Tuesday, November 25, 2014

Labor’s Paradise Lost

LONDON – As people in the developed world wonder how their countries will return to full employment after the Great Recession, it might benefit us to take a look at a visionary essay that John Maynard Keynes wrote in 1930, called “Economic Possibilities for our Grandchildren.”

Keynes’s General Theory of Employment, Interest, and Money, published in 1936, equipped governments with the intellectual tools to counter the unemployment caused by slumps. In this earlier essay, however, Keynes distinguished between unemployment caused by temporary economic breakdowns and what he called “technological unemployment” – that is, “unemployment due to the discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.”

Keynes reckoned that we would hear much more about this kind of unemployment in the future. But its emergence, he thought, was a cause for hope, rather than despair. For it showed that the developed world, at least, was on track to solving the “economic problem” – the problem of scarcity that kept mankind tethered to a burdensome life of toil.

Machines were rapidly replacing human labor, holding out the prospect of vastly increased production at a fraction of the existing human effort. In fact, Keynes thought that by about now (the early twenty-first century) most people would have to work only 15 hours a week to produce all that they needed for subsistence and comfort.

Developed countries are now about as rich as Keynes thought they would be, but most of us work much longer than 15 hours a week, though we do take longer holidays, and work has become less physically demanding, so we also live longer. But, in broad terms, the prophecy of vastly increased leisure for all has not been fulfilled. Automation has been proceeding apace, but most of us who work still put in an average of 40 hours a week. In fact, working hours have not fallen since the early 1980’s.

At the same time, “technological unemployment” has been on the rise. Since the 1980’s, we have never regained the full employment levels of the 1950’s and 1960’s. If most people still work a 40-hour week, a substantial and growing minority have had unwanted leisure thrust upon them in the form of unemployment, under-employment, and forced withdrawal from the labor market. And, as we recover from the current recession, most experts expect this group to grow even larger.

What this means is that we have largely failed to convert growing technological unemployment into increased voluntary leisure. The main reason for this is that the lion’s share of the productivity gains achieved over the last 30 years has been seized by the well-off.

Particularly in the United States and Britain since the 1980’s, we have witnessed a return to the capitalism “red in tooth and claw” depicted by Karl Marx. The rich and very rich have gotten very much richer, while everyone else’s incomes have stagnated. So most people are not, in fact, four or five times better off than they were in 1930. It is not surprising that they are working longer than Keynes thought they would.

But there is something else. Modern capitalism inflames through every sense and pore the hunger for consumption. Satisfying it has become the great palliative of modern society, our counterfeit reward for working irrational hours. Advertisers proclaim a single message: your soul is to be discovered in your shopping.

Aristotle knew of insatiability only as a personal vice; he had no inkling of the collective, politically orchestrated insatiability that we call economic growth. The civilization of “always more” would have struck him as moral and political madness.

And, beyond a certain point, it is also economic madness. This is not just or mainly because we will soon enough run up against the natural limits to growth. It is because we cannot go on for much longer economizing on labor faster than we can find new uses for it. That road leads to a division of society into a minority of producers, professionals, supervisors, and financial speculators on one side, and a majority of drones and unemployables on the other.

Apart from its moral implications, such a society would face a classic dilemma: how to reconcile the relentless pressure to consume with stagnant earnings. So far, the answer has been to borrow, leading to today’s massive debt overhangs in advanced economies. Obviously, this is unsustainable, and thus is no answer at all, for it implies periodic collapse of the wealth-producing machine.

The truth is that we cannot go on successfully automating our production without rethinking our attitudes toward consumption, work, leisure, and the distribution of income. Without such efforts of social imagination, recovery from the current crisis will simply be a prelude to more shattering calamities in the future.

Read more from our "In Keynes's Footsteps" Focal Point.

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    1. CommentedDallas Weaver, Ph.D.

      The Paradise that never existed. Back in the "good old days" when a minority of employees had well paying union factory jobs, there was a large rural sector that were loosing their jobs. What happened to the stable boys? They were the uncounted "majority of drones and unemployables" that we are still worried about.

      With modern work being so dependent upon education and the failure of our unionized education system in the last half century has made the problem appears more acute. The internet at least has provided possible options to solving that education issue.

    2. CommentedMark Slater

      Prof Skidelsky ignores the basic fact that much of Labour has been exported and not simply replaced with automation.
      iPhones, for example, are made as much by hand as by automation.
      What has happened is that nearly everything that involves unskilled labour on a production line has left the UK (and US) and is now made mostly in Asia where the wages rates are a tenth of what they are here.

    3. CommentedZsolt Hermann

      This article basically contains everything that if put together shows us the mirror what is wrong, why we are in crisis, and it could also give us the foundation from where we can go from here.
      Indeed the only "evil" we have today is the constant quantitative growth economic model that of course is fully supported by the present socio-political system regardless of governance, and this model that is based on the overproduction and forced, brainwashed over consumption of unnecessary and mostly harmful products is causing all the problems, crisis situations, conflicts within the human being, in human society within nations, in human society internationally and in between humanity and the natural environment.
      This is becoming clearer each day through scientific studies and the daily events of the crisis.
      Still we are missing the determination and bravery to say it out loud and act on it, to abandon the present system and build a new one that is adapted and suitable for the global, interdependent human network within the closed and finite natural reality.
      The only question remaining is where get the motivation, the final straw to make the move: do we have to wait for such an intolerable crisis, possible wars and destruction before we change, or we are capable of making the change wisely based on the available information that is all around us?

    4. Commentedrobot 5x

      Quite - the biggest problem is individual greed. Corporate CEOs want to make more and more money; the guy cleaning his office wants to make more and more money. And we will NEVER reach some magical point where we have 'enough' and we can lie back and rejoice - individuals insist on being 'better' than others; having a shinier car, having a bigger TV, etc etc. It makes no difference if the average wage is $1000000 per week; the dynamics and associated issues remain exactly the same.

      But I think the distaste for capitalism currently is misplaced. Individuals can achieve a million times more than 'Occupy' or any other movement simply by NOT SPENDING THEIR MONEY! If nobody buys the products from Evil Corporation Inc. then they will go bust. Simple. Capitalism is very strong at responding to demand - if individual demand is for socially just and environmentally sound products and practices then that is what it will provide.
      So - the 'systemic problem' rests firstly in each and every one of us. Spend wisely.

    5. CommentedGary Marshall

      Hello Mr. Skidelsky,

      The reason that we must continue to work so much more than we did in the past is because our dear governments keep taking large and growing fractions of our income and property to fund their ubiquitous squander and corruption. There used to be a time when one income could support a household. Now we need two, and of course the government will step in and raise our children imbuing them with that socialist ideology while we slave for the state.

      In case you had not noticed, many European nations are facing the prospect of being without lenders to fund this madness now that Taxation has failed to supply enough. Have you noticed the problems in Greece, Spain, Portugal, and Italy?

      Private enterprise does not force us to buy their goods. We buy them out of inherent benefits. Only governments force you to buy their generally worthless goods at the standard exorbitant cost. That is who is robbing us of prosperity.

      Do you unabashed socialists ever learn from a mistake?

      Clearly not.

      Below is the answer to the crisis facing all those European nations forced to pay elevated and soaring rates of interest to fund their fruitless and costly public expenditures.

      Care to put your obsolescent reasoning to work to refute it and collect $50,000 for a charity of your choice?

      I think not! You don't look like the courageous type.

      Here is a solution to the Greek problem. If anyone can find the flaw, I shall be more than happy to give him or her $50,000. I am just tired of doing this. Its not the end of the world, but a new beginning.


      The costs of borrowing for a nation to fund public expenditures, if it borrows solely from its resident citizens and in the nation's currency, is nil.

      Why? Because if, in adding a financial debt to a community, one adds an equivalent financial asset, the aggregate finances of the community will not in any way be altered. This is simple reasoning confirmed by
      simple arithmetic.

      The community is the source of the government's funds. The government taxes the community to pay for public services provided by the government.

      Cost of public services is $10 million.

      Scenario 1: The government taxes $10 million.

