Guest Post by Fred Reed
John Kenneth Fredbraith Speaks
This column contains everything there is to know about economics. Hereafter it will be possible to shut down university departments and stop talking about Keynes and the Austrian School, to the great relief of mankind. In gratitude you can send me your children’s college funds.
In 1850 people all lived on farms and grew food, which they ate. Eating was really important to them. They liked eating. There was in 1850 tremendous demand for refrigerators and cars, but people didn’t know they wanted these things because they hadn’t been invented. Anyway, they didn’t have any money to buy them with.
Yet the demand was there, crouched to spring. Much demand for almost everything, but little supply.
Then farming automated and people all went to cities to work in factories to make refrigerators and cars, which had been invented. These weren’t as important as food, but they were pretty important. People had a little money now, and bought them. You don’t need advertising to sell what people actually want.
There was lots of demand and getting to be pretty good supply.
Soon the factories were spitting out more than anyone could use of everything that anyone could reasonably want. A family needs only so many refrigerators. Here we encounter the first crucial problem of the modern economy: too much supply and not enough demand.
Yet the factories had to make stuff so people would have jobs, and the people had to buy the stuff so they could keep having factories. Economics is thus the study of the squirrel wheel.
To keep people working and buying, the economy began making things that nobody really needed or would think to want, such as nail salons, electronic gadgets, and designer jeans. To get people to buy these things, the supply of demand had to increase. Advertising came about to manufacture demand for things that, without advertising, no one would buy. Consequently society now depends for existence on pop-ups, singing commercials at twenty minutes to the hour on television, billboards, and Google ads. Advertising thus became more important to the economy than anything it advertised.
Labor
Labor followed a similar pattern. When factories came, they needed lots of people to make the refrigerators and cars. Most work involved digging holes or lifting heavy objects, so the workers didn’t have to be smart or know much.
Automation
Then came the rolling disaster that economists don’t seem to have anticipated: automation. As factories produced the increasingly trivial goods that supported the economy, they needed fewer and fewer workers to make the trivial goods. This raised two questions: Who was going to buy the $450 running shoes that nobody needed except that advertising told them they did, and how were the workers who didn’t have work making them any longer going to get money to buy them? Or to eat?
It became obvious, except to economists, that automation could do just about everything people were paid to do. Just now, someone has invented a burger-maker machine that will presumably replace hundreds of thousands of burger-flippers who aren’t needed anywhere else. Self-driving vehicles approach practicality, and will first replace long-haul truckers and then cabbies and delivery truck drivers. Much worse is in the offing. Here is the second crucial problem of modern economics: Where to put unnecessary people?
The Theory of Increasing Uselessness
A search continues, long quietly underway but now intensified, for ways to keep off the work force people for whom there is no work, or no real work. These are not necessarily lazy, shiftless, or parasitic. They just don’t have anything to do.
Child-labor laws and requirements that people finish high school helped diminish the labor force. Then society told the young that they all needed to go to college, when most of them didn’t, and since the universities served chiefly as holding pens, the quality of education dropped. Universities did however employ professors and administrators. Here was another example of selling at high price something that no one really needed, namely the appearance of education.
Swollen bureaucracies popped up to provide the appearance of work while the purported workers did little that would not better have been left undone. Military enterprise soaked up more people doing nothing that should be done. Exotic fighter planes that would never do anything to justify their existence but bomb remote goat-herds absorbed thousands of engineers and hundreds of billions of dollars. The engineers could as well have been paid for digging holes and filling them in, but this was judged unduly candid.
Finally even these measures ceased to be enough. College graduates began living with their parents and lining up for jobs a Starbucks because there was no need for them anywhere else. Resort was had to outright charity. Thus food stamps, Section Eight housing, free lunches at school, AFDC, and all the other disbursements of free money. Those receiving the free money no longer had any incentive to work even if the opportunity offered. In the cities generation after generation now lived on charity, largely illiterate and in what is never called custodial care. They are simply unnecessary. There is nothing for them to do. So they don’t do anything.
Poverty
In America this is usually a state of mind rather than an economic condition. The allegedly poor have all their time free, a luxury not available to the indentured drones who pay for this leisure. The poor have enough to eat—gobbling Cheetos instead of real food is their choice—and they have access to libraries and parks and museums. Graduate students at the same economic level used to live a life of books, music, illicit substances, and good conversation. The recipients of charity are not economically poor, but mentally empty.
