
- PK is quite right that the CBO's assumptions regarding Labor’s share of future GDP are optimistic. I’m sure that the folks at the CBO read PK’s criticism. I doubt they were too happy about it. The question is, what will CBO do, now that a Nobel has challenged a basic assumption it uses? If the CBO were to re-gear its computers to reflect a lower long term role of labor in the economy, it would create a massive hole in America's entitlement programs.
- It’s going on five years now that I’ve been writing about SS and the CBO. There must be a few hundred articles of mine in the ether on these two topics. Again and again I’ve said the same thing. The assumptions are not realistic, the numbers do not add up when realistic assumptions are used, the outcome will not be what is now anticipated, and there will be a disappointment when reality sets in. Sorry PK.
Maybe I should get a Nobel, that, or maybe PK shouldn't have one…..
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Tax the robots ... he really wants to piss off skynet, I guess.
lol, wait until he comes to the idea to tax the workers that currently hold the jobs the US shipped abroad
Another candle manufacturer trying to ban the sun.
What will be interesting will be: what is his Final Solution for this problem.
He has not got one, but bet your life that he will still have some kind of tenure, no matter what happens.
Reminds me of the Vicar of Bray, back during the contest between Catholics and Protestants in England, "... No matter which king may reign, I'll still be the Vicar of Bray sir."
Almost needless to say, economics is the religion of today, e.g. bereft of anything like a science and riddled with factions of 'true believers', little better at foretelling the future than Tarot card readers (chart readers).
It's kind of odd that Krugman would be all aflutter over the fact that the increasing mechanization of manufacturing means less tax receipts from labor.
Isn't Krugman the guy who's pleaded for the federal government to blow right past present annual deficits to levels of money printing multiples higher than what we're doing now?
If he doesn't care about deficits at all then why should he profess to be so worked up over federal government revenues declining somewhat? This is completely inconsistent. What would those $200 billion be compared to Krugman's desired trillions of dollars in additional gov't spending?
Good point!
$200b is just another printer cartridge away.... hey wait...does a printer count as a robot?..so you have to tax the thing that prints the money, then tax it more because it has to print out the tax $'s........who is Krugman again??
K@
Krugman is ... well words fail me, except to say that the Sun will go super-nova before he and his ilk admit to being WRONG ... his 'ilk' include most other 'economists', nearly all politicians, ALL banksters and sundry other sociopaths; from the bloke who sold you a car knowing it clunked, to some spouse who ripped you off, to anyone else lacking insight, self-awareness, conscience, empathy and caring.
(An aside to WB7, if you are reading this: I am filling in in the absence of CD ... for newcomers "Cognitive Dissonance" used to be the 'conscience' of ZH, before he disappeared from these pages.)
Anyhow I have crossed swords with WB7 because he has used Krugman to try to demolish Keynes, but I am here to say that Keynes would demolish Krugman, if he was still alive.
I know that most commentators in ZH would view me as a liberal/commie/libtard/socialist/pinko/etc. piece of filth - it's all quite like Infowars and Jeff rense - but I can wear it.
For those not completely brainwashed by Cold War (and subsequent) propaganda, try reading J K Galbraith, e.g. "The Affluent Society".
Both Keynes and Galbraith were economists with a social conscience and both willing to admit error quickly.
Now I'll await Mises, Hayek, whatever flak.
Jobs have been being eliminated by technology for thousands of years and often at a higher rate than today. Heretofore, new types of jobs have always arisen making the extrapolation of joblessness incorrect. Maybe it's different this time. Too soon to say.
What history books have you read?
History - which precisely means WRITTEN records - dates back about 5000 years, during which period little changed technologically.
For example: until only about 500 years ago main weapons were still swords and bows and arrows. And ploughs changed little and were still drawn by horses, or oxen until only about 100 years ago.
It's only since the Industrial Revolution - really seriously begun only 200 years ago - that machines have eliminated jobs.
Please cite ONE example of when jobs have been eliminated at a higher rate than today ... tell me of one historical example compared with the invention of the backhoe/digger which replaced ten men with picks and shovels.
Tell me when - for thousands of years - hand weaving was replaced by fully automated machines, driven by electricity and programmed by computers.
Of course it's different this time round and it's not too soon to say why.
Had you been born during the early 20th Century, you would have likely been versed in how to make, or repair something by hand. So too your wife.
Do you repair your own shoes and does your wife darn socks? When I was a child we were much closer to a past you clearly have no more idea of, nor future, than Krugman does.
So then all those water carriers weren't really screwed by Archimedes? You haven't any real notion of history at all do you?
To those too busy bashing Krugman to see the forest trough the trees, all this "technology" has enabled us to extract PHYSICAL resources at an ever-faster pace.
Yeah, it can continue forever, especially since there are unlimited PHYSICAL resources. Just need to get Krugman/govt/all the other hobgoblins out of the way and THEN, by god, we'd really be cooking!
I suppose that it's still too soon to say whether mind can overcome matter...
With all due respect, you're presenting one of the hobgoblins that needs to be eliminated - the idea that resources can only be physical and are necessarily irreplacable. The whole idea of technology is finding better ways to do things. The resources of yesterday are not the highly demanded resources of today. The whole idea of "renewable energy" can only go from idea to actual diffuse implementation with growth in technology. You facetiously point to two hobgoblins - Krugman and the government. One wants to tax technology and the other is a willing partner in the scheme. Will they tax tecnology to the extent that stifles innovation? If they do, I suppose we could run out of "resources" but, thankfully, your Social Security check will come on time.
Sarc of course, but maybe you should have made that clearer, e.g. you might have ended, "Obviously mind has overcome matter, look at how we merely have to think-up new and easy gold mines in California, the Yukon, S Africa and Australia. Yeah we've done it, unlike the alchemists of old."
Sorry to pinch your thread, but I could not resist extending it gold-bug factions of the status quo of expecting exponential growth on a finite planet ... so as to always stay ahead of compound interest charged by banks.
The universe is indeed infinite to us and it is ours for the taking so long as the black heart of the central planner is kept at bay. Go back to the caves dolt.
Best Buy vs Amazon's stock price over the past 5 years tells the story.
Not surprising considering in 1998 Krugman said:
"By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's"
Ok, so if the Keynsian adherents are lacking and the opposite right-wing delusional Ayn Randist trickle down "30 years of failure" are wrong...then why don't we try the best way. The "middle-way"..."The Single Tax"...(Tax assets NEVER income)
Easy concept...If you control the nation's jobs producing assets, USE them to full capacity (TAX FREE)
...or LOSE THEM THROUGH TAXATION
For example...would have tens of thousands of Irish starved to death in 1845 if the British absentee landowner grew crops on the millons of unused acres of land they held?
It is as the founding fathers intended and quasi implemented 140 years before income taxes were ever initiated in 1913. And we became an economic powerhouse by 1860.
Henry George- political economist "Progress and Poverty"
http://www.dollarsandsense.org/archives/2006/0306gluckman.html
Henry George and his followers are douchebags. The Lyndon Larouche of his day.
how so?
Well, they come off at first like libertarians, but they're really just statists with an alternative extortion/funding proposal -- ends in slavery either way. And their "economics" is incoherent; this is where they remind me of Larouche -- it's all just gobbledy-gook that justifies socialism/fascism.
ok, i understand how one can perceive it in that way, though i haven't quite figured out how their proposals end in slavery (unless you view all gov't as slavery by consent).
taking all -isms out of the conversation for the moment, would you agree that there are certain goods/resources that are in the "commons" (though not necessarily have to be classified as "public goods") or is every good/resource on the planet a private one?
All governments depend on extortion and theft for their existence. Consent doesn't enter the picture, instead the essence of the state is grounded in force.
All goods/resources are initially un-owned (not common as you say) but they can become owned by a person through individual action. I can come to own the un-owned apple by picking it. In circumstances of abundance, many goods will remained un-owned. Under conditions of scarcity, the goods will eventually all become owned, and now can only be legitimately acquired through mutual exchange, which in a civilized society means a market of some form. And markets turn out to be the best way to allocate scarce resources, being both just and efficient.
The above is all standard theory, which should be very familiar to anyone who's read e.g., Rothbard. In practical terms, today we have a situation where vast amounts of property have been acquired through force and fraud by the banksters and their ilk. This massive theft will need to be remediated, and it's not going to be pretty.
People who don't have to go to the grocery store to buy food or hardware store to buy lightbulbs have this problem.
If he did, he would have noticed corporate America herding everyone into self-checkout robot aisles, and paying the same price (eg. - no discount) to scan and bag their own purchases.
Baaahhhh!
People are so programmable it is pitiful; but it explains Krugmans problem.
I generally avoid the self-checkout aisles like the plague. I have enough problems with technology as it is, at work, and at home, just keeping my goddam laptop and servers running. I don't need to struggle with Albertson's broken technology, so I vote with my feet and go to stores with humans at the registers. If people weren't such sheep, they wouldn't have to put up with such shit.
A related phenomenon can be seen when you go to the Apple store and watch the geniuses help the sheep figure out why their iPhones don't work. You see them explain to the befuddled bovine that their phone is actually like a Windows machine, see, and it crashes because of your apps, and you have to reboot it a lot.