      Community finances: minus $10 million from community bank accounts for government expenditures.
      No community government debt, no community
      government IOU.

      Scenario 2: The government borrows $10 million from solely community lenders at a certain interest rate.

      Community finances: minus $10 million from community bank accounts for government expenditures.
      Community government debt: $10 million;
      Community government bond: $10 million.

      At x years in the future: the asset held by the community (lenders) will be $10 million + y interest. The deferred liability claimed against the community (taxpayers) will be $10 million + y interest.

      The value of all community government debts when combined with all community government IOUs or bonds is zero for the community. It is the same $0 combined worth whether the community pays its taxes immediately or never pays them at all.

      So if a community borrows from its own citizens to fund worthy public expenditures rather than taxes those citizens, it will not alter the aggregate finances of the community or the wealth of the community any
      more than taxation would have. Adding a financial debt and an equivalent financial asset to a community will cause the elimination of both when summed.

      Whatever financial benefit taxation possesses is nullified by the fact that borrowing instead of taxation places no greater financial burden on the community.

      However, the costs of Taxation are immense. By ridding the nation of Taxation and instituting borrowing to fund public expenditures, the nation will shed all those costs of Taxation for the negligible fee of borrowing in the financial markets and the administration of public

      Gary Marshall

    6. CommentedFlip Bibi

      As a Chemist working in a chemical industrial fascility, I am well aware of how technology affects our daily lives. But still, no matter what happens, there needs to be a human to make sure that all of the automated procedures are done properly. Technology, at least in my industry, changes fast and helps a lot, but I still find myself working 50 to 65 hours a week! Computers crash, networks crash, sometimes control rooms need to override automated programs, instruments fail and breakdown. Technology helps only when it works correctly. Human power will always be needed to get the job done, no matter what.
      Big industry leaders continuosly become more powerful, while the worker slaves daily and bearly pays his/her bills. The idea that industry must provide services and to allow the consumer to purchase the service at all costs, even if it requires for him/her to ask for a loan is ridiculous. Any industry will do all it can do to make a consumer believe that s/he needs to purchase a product/service. The lack of "industrial" morals drives an enormous wedge between those that can and those that can't , and as of late the numbers of those that can't is increasing faster. I know that every industry has the "right" to become profitable, and that the consumer has the "right" to consume any product s/he wants, but when the industry becomes obsessed to increase its couffers even if the consumer has to get a loan to get the product/service, is just plain wrong.
      I find it sad that people are only thinking on a short term to fix the melt down that we are going through, it is sad that people still think that borrowing is the way to get out of the hole. The whole situation is pathetic. We have a great opportunity infront of us to rethink how things should be, and few are thinking about it. A long term solution to labor/social equality can be reached now because this melt down is bringing countries to their knees. It is almost as if we have the chance to start from zero all over again.
      This economic melt down should be represented as a great starting point to rethink the whole labor/social market, this is prime time for our economists to present ideas that would actually be better than Keyne's Theories.
      This melt down should be recognized for what it is: it is the result of a failed program/idea, and that it is giving us the chance to correct our errors and to deliver a better balanced, and equal, economic philosophy that will give benefits to one and all.

    7. CommentedYoshimichi Moriyama

      Before the age of technological unemployment. it was the age of scarcity. We looked before and after and pined for what we did not have. It was a happy time when Say's Law of Conservation of Purchasing Power prevailed. What was produced was bought.

      With the advent of the machine age, Say's Law did not apply; it was the age of machine production and technological unemployment. Unless mass production was underpinned by mass consumption, there was inevitable and perpetual unemployment or frequently mass unemployment.

      Keynes as an economic doctor saw the cause of mass unemployment and prescribed artificial demand expansion by the government, thus saving a lot of unemployed people. (Hitler adopted this policy before 1936.)

      The age of mass machine production is the age of plenty and poverty amidst plenty. We cannot be optimistic because it is also the age of mass unemployement, mass underconsumption which is rectified by blaring commercial messages which make us dull and insensitive to worthy things and mass destruction of natural habtats, leaving little to later generations to come.