Cognitive Stratification
Meanwhile an elaborate and highly effective system developed for sucking the very bright young from every cranny in the country and sending them to the remaining good universities: SATs, GREs, National Merit, ACT, and suchlike. Here the top two percent in intelligence partied, married, and made babies, not always in that order, and went into brain-intensive trades like Silicon Valley, i-banking, and medicine. As the middle class sank into the lower-middle, the brain babies increasingly formed a thin layer of dominant if not always morally impressive intellects at the top of society.
Increasingly aware of each other thanks to list-serves and web sites for the very smart, they foregathered internationally with their own kind, eschewing contact with the surrounding sea of slugs. (I will bet you are not reading this on a site where the comments are misspelled.) They prospered. Nobody else did. The battle lines were being drawn. Which brings us to:
The Minimum Wage
Conservatives harbor the curious notion that people will work if they don’t have to. This is because to them work, real actual work, is an abstraction with which they have no familiarity. Real work is usually unpleasant or boring. But to economic theorists, work means being a cardiac surgeon, talking head, columnist, or CEO. Thus they say that if we eliminate the minimum wage, black youth (these are always given as examples) will rush to labor for a dollar an hour, learn the trade, rise, and become CEOs. Horatio Alger and all that.
This implies two things: First, that anyone in his right mind would spend eight hours a day flipping burgers for a pittance when he could live on charity in leisure at the same standard, and second, that any employer in his right mind would want to hire semi-literates with bad work habits when, given our current endemic unemployment, he has a choice of much more educated and dependable workers.
In short, if the minimum wage were abolished, the bottom rungs of society would remain unemployed because their labor isn’t worth enough for them to live on, or worth anything at all. The bottom rungs creep upward. When almost everybody is unemployed, we will have to institute communism manque: “To each according to his needs and, from each, nothing much. I will then write The Theory of the Leisure Classes: A Study in Urban Chaos.”
There you have it, all of economics in a small package. Buy survival gear.
Yup, Yup, Yup,
Buy survival gear. Learn to garden. Raise chickens. Hope the juice to run your refrigerator stays online. Good and accurate rant Fred. Oh, and by the way, things are not getting better.
You fail to mention Bill Clinton and the dissolution of Glass-Stegall which IMHO set the stage for the Bankster looting.
A lot to agree with. But I question an employer wanting to hire smarter and more dependable people. I think those people are a threat to an employer. Therefore, an employer would prefer sub servant types with low expectations.
“But I question an employer wanting to hire smarter and more dependable people.” —– Mark
I question if you understand business.
Stuck. Mark has a point. I’ve personally witnessed managers driving off the more competent because that person had the potential to make their boob boss look bad to tsuperiors. Just take a gander at any large corps H&R department . It will be chock full of creatures of chaos who disperse the favors to the least deserving, mostly out of personal reference which will have naught to do with that persons ability to effectively do the job they were hired to perform…and I’ll bet admin can lend testament to this fact. Many employers will prefer suck-up yes toadies over employees prone to call a spade a spade.
Fred on Commentators Disease.
http://www.fredoneverything.net/Commentators.shtml
I often see victims of Commentator’s Disease arguing against the minimum wage on abstract grounds of economic theory. It is what commentators do—bandy abstractions, railing for or against Keynes, assaulting their ideological opponents with pointed phrases. They have never had to do the arithmetic of forty times the minimum wage minus taxes minus bus fare minus rent and gotta pay the cable because it is the only thing they have after work. They have never had to choose between the electric bill and a new coat as winter comes on.
The commentators don’t realize that not everybody is like them. Those with IQs of 140 and up (130 gets you into Mensa, I think) unconsciously believe that anything is possible. Denizens of this class know that if they decided to learn, say, classical Greek, they could. You get the book and go at it. It would take work, yes, and time, but the outcome would be certain.
They don’t understand that the waitress has an IQ of 85 and can’t learn much of anything.
Worst column ever fred. They sent the jobs to china and mexico so they wouldn’t have to pay people. Slavery rocks if you’re the massa. Do you know how rich i would be if i didn’t have a payroll? John kenneth starfckerbraith
“…Just take a gander at any large corps H&R department .” ———- flash
You might be right about large corporations. It’s much easier to hide stupidity, blame someone else, do the minimum or less, etc etc..
But, even large corporations want smart people, not dumb ones. Hewlett-Packard would routinely fire the bottom 5%-10% of under-performers every year.
Totally disagree that a small business — especially a mom&pop shop — would want dumb subservient types. What would be gained from that, except a failed business? Would you want that kind of worker? Of course, not. Neither would I or 99% of other business owners. (I just made up that stat.)
I think there’s an economics lesson here, somewhere.
“A Paul Gauguin painting of two Tahitian girls has smashed the record for the world’s most expensive single work of art, after Qatar bought the canvas from a Swiss collector for almost $300 million.”
http://www.telegraph.co.uk/news/worldnews/middleeast/qatar/11397078/200m-Gauguin-becomes-most-expensive-work-of-art-of-all-time.html
Looks like a Paint-By-Numbers set I had as a kid. This is worth Three Hundred Million Fucking Dollahs???
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Greetings,
If you’ve got a bit of time on this Sunday then I would suggest watching this:
This guy does an excellent job of explaining why pretty much everything but government employment will be handled by machines. Oh, I just did a gig for a company that makes surgical robots. I overheard the CEO tell someone that actual surgeons will be “unnecessary and irrelevant by 2030”.
Unless you work for yourself there will be no work for you – period.
Get ready.
Nickel , … so in the next 20 years most of us will be useless eaters . I just dont believe that’s possible. I see a slow drifting down in terms of standard of living for all of us over the next 10 to 20 years.Sometime in between we will have the real crash which will accelerate all the existing problems.
Nickel , buy survival gear and condoms ,plenty of condoms
Stuck a little more info on the subject . The reason so much management is crashing and burning so many large companies today is not because they hire the bestis’ and the brightest , but exactly the opposite.
Why you can’t get a job (even when you’re qualified and the company is hiring)
So how are employers the problem?
Cappelli points to many’s unwillingness to pay market wages, their dependence on tightly calibrated software programs that screen out qualified candidates, and their ignorance about the lost opportunities when jobs remain unfilled. These are three of the primary culprits for the disconnect between available jobs and unemployed workers. Yet he also blames employers’ lack of investment in on-the-job training at the same time they expect years of experience in any candidate. In a nutshell, Cappelli argues, the people at the top of many companies are relying on a “set of false assumptions” that all seem to fit together anecdotally. In reality, it is employers themselves who can play a very big role in the solution.
The lack of such training, and the Catch-22 that employers set up by not offering it but expecting all applicants to have experience, is a big part of the problem, says Cappelli. Management training programs are as rare these days as the three-martini lunch. And apprenticeships, which were common a generation ago, are rarely found today among U.S. employers. Cappelli quotes a 2011 Accenture study that found that only 21 percent of employees had received any kind of formal instruction in their jobs during the prior five years. Companies simply aren’t willing, he says, “to get someone less than perfect and train them.” Yet perfect, as they say, is the enemy of the good.
A final reason employers give for why jobs go begging: Employees aren’t willing to accept the wages being offered. That may be true, Cappelli says, but it’s not a sign of a skills gap. Employers may believe the labor market gives them time to shop around for people who will take below-market wages, or they may actually not be able to pay the market wage, but that does not equal a skills shortage. As Cappelli writes: “If you pay it, they will come.”
The challenge will be getting top leaders of organizations to admit they are a big part of the problem, and to change their ways. Software can be coded so it is less restrictive. Leaders could pay higher market wages where necessary. And they could make more investments in training. That costs money, to be sure, but so does leaving jobs open that could be of significant value to the company (not to mention the economy at large).
http://www.washingtonpost.com/blogs/post-leadership/post/why-you-cant-get-a-job-even-when-youre-qualified-and-the-company-is-hiring/2012/06/06/gJQAtnXdIV_blog.html
“In short, if the minimum wage were abolished, the bottom rungs of society would remain unemployed because their labor isn’t worth enough for them to live on, or worth anything at all.”
I hope no one is sending this guy their college funds.
There is no minimum wage. It is a farce. You pay those that demand a fixed wage and you negotiate a price with those that don’t.
Who gives a shit what the minimum wage is when you can expand the money supply and retroactively dilute the value of whatever you’ve paid out?
“This column contains everything there is to know about economics”
Yea well that’s all you need to read to know he’s full of shit.
He strings a series of comments together that sound logical in order to attempt to build credibility and then ends with the point he wants to make. And the point is that he has the answer to all problems. The answer is Communism.
People who propose failed ideologies can never admit to being wrong. Point out to them that Communism has been tried again and again and again more times than one can count and has failed every time and they will come up with endless excuses to avoid admitting to being wrong. But they’re sure it will work this time. It’s like “bloodletting”. There was a time when it was believed that “bleeding” a patient would remove the evil sickness from the patient and if the person didn’t get better it was because they hadn’t bled them enough. Then if in the course of the cure the patient died they could not admit to the stupidity of the procedure, they instead had a convenient excuse that the procedure had not been started soon enough. Communism is every bit as useful as bloodletting and has its true believers that will defend that ideology to the death (of the patient).
The second paragraph–Wow, I thought I was reading something out of ‘Mad Magazine’. That’s where I got the bulk of my edjukation. I read and re-read every issue and I realized, right on, that the truth was revealed in its finger stained pages. Find the truth in Time, The New Yorker, or Life, not on your life at least things that really count, like what are girls all about and how do I get one. Like Alfred E. Neuman said, “Money isn’t everything in life, but they won’t go out with you if you don’t have any.”
If Newsweek told the truth they would be out of business. Oh, Newsweek IS out of business, (my wife says)??? Why aren’t I informed of these things? Yes, the truth is revealed in parody, which is the only way that truth can be shown to an obdurate people. The young and innocent are open to reality. They haven’t been hardened into a belief system that blurs reality.
It was the kid, not the 30 yr old woman, who said the the king has no clothes. The kid saw it like it was and said so. So, challenge your belief structure or not, it’s up to you. If you’re right, you’ll be smelling like Roses or if not you’ll be pushing up Daisies.
Reality is a resolute task master and will suffer no imposters lightly.
The arc of triumph has a downside: after success comes decline and irrelevance. Then self-parody.
Fred Reed will soon be publishing his selfies like Kim Katrashian
I took this article as a “tongue-in-cheek” attempt to simplify economics as we see it today, with hints of truth throughout.
In related news…
“Gallup CEO Jim Clifton told CNBC he might “suddenly disappear” for telling the truth about the Obama unemployment rate.
“The real Obama unemployment rate has never recovered and is still above 10%.
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Wall Street on Parade reported:
Years of unending news stories on U.S. government programs of surveillance,rendition and torture have apparently chilled the speech of even top business executives in the United States.
Yesterday, Jim Clifton, the Chairman and CEO of Gallup, an iconic U.S. company dating back to 1935, told CNBC that he was worried he might “suddenly disappear” and not make it home that evening if he disputed the accuracy of what the U.S. government is reporting as unemployed Americans.
The CNBC interview came one day after Clifton had penned a gutsy opinion piece on Gallup’s web site, defiantly calling the government’s 5.6 percent unemployment figure “The Big Lie” in the article’s headline. His appearance on CNBC was apparently to walk back the “lie” part of the title and reframe the jobs data as just hopelessly deceptive.
Clifton stated the following on CNBC:
“I think that the number that comes out of BLS [Bureau of Labor Statistics] and the Department of Labor is very, very accurate. I need to make that very, very clear so that I don’t suddenly disappear. I need to make it home tonight.”
After getting that out of the way, Clifton went on to eviscerate the legitimacy of the cheerful spin given to the unemployment data, telling CNBC viewers that the percent of full time jobs in this country as a percent of the adult population “is the worst it’s been in 30 years.”
@ Nickel,
That CEO is delusional.
Surgeons will be the last doctors to be eliminated, and I don’t see that any time soon. Biological variation requires the guy with the scalpel to be an excellent anatomist, and unlike the frog from 7th grade biology class, nothing is color-coded…it all looks alike.
Machines cannot begin to differentiate structures with anywhere near the accuracy of human eyes…not yet and I’d wager not for a very long time.
Your internist’s job is being replaced by a flow chart, and machines can interpret medical imaging pretty well so radiology is headed for extinction. Not surgery, however, at least not as I see it.
Mark is a fucking dumbass extraordinaire.
Any boss worth anything craves smart, dependable employees. That means the boss can either do nothing and let the smart employees do it all, or the boss gets promoted.
Dumbass bosses sometimes try to avoid competition. But not smart, good ones.
Flash – HR is not a real job. Everyone knows that.
Second, you dumbass, corps do not hire the opposite of the best and brightest.
Capelli – the asshat professor you quote – says that employers should train employees. You got any idea of the cost of that? No. Or the risk of so doing?
He says that some will not pay market wages. Gee, now there is a surprise.
The corps are acting perfectly rationally from their perspective. The economy is uncