Saturday, April 19, 2014
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Inequality on the Horizon of Need

BERKELEY – By any economic measure, we are living in disappointing times. In the United States, 7.2% of the normal productive labor currently stands idle, while the employment gap in Europe is rising and due to exceed that of the US by the end of the year. So it is important to step back and remind ourselves that the “lost decade” that we are currently suffering is not our long-run economic destiny.

As Paul Krugman recently reminded us, John Maynard Keynes perhaps put it best:

“This is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life – high, I mean, compared with, say, 20 years ago – and will soon learn to afford a standard higher still. We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time.”

But what is our long-run economic destiny? Keynes looked forward to a time, perhaps 2050, when everyone (in England, at least) would be able to have the lifestyle of a Keynes. And, because he imagined that no sane person could want more of the necessities, conveniences, and luxuries of life than a Keynes had, the economic problem would be solved.

We are wiser – and perhaps sadder – than Keynes. We know that we want hip replacements and heart transplants and fertility treatment and cheap air travel and central heating and broadband Internet and exclusive beachfront access. Already nearly everybody in the North Atlantic region has enough food to avoid hunger, enough clothing to stay warm, enough shelter to remain dry. And yet we want more, feel resentful when we do not get it, and are self-aware enough to know that luxuries turn into conveniences, and then into necessities – and that we are very good at inventing new luxuries after which to strive.

So the economic problem will certainly be with us for a long time yet. But at least we can count on being able to generate a relatively egalitarian middle-class society as we collectively slouch toward our consumerist utopia, right?

It was Karl Smith of the University of North Carolina who explained to me that this was likely to be wrong. The long post-Industrial Revolution boom, which carried unskilled workers’ wages to previously unheard-of heights – keeping them within shouting (or at least dreaming) distance of the lifestyles of the rich and famous – is not necessarily a good guide to what will come next.

To create wealth, you need ideas about how to shape matter and energy, additional energy itself to carry out the shaping, and instrumentalities to control the shaping as it is accomplished. The Industrial Revolution brought ideas and energy to the table, but human brains remained the only effective instrumentalities of control. As ideas and energy became cheap, the human brains that were their complements became valuable.

But, as we move into a future of artificial intelligence that observers like Kevin Drum expect (or even of the artificial moronity that is already clearly at hand), and into a future of biotechnology that grows itself as biological systems do, won’t human brains cease to be the only valuable instrumentalities of control?

It is not necessarily the case that “unskilled” workers’ standards of living will fall in absolute terms: the same factors that make human brains less valuable may well be working equally effectively to reduce the costs of life’s necessities, conveniences, and luxuries. But wealth is likely to flow to the owners of productive – or perhaps fashionable – ideas, and to owners of things that can be imitated only with great difficulty and high cost, even with dirt-cheap instrumentalities of control, dirt-cheap energy, and plentiful ideas.

The lesson is clear: the market is not guaranteed by nature to produce a long-run future characterized by a reasonable degree of wealth inequality and relative poverty. Unless and until we recognize this fully, we will remain at the mercy of Keynes’s poorly understood “delicate machine.”

Read more from "Unequal at Any Speed?"

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  1. CommentedG. A. Pakela

    How is it that Germany, a country that if anything has more regulation and higher tax rates, can produce goods for export and keep its economy close to full employment?

    The answer may be more cultural. Their education system may be better geared towards producing skilled labor, while ours is overly focused on a liberal arts as opposed to learning a trade. Our school system has gotten rid of vocational tech schools rather than placing emphasis on gaining trade-based skills.

    1. CommentedCarol Maczinsky

      I don't believe in this at all. But certainly there is a notion of trust and do as you say, and a political class that does not regard the state as an institution to steal from for their people but as the order mechanism of the market.

  2. CommentedGunnar Eriksson

    To sit and wait for the "nightmare" to go away is dangerous as for example Germany discovered in 1930.
    What is typical of this time is not that bright ideas are rewarded, but that outright theft is accepted and called capitalism. We the people need to take the message back from the paid lobbyist to reshape the message in our own interest.
    For example; if the lowest salaries would be increased to sustainable levels and a bank would be put in prison now and then prosperity would return.

  3. CommentedProcyon Mukherjee

    Consumerism is a far more recent development, where the purpose of wealth is to consume, not to build in the capacity that human endowments are in need to excel, so that the very purpose of life is sought in the token of giving to others more than what is extracted through the means of production; the guiles of productive capacity should not be lost in the creation of wastes that channelizes consumption to its eventual obligation.

    Social acceptance of material prosperity (not consumerism) runs longer than the time of Adam Smith, who wrote in his seminal ‘Theory of Moral Sentiments” that to flaunt wealth and to hide poverty was innate in human nature; however his summary, “The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species”, may not be valid any more.

  4. CommentedFrank O'Callaghan

    Keynes was right about so much! In this piece, so is DeLong.

    Productive capacity is greater than ever. The problem is distribution. We have been suckered into an acceptance that our dysfunctional resource allocation is necessary. It is only necessary to the dysfunction and to the shrinking and already tiny minority who selectively benefit from the mess.

  5. CommentedZsolt Hermann

    I would agree with most of what Keynes says in the quote from the article, except that the "nightmare...will pass away with the morning".
    We indeed have all the capabilities, we have all the resources, but at the moment we are operating based on the wrong software.
    And unless we change our operating software the nightmare will not pass but will get worse.
    At the moment the main driver is exploitative competition in order to gain profit, most of the time at the expense of others.
    This way despite having all the abundance of resources, technological advances, possibilities, a huge amount of it is wasted, and the distribution of the resources and profits is very distorted resulting in social inequality, unemployment, impoverishment of different social layers, today including the middle class.
    This "new poverty" does not mean famine or difficulty to acquire necessities, but the unsolvable debt burden, loss of social mobility, loss of future prospects, loss of confidence froze productivity, which in turn arrested growth and the consumer machine, and this vicious cycle is now destroying the whole system.
    We have to change the flow, the direction of the movement from "towards only myself", competing, exploiting, to "towards the whole", in a mutually complementing manner.
    Not based on socialistic, communist principles, simply removing the excess, and the artificial manipulations that took over the whole system.
    Those who give the most into the system would still get the most out of it, but in a fair and not in today's distorted manner when those on top twist the system towards themselves, squeezing everything out for themselves.
    This fundamental change can only happen by positive motivation and not by coercion or trickery as it was attempted so far.
    And the positive motivation can only come from understanding, and understanding can only come from "education".
    We all have to learn and understand that our new global, integral world requires a different mindset, different human relationships.
    If we are all locked into an interconnected and interdependent system that is scientifically proven, and "practically tested" through the events of the crisis, then it is everybody's interest to maintain and improve the whole system, as each and every individual, from the strongest to the weakest, from the richest to the poorest can only prosper and survive if the whole system prospers and survives.
    There are no other options in an integral system which works on the "all or nothing" principle.
    Thus the nightmare will only pass if we understand that the isolated, profit oriented "self" has been replaced by evolution with the "aware, collective self", where this "self" can only succeed by consciously being part of, mutually cooperating in the whole system.