    8. CommentedProcyon Mukherjee

      The issue is always with the surplus of labor and the treatment to be given for it. The bouts of QE, and with additional twists, when Billions get doled to keep the long term interest rates low and the nominal, it is a very singular action called as inflation targeting. It is surprising that the surplus labor and unemployment issue is always a secondary function. On the other hand what the delta inflation could have done, if surplus labor was taken as the primary objective function, it could have taken out part of the debt overhang through the changed valuation and would have forced those steeped in liquidity preference to come out of their cocoons. Unless we have a concerted pressure to invest in fixed assets, all the money supply moving to liquid assets can hardly move unemployment out of its stupor; that way unemployment is actually being prolonged.

      Procyon Mukherjee

    9. Commentedjallo jallo

      As long as the means of production, thus both technology and labour included, continue to be privately owned, their functioning will only respond to productivity pressures. Under these conditions, unemployment will continue to increase and that will ad further pressures to create a surplus from both labour and technology investments. Unless society recovers the ownership of labour (thrugh messures such as the implementation of a universal basic income) and technology, we will be chained to perpetuate these dynamics.

    10. CommentedMichael Booth

      I've had to read this twice; the confusion I experienced on the first reading demanded it. As I read Prof Sidelsky, he is dismissing the entire Keynesian policy as either misguided or obsolete; perhaps both. He calls for a complete rethinking of the growth agenda; the futility and danger of chasing endless growth is clear here. And beautifully written, may I add.

      As the entire point of Lord Keynes' policy was to sustain demand via government action when private market demand was falling or weakened by the "normal" business cycle, and thereby to shorten the time until private market demand could reignite and begin again to expand and grow, I can't find any other way to interpret the Prof's essay than that Keynes was either in error or is obsolete.

      I read many of these sorts of opinions and analyses; economic philosophy is more accurately what these pieces are, actually. And most of them hold Keynes up as support for their "new", equilibrium-based economic agenda. If I'm reading the Prof correctly this is the first such essay that at least appears to declare Keynes not only wrong on his forecast but in error in his desire to support and sustain economic growth.

      I'll add only my experience that there is no such thing as equilibrium in any market; markets are either, to quote Bob Dylan, busy being born or busy dying. Equilibrium is inherently unstable, and where it exists invariably requires a loaded gun to sustain it. That being an arguable point at the least I call on Prof Sidelsky to follow up this essay with a second, detailing how "stability" and democracy will co-exist.

    11. CommentedProcyon Mukherjee

      A very stimulating article that covers so much ground in such a small space. First of all the theory of limits to consumption, although proved wrong in a limited span and a limited country like America, has a strong support from the statistics of consumption; if the whole world wants to enjoy the typical American breakfast or the equivalent calorie, imagine how much food have to be grown, which is almost impossible.

      We do not know the extreme lack of consumption on the other hand, which for a place like the sub-Saharan Africa, parts of Southern Asia, or the places like Western Odisha and other States of India have (it would add up to a Billion people), we would be confronted with a reality that would be shocking. A large percentage of these households in Odisha have only one good meal a day, which consists of simply rice that is given by the government at Rs.2 /kg, which amounts to less than four cents per kg.

      The overwhelming urge to consume in one part of the world and the apparent lack of it in another leaves me with a sobering thought that the merchants who could have become the conduit to prosperity are either not serious enough to understand the problem, or there is something very wrong with those merchants of trade, money and consumption, who have missed to understand that between the marginal propensity to consume and the multipliers, we have one missing link in form of the human touch for rising above the narrow confines of selfishness, which empowers those senses that are devoid of the instincts of trade that made hundred innovators bloom to make life better.

      I found the statitics of labor hours very amusing which has been submitted as a response to the article, which when disconnected from the price of wage-hour, means very little.

      Procyon Mukherjee

    12. CommentedYoshimichi Moriyama

      The last surviving British soldier who fought in the first world war (the War) said, as I read in a Japanese newspaper, that people (perhapd of the middle class) enjoyed life more before the War.
      Bertrand Russell, a British philosopher, said the same thing: People who did not know life before the War could not have an understanding of the contrast between the two lives before and after the War.

