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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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Just to illustrate what an intellectual ignoramus and prostitute that Paul Krugman is, consider that his words above "...the rise of smart machines..." derives from Ray Kurzweil's "The Age of Intelligent Machines" - publication date 1990. It has taken Krugman 12 years to recognize reality. And you can bet that he still doesn't have a grasp on what reality is.
Jeremy Rifkin spent the 90s preaching in the desert about how computers were going to put low- and medium-skilled workers out of work. http://en.wikipedia.org/wiki/The_End_of_Work
It's not just Krugman who didn't listen, almost no one did.
It's 22 years since 1990.
Kind of points out MY concern all along, that people are incapable of understanding simple math- the exponential function. </part sarc: but if one is so eager to bash someone then one ought to get simple things correct else one will tend to look equally as absurd>
Rather than talking about how we expect perpetual growth on finite planet is possible we're talking about Krugman and his understanding of the affects of robotics on the human workforce. Really, what fucking planet are people on?
Actually, if the fuckers hadn't militarized space (along with everything else) and turned the entire population into zombies, I could imagine a rosy future where humans could get off of this planet, and then we'd only have to worry about a finite solar system / galaxy / universe. Kind of the ultimate kick the can down the road scenario. And quite honestly, one I'd be willing to endorse.
(No treatises about the impossibility of inter-stellar space travel needed, the physics are daunting, I get it...)
And, I'm on "Earth", we call it.
we don"t need to understand the exponential function, we have robots for that. ;)
Krugman's next ephiphany:
Voodoo economics (spending and borrowing) is what has caused the global economy to collapse - more of the same is not going to result in any sort of recovery - because debt thresholds have now been breached by following these insane policies for decades.
Paul will finish up with the understatement of all time claiming 'This is really really important stuff - I am not sure why but I feel it is very important'
Forget about his ideology or political idiotology. Karl Marx had a better grasp of the fundamentals than these ivy League-Soviets over 100 years ago.
Harvard, Princeton, Columbia all manufacture synthetic turd brains squared.
The reason he is stretching it over weeks is to lend the appearance of some process of scientific discovery instead of either admitting he is a shill or a moron.
Wb dont forget MIT, source of our doomed quant easing experimenting central bankers.
"Williambanzai7",
Not only are you an good artist, You are smart and tenacious!
MY SECOND MAIN MAN
Agreed WB ... in brief, and paraphrasing, Marx analyzed that value is "congealed labour".
You can no more make money out of a robot, than you can get blood out of a stone.
You can't price a product, including a robot, without the labour of people who have the human needs to both produce and demand products.
Henry Ford (and other early manufacturers) knew that, so though he automated assembly lines he wanted to ensure that his workers could buy what they were producing.
Nope.
I respect you and will state without equivocation that you are wrong.
Karl Marx was a mentally ill rebel against natural law.
So is Krugman.
The biggest difference is that Marx actually believed his own delusions (maybe)....Krugman just does it for the cash that comes by playing the role.
FREEDOM IS THE ANSWER.
Funny how the Alinsky left mocks those with beliefs that 'they' assert as outside the bounds of 'science' (as determined by them, of course), and yet the one single consistent and hard truth they insist on rejecting..
THIS TIME IS NOT DIFFERENT AND THEY ARE NOT IN THE SLIGHTEST MORE SMART THAN THOSE WHO HAVE TRIED TO KILL?OWN?EXTINGUISH>>
US BEFORE.
As no doubt you are well aware, Marx and Keynes both were merely useful idiots. Promoted by their usefulness, not any natural and actual value. They were both FIAT 'thinkers'. Both pretenders and only elevated by the amusement and discretion of the sociopaths attracted and amused by the utility of their promoted pathology.
Kinda like every U.S 'President' since G.W. and most glaringly by the stupid jackass toy assigned to play dear leader in this now underway final act.
It's only going to get more real from here.............................Because fake has a shelf life and clearly the rot has taken control, this is good though on a long enough timeline because we can only hope that following death shall come new life.
NOW THAT IS FREEDOM!
http://michael-hudson.com/2012/12/americas-deceptive-2012-fiscal-cliff/
The irony is that so many of those passing out the koolaid mixed by their masters are fanatical believers that it is "Liberty" they serve.
FREEDOM of/from/to what?
When there are 100 billion humans on this planet just how FREE do you think you could be? (NOTE: it is highly unlikely that there will get to be this many humans.)
i give you this
The chief aim of their constitution and government is that, whenever public needs permit, all citizens should be free, so far as possible, to withdraw their time and energy from the service of the body, and devote themselves to the freedom and culture of the mind. For that, they think, is the real happiness of life. -- Sir Thomas More, "Utopia"That's because the "science" of economics was simpler and more transparent those days. Plus, Karl Marx was connected to the masses and not living in an ivory tower.
Actually he was. His own mother complained that he never kept a real job a day of his life.
Great observation.
He preferred to live off someone else. That someone being Engels as well, while working on his "theory". His wife supported this nonsense, while his children had no choice.
It got so bad Engels would cut the pound notes in half he was sending him so Marx wouldn't burn through the stipend and his family be thrown out on the street and starve. Half the notes arriving one week, the other half arriving the next.
He was a parasite (just like Krugman) in every sense of the word.
PK wants to tax (control) the robots (eventually out of existence) because they are killing jobs. Maybe robot control will be a lot like gun control. After all, robots are semi-automatic and repeat themselves time after time. Just an interesting notion. Maybe a robot drone will consider him an enemy someday. I really wish him well and hope he lives a long life in North Korea.
Happy New Year ZHers.
Paulie K. just hates robots because they can't grow scraggly beards.
Technology can only produce those goods and services that consumers are able to purchase. Unemployed people, Government funded not included, do not purchase much. The imbalance in employment relative to production is only possible through debt and debt is not sustainable without unlimited printing and that is not sustainable either. If only so many were no so afraid of competition, as that is only only thing that can provide the best quallity products at the lowest possible price while offering a sustainable economy.
"Unemployed people, Government funded not included, do not purchase much."
I realize that you're referring to a subset of the human population, but I'd like to point out that the entire premise is to GROW, and that at some point you HAVE to push products off on people who may not be so readily available to buy them. This is exactly what Cecil Rhodes was pushing: and there's a LOT of his disciples running around.
"sustainable economy" doesn't exist, nor will it ever if it continues to be premised on perpetual growth. Competition WILL narrow down, eventually eliminating all other competition: when you get big enough to guarantee large-scale purchases of feedstock you start eliminating the access to such feedstock from existing/potential customers.
I'll agree a bit with those who are bothered by the use of the word "sustainable," but only of questioning the word's utility. My take is that "sustainability" requires a time component. We are, right now, sustainable, though given enough time it won't be so. I will say that we absolutely WILL become sustainable for a longer period of time, though such won't be happening due to growth.
Epiphany indeed. I have to wonder if Krugman's slowly rolling out his "proof" of the obvious in stepwise theatrical fashion . . . given that he's talking about something that most people have recognized for the past thirty years, the declining labor share of income in spite of productivity gains.
Of course, most were quiet, having bought the vision of a new age of prosperity that would be shared by all, and busied themselves with greasing the tracks however they could.
Suckers, eh?
Now we've reached the point where 93% of income gains since 2008 have gone to the top 1%. The "Producers."
In the larger picture, is that sort of income disparity sustainable? I mean politically, of course. Will the despised American parasite class, which can only grow larger or die, choose the latter because they played the game . . . and lost?
There's your delusion, Bruce. Choose whatever story you like, couched in the most persuasive financial terms, but at some point it doesn't matter how slick the story. You can't sell it to the people who got cleaned out.
It's no game. Enjoy it while it lasts, though!
Sigh, people are too busy bashing Krugman to step to the real level of questioning. Seems to differ little from the Dancing-With-Stars crowd.
We shall never question the Growth God: TPTB don't allow it.
Yea...the people who actually do the work in America are called the "parasites" while the pigs who spend more time on golf courses designing ways to steal pensions or trading for a living like Wall Street that produces NOTHING are somehow called "producers"...just because they STEAL the most.
The right-wing central planners have been wrong for thirty years and we're in the midst of THEIR end result of trickle-down nonsense they still rabidly believe in.
Watch Germany survive. How? Their companies are forced by law to share the profits with the people who create the wealth...the WORKER...maintaining a SPENDING middle-class. Labor has a seat on each corporate board. Slowdowns produce ZERO lay-offs because the entire nation works a four day week. Too bad the right-wing propaganda machine has turned common-sense into "socialism".
Last week I attended a seminar on technology that would start to automate microbiology. This is why I left hematology and clinical chemistry , I didn't want to be a slave to instrumentation and be unable to make critical decisions about patient care. The technology they presented would essentially eliminate the lab assistants that work under me. These are 15-25 dollar/hr jobs. I was amazed they 1) invested the capital to do this, must have cost millions for such a small segment of workers they intend to eliminate 2) worked out all the technical difficulties dealing with robots handling various patient samples and plating requirements for each,there's a lot of art as well as science to do this right. Of course only large commercial labs will be able to afford this new technology but eventually it will become standard. I'm next on the chopping block and I've run out of places to run.
Okay I'll say it Fuck you Krugman, may you rot in Hell!
Miffed:-)
All of this shit is for TPTB!
And, let's face it, we had been recipients of a lot of this "great" stuff- the party is slipping away from us (because there's not enough "new" growth elements out there to feed the growth ponzi).
"I didn't want to be a slave to instrumentation and be unable to make critical decisions about patient care."
Humans can't be trusted. That is, only a handful of carefully selected ones can be trusted. This mindset is no different than those screaming about "illegals" and the "lazy poor."
It's not that people cant be 'trusted", IT'S JUST THAT PEOPLE ARE TOO INTELLIGENT TO FOCUS EXCLUSINVELY ON ONE BORING JOB FOR EIGHT HOURS AT A TIME!! People cant be trusted to be "robotic". They have brains and want to think about their girlfriends, politics or their next smoke break.
People have many wonderful attributes but microscopic CONSISTENCY is not one of them. Machines can't think outside the box but if the box is designed right, then statistical process control is ok.
You are right about microscopic consistency and the boring tedious part of work is best left to machines. However, in my field, there is a great push to eliminate the thinking, judgement part of my job. I've worked with instruments that would miss identify bacteria ( call the bacteria Yersinia pestis ie bubonic plague when I know I can't be) and I could, I the past, delve into the workings, figure out why the instrument failed and fix it. Now more and more companies are designing their instruments to be push a button and out pops an answer and the software won't allow anyone to access it unless its a company rep. They cannot get FDA approval if they don't do this.This sounds like a great safety feature but in reality you've hamstrung the most experienced minds in your operation. If I suddenly come down with meningitis I rather have a competent microbiologist working on my culture rather than relying solely on cutting edge technology.
You know what this is REALLY about? Goddam "SAFETY". yeah I could make a mistake and the outcome may not be good. Once again, like getting fist fucked by TSA, it's all about safety. I'm so sick of this shit and ya know what?.... I blame women for this and I blame you men for rolling over and allowing it. Okay my blood pressure is up and I need to take a walk...sorry for the rant.
Miffed:-)
Sorry, I should have included a note about it being somewhat tongue-in-cheek...
I'm well aware of the need for precision (have been in clean rooms where robots build stuff for other robots).
My REAL point is that TPTB need the automation. The majority of the world sees little coming from the automated world (other than bombs and drones).
"IT'S JUST THAT PEOPLE ARE TOO INTELLIGENT TO FOCUS EXCLUSINVELY ON ONE BORING JOB FOR EIGHT HOURS AT A TIME!!"
Krugman does it! (had to work his name into this discussion)
Hell is other NYT columnists.
I wouldn't let Krugturd mow my lawn ... he would cut his fucking foot off ...
He would call it stimulus. Kind of like the "broken window" analogy. By cutting of his foot, he stimulates the economy by suing you and putting your money in his pocket, and then repairing his foot.
No, he'd cut somebody else's foot off.
Bruce,
Are the illegal immigrants who are lowering the price of labor, the same as the "robots" Krugman speaks of?
If not then why does Krugman support giving the illegals "presently residing" in the US citizenship?
Americans are too fat and lazy and busy watching Dancing with Stars to do these jobs - so just be happy immigrants will - because otherwise the whole country would seize up
Bruce - Who does Krugman think makes / produces the "robots"? Other robots ? Ok, so who makes the "other robots" ?
Can we replace "economists" with robots?
Krugman isn't the only one who missed this. Most of the anger and hand wringing even around this place stems from frustration with the manner in which society attempted to ameliorate this labor problem, ignoring the source of the problem itself. Technology, combined with "globalized outsourcing", made so many people redundant that "debt" was the only way to create the demand to absorb all of the excess production.
The world increased its efficiency faster than it could create new reasons-to-be for all the new arrivals into the labor pool. If another million people want a TV, how many new workers have to be hired? Zero. Thus, there is production in society, but no new means to create the buying power to absorb the production. As a world, we're expecting the equivalent of Bentley being able to sell as many Mulsanne Turbos as it can produce, when only a few in fact have the means to purchase one. Unless---and this is where most of us concentrate---we provide nearly unlimited credit.
Debt, and all the maladies associated with too much of it, is a symptom of this problem Krugman (and most everyone else) doesn't see. We've reached the endpoint of the Industrial Revolution, or at least we have outrun society's ability to keep pace with the IR's "benefits" in terms of efficiency.
Just for fun, Bruce, plot your labor chart along with a chart of worldwide debt levels. You can achieve the same realization if you plot China's GDP alongside a chart of worldwide debt. One can see how we used debt as a solution to this somewhat intractable labor-efficiency problem.
Not a Gold Standard or "ending the Fed" or doing away with fractional reserve banking will make this situation any better, though some "solutions" do come with their own set of problems.
To take it to its real core we need to see/realize the connection between debt and growth.
Those who advocate for more growth fail to realize that growth is guaranteed to bring us things such as over-redundancies.
Expansion of debt has been going on for a long time. What has happened is that the effects are impossible to hide now, time-frames have shortened and the frequency of things is getting shorter. We have to run faster and faster and faster... This is what the exponential function does, this is what it causes in REAL life (the physical world) when we base everything on growth.
We're out of "new lands" from which to "obtain" raw materials. We're out of "new lands" for exploiting "cheap slave labor." We're out of "new lands" from which to dump "surplus" goods. Growth is finished: we're just waiting to hear the air bursting from China to signal the clear end.
Africa and antarctica have yet to join the borg
Cecil Rhodes was not a nice man. Really had a penchant for white supremacy.
White supremacist or not, it seems like his model was pretty much adopted.
I will add that I am not arguing for more debt. Nothing of the sort. Debt is merely a stopgap measure, not a solution. As a society, even as a species, we've got some tough decisions to make. We have to decide what mix of technology and labor we want. If we go all Tech Society, most everyone loses his or her job (unless we all become bloggers or Reality TV contestants). If we go all Saffron Society (picking the three stigmas of the crocus flower is about the lowest tech, highest manual labor job there is, so the term exemplifies the other extreme), the amount of goods on offer become less and possibly of lesser quality. Another decision we have to make regards fertility: if there is no job for a new human, better not to create so many humans. Japan and Italy are doing this without anyone's advice; the rest of us, not as much. Obviously we also need to limit debt and lower expectations of what is obtainable in terms of luxury or lifestyle. Finally, we need to eliminate anything that stands in the way of innovation, since innovation is the only thing that can create new industries and jobs.
Debt was the interim solution. It reached its limit and created its own problem. More than that it masked the nature and source of the real underlying problem.
excellent analysis, elegantly stated, Lord Cosimo.
"If we go all Saffron Society" "amount of goods on offer become less and possibly of lesser quality"
why would this be? it would seem that as a general rule, as quantity of goods goes down and focus gets shifted to "handmade", quality as a whole should go up yes?
think of the quality of a Mercedes sedan built in the 70s vs. one built now for example.
I agree with two of your sentiments: that 1) more production may not require more jobs and 2) certain commodity products just beg for automation and certain ones (Bentleys) don't. Our consumption is increasingly commoditized as real incomes drop.
If fewer people are working in these lights-out automated facilities, labor costs go down, quality goes up, profits increase. Government will want to redistribute those profits (f*cking socialists) to the unemployed to avoid rioting.
I think we've temporarily overshot the mark in the area of 'standard of living'. For years people have been sold the consumerist mantra so people want their toys. Unemployed people, however cant have toys. Innovation must step in to give people new domestic industries to work in. Obviously. However, those industries will all be automated (profitable) because the government will want to *ss-rape any company that dares to do business here.
Let's jump forward a bit. There are a few employable and lots of unemployable people in this automation scenario.
So look at this problem like a businessman (as you clearly are) and ask... What happens to a corporation that has profitable and unprofitable divisions????
Spin off. Freaky times ahead.
"I think we've temporarily overshot the mark in the area of 'standard of living'."
Think so? </sarc>
We've done it over the course of at least 150 years, the age of oil/fossil fuels.
"Innovation must step in to give people new domestic industries to work in."
This is yet more"mind over matter" thinking. If you don't have the physical resources to apply to your "innovations" then those "innovations" are just great stories.
I'm pretty sure that during the final days of civilization on Easter Island the folks there were still hoping that they could figure out a way how to get those statues down from the quarries: "If only we could come up with the right innovation!"
This isn't going to be any simple "correction of misplaced capital" happening here, this is going to be a MAJOR paradigm shift.
I wish "the invisible hand" would strangle pk
stupid fk krugman gets a pass just like the other dfs that missed a housing bubble at an avg price of 10 to 15 times income for the avg home sold. Progs like him will soon come up with something like a "constructive" (ie fictional) wage for all these displaced workers. Benny will print, bamy will smile and wink, problem solved.
Does PK know what an ATM does? Online banking? Self service has been mainstream longer than he's been pretending to be smart.
"Self service has been mainstream longer than he's been pretending to be smart."
The majority of humans on the planet know exactly NOTHING about these things, in which case YOUR notion of "mainstream" is a little skewed.
Oh, and of fucking course Krugman is an idiot (or does a very good job of impersonating one). But one ought not toss out statements that have equally huge holes while implying that one is "smarter" than said idiot.