And as an aside, I love this article. I love any article that pulls Krugman's pants down and exposes his lack of equipment.
"People who don't have to go to the grocery store to buy food or hardware store to buy lightbulbs have this problem."
I'm more thinking that he's paid to have this problem.
He's controlled opposition for the neoliberal corporate NWO, just as Clinton and now Obama were and are (at best, though the "more effective evil" is how they're both viewed in the liberal sphere.) With his preposterous claim to the "Conscience of a Liberal" he pretends to be slowly, laboriously, heroically coming to awareness of something that has been obvious to the common man for decades . . . and in the process slows down public discussion and substantive reaction to a painful crawl.
I recall discussing it thoroughly in my undergrad econ program nearly 30 years ago.
Krugman's current bullshit is a profoundly malignant pretense.
Controlled opposition.
Great response to one of PK's pieces is here:
http://krugman.blogs.nytimes.com/2012/12/11/human-versus-physical-capital/
Krugman has a job to do.
This job requires staying on message.
All that's happened is the message was changed.
So the talking-head changed his message as well.
One has to explain WHY employment is not rising despite Ben and Barry... Wink wink nod nod.
who can blame the cock on the media-economic weather vane going :
Cock-a -doodle!
This Oligarchy system is built on debt servitude of many to a few; whether they be statist oligarchs or private sector Squidish oligarchs, now an international network; thus becoming MUCH more powerful, voracious and toxic to humanity than the old nation-state statist shills brigade. (Not saying Mao and Stalin were not toxic but they were not part of western democratic bend like the welfare state leaders of Lincoln- FDR/Keynes tradition).
These new Tipping times are about the power shift in oligarchy circles ; its NOT about sheeple enfetterment; albeit the first world hegemony and its middle class structured welfare state are now toast from the globalised private sector Oligarchical perspective. They only bow to their own privatised and off shored profits, not to nation-state concepts.
As the Oligarchy is now globalised, so will the sheeple of the world be. No exceptions now. This is the message of Reagan-Thatcherista spawned new world order.
Yes, Krugman works as weather vane for the people in power, just like Potus. Its now an international network and they ALL prefer Keynesian type OVERPRINT to austerity. Its in their own VITAL interests.
And of course they say its for the good of humanity, as those banks who started this HOLD all our payroll, pensions and savings in their vaults! The eternal WMD song to justify criminal compromise ....As if they could not do a SPLIT like Iceland and Sweden did between bad casino banks and depository banks; letting burn the first and saving the others...then cleaning out the banking system with fresh money based on true Physical collateral. No Way, too much to lose of their own equity.
Finally, someone fucking gets it!
It's a data point for future use. When US corporations come running back to the US due to frictions stemming from trade wars (that will heat up due to US debt [public AND private] and resource shortages) they'll get plenty of incentives to "bring back the jobs" (read "subsidies"). Of course, it will be more than obvious that they won't be bringing a bunch of human jobs back with them, and this is where they'll look back and point at Krugman's "astute" observations here, where they'll say that they never said that there will be LOTS of jobs, just some "important" ones in industries that will, wait for it, produce more jobs in the FUTURE (which, as is the way it ALWAYS works- the "future" never delivers because the world isn't infinite and heaped with skittles and unicorns).
Basically they know the Unemployment rate is waaaayy higher than they've been asserting, and that it's going waaaayyy higher still, so the propaganda is failing and they need some new propaganda themes.
So now we'll have a national and global oh so heart-felt "debate" about the pros and cons of technology and the darker side of the impacts on a society, in a time of historic global transition. Then we'll all ultimately agree technology is more goodie than baddie (HFT and printing for instance), plus it's spread and intensification is inevitable, and thus we "need" Govt to rise to this occasion, and to build us a new bridge to the future, and provide the investment in the social capital and safety-net required to get us to a brighter future of, "enhanced leisure-time, and greater freedom". and how we can contribute in constructive ways to society and defuse the drift into social malaise and crime (i.e. how we can rat-out neighbors to the authoritarian scumbags). For where much is given, much is required. Thus we all become captured and beholden to this brilliant "new" idea and series of constructive insights.
Then we cut to some scenes of mars-lander shots, to confirm the sense of progress and high achievement in the system, even in a state of internal ruction, antipathy and despotism - because despite it all <sigh> it's all been worth it so far. So let's keep doing what we do so well - together - to build that bridge to a better place and time for all of us. Let's resist the nay-Sayers, and those who would bring us down and make us less than we can be. But let's instead unite behind our own, to serve our own best interests to create that future that we all need for our children, and for our world in these times of global strain and great change .... yada yada yada.
You can see it all coming. The new Depression-era politics and intense state propaganda, mixed with a total absence for tolerance of any form of organized descent, and plainly-insane subversive thought-crimes actively interdicted (which basically all happens already) backed by a wave of state censorship and oppression, for the sake of the children. Oh, and with a new cold-war and several intractable proxy conflicts, as is the krugmanite prescription. Ans with any luck aliens with far too much time on their hands will make supersonic passes over all cities, and break billions of window panes.
This will of course require some unfortunate but obviously necessary emergency-powers, and other temporary measures to be taken to safeguard our collected futures, which measures will all be rescinded immediately, as soon as the final victory has been achieved.
Yo Elly
THis of all nights get yourself a scotch.
i think you have to remember a lot of the chat here is USA centric - applies less to us in oz
due my paranoia i fixed a loan or two 2 years ago
its cost me thousands - we'll be the lucky country for a while... a while...
Hey BD,
Unfortunately, if they elect a Bush or an Obama and appoint a dill like Clinton as FM, we still carry their water. It would be nice if US politics didn't matter here but it just isn't so. We mirrored their stupid descent in to gratuitous legal over-reactions to the "9-11" farce, and we've tagged along into every stupid thing with them since.
Maybe I should get sozzled but I just generally don't these days. Need my brain a bit more. But do have a few on my behalf mate, and may we remain a fair bit more lucky than most of these other poor unfortunate bastards during 2013. I'm in NQ today and it's been pissing rain so the fireworks may find it tough going. Think the early family display is on in about 2hrs or so.
Cheers and have a great night and year BD.
And to you bud.
I was in NQ myself just last week.
Hot, Damn Hot. The way i like it.
i think our biggest dangers are from complacency here, its all around and actively encouraged.
i will pour one for you right now....
I can't count how many times I have read a screed by pk that denied the structural changes to the labor mkt. He is a mental Ph(D)uckup of the highest order. Although more causes than "robots" are at work.
The answer is so obvious ... tax the machines ... oops, wrote this before I read the whole piece.
Robots don't make houses (well, maybe the pre-fab parts, but bots didn't steal the drywall jobs).
Silly P-Krug!
Never heard of a taping banjo and a bazooka? One guy with these tools can eliminate 4 hand tapers.
Bye bye drywall mudders.
Face it. Human labor is increasingly redundent in a much slower economy.
Wars and plagues have a function in society. The problem is that they have been focused on subsistance level segments.
They need to be focused on the overdeveloped, under employed segment societies and if nature doesn't provide ...well, isn't that what good govt. is for?
Resource management.
Long swine/avian flu and neutron bombs= full employment. Toss in a few conventional bombs for our pal the banjo guy.
Yes We Can.
Relatively unskilled labor, possibly, but I have very little concern that robots will replace me as a programmer.
Mistaking the effects of credit and leverage for the effects of robotic industrialization is shameful in your case and completely expected in P-Krugs.
And those darn illegals that do the drywall don't pay SS taxes!
That'd be the ones crossing the border the other way for lack of construction work in the states?
Blanket statement for all "illegals," or only for all drywall installers?
BTW - Seems that with the housing bust drywall work is a bit down these days (just like in Spain, Greece and on and on...).
If he can [pretend to] miss something this obvious, he should immediately realize that he is also missing dozens of other massively important phenomenon. And, of course, he is... pretending to, that is.
For example, that predators have absolutely, completely, totally and utterly taken over the government and all large corporations... and that big-shots are never prosecuted any more. For example, that CPI, GDP, unemployment and other crucial numbers are now completely wrong and massively different than before, yet they still assume they mean the same thing as before. I don't suppose those changes make any difference, do they Paul?
Sheesh, what a moron. What a liar. What a joke!
Okay...
Krugmaniac has admitted he is a moron.
Greenspasm has admitted he is a moron.
When will Bernanke admit he is the biggest moron of all?
Not in defense of Krugman (I defend logic and reason), but how are you coming along on your understanding of the exponential function?
Been there, done that.
You're a few decades too late.
Maybe you should look into response functions.
But, but, but they are OUR morons. Best wishes and a crappy New Year. Yours sincerely, The Rothschilds & Co.
Dear PK,
The future is bent, not linear
You remind me of that great, but unappreciated !9th Century economist, Dr Ben Dover - a relative of Marx - who predicted that things would not end well, because of workers always getting shafted, especially in the coal mines of the period, but he used that as an allegory for what he saw coming within 150 years.
Hence his opus, "Economicus Anal Tractacus".