      People before the War perhaps derived much pleasure from a cup of tea or coffee. We drink a cup after another of tea or coffee and still remain discontented.

      Economic progress once seemed to bring everyone better life.
      We now know it has brought immense wealth to some, immense poverty to some in the developed and developing countries.

      We now know it has brought everybody cultural impoverishment.

      Yet we do not realize in this economic madness that we are lost.

      I also agree with Prof. Skidelsky that "we will soon enough run up against the natural limits to growth."
      Paul Samuelson, one of the few best American economists, said that there is much optimism in American economics because it ignores 'Malthusian' limits.

    13. CommentedVan Poppel charles

      Sir, your article ‘ labor’s paradise lost’ has intrigued me; first who has read the JMK’s article ‘ the economic possibilities for our grandchildren” published in the midst of the slump; the first sentence read : “ we are suffering just now from a bad attack of economic pessimism” as also “ that in the long run mankind is solving its economic problem”; but the epitaph of the old charwoman written by herself goes “ for I’ m going to do nothing for ever and ever”!! So?
      BUT: technological advance has not met the Keynesian dream ( and others ): we still need petrol for our cars and still fertilizer to grow food; and I doubt ( and I suppose JMK should be of the same opinion ) that a Lenistic wealth distribution is going to make the world happier and to solve the economic problem for the moment and even in 2100 and is possible to create sufficient economic growth ; and our youth is said to go to work till 65/67/70 years!! And notwithstanding all technological advance since 100 years : who is so intelligent to explain this to people without a Marxist interpretation??

    14. CommentedKen Peterson

      The problem is not in the stars: it's in ourselves.

      A recent book, "The Big Three", showed the agreement between Smith, Marx, and Keynes, that capitalism "wrapped all the human vices in a mantle of 'necessity'". They assumed, however, that as we created a sufficiency for all, our moral instinct would cause a revolt of consumers and producers. We would return to our senses.

      We are not as inherently good as they had hoped.

      Greed has won.

    15. CommentedDean Panos

      Contrary to the author's conclusions, the truth of the matter is in the statistics. Take the US - according to the Bureau of Labor Statistics' June 1, 2012 Employment Situation Summary, the civilian labor force participation rate is only 63.8% and the private non-farm employment average workweek is only 34.4 hours per week. This means that averaged over all "workers" (including those who are not participating in the workforce and, therefore, have 100% liesure time) the real average workweek is less than 22 hours.
      In 1936 when Keynes published the article the workforce included substantial numbers of individuals we now consider "children" or "disabled," who no longer work. If these categories were included in the labor force participation rate, the rate would be substantially lower and Keynes's prediction of a 15 hour workweek would be fairly accurate.
      The anti-capitalist ideology underlying the author's conclusion is not supported by the facts.

        CommentedCharlie Savelle

        "If most people still work a 40-hour week, a substantial and growing minority have had unwanted leisure thrust upon them in the form of unemployment, under-employment, and forced withdrawal from the labor market. And, as we recover from the current recession, most experts expect this group to grow even larger."

        CommentedA. T.

        The civilian labor force participation rate does not measure the number of people who do not have 100% leisure time, it measures the number of people who sell their labour to others for money. Looking at BLS activity breakdowns ( http://www.bls.gov/news.release/atus.t01.htm ), eating, sleeping, and leisure activities account for about 16-16.5 hours of an average person's average day. This means that the average person spends 52.5-56 hours a week doing things that he or she would rather not be doing if given the opportunity – work that still needs to be put in to "produce all they need for subsistence and comfort".

        It should also be noted that the author is not attacking capitalism per se (with "capitalism" being an umbrella term for a large number of quite different systems), but more its current corporate capitalist form. There are many ways in which the problems that the author notes could be addressed without compromising the principles of private ownership, competitive markets, and voluntary exchange (which, IMHO, are the three keystones of all flavours of capitalism).

    16. CommentedFrank O'Callaghan

      This is the clearest and most intelligent statement I have read in a long time.

      We have a problem of distribution. Our systems carry within them their past evolution from a world of scarcity. We must redistribute power, wealth, responsibility, income, work and resources. That is the road to stability and a sustainable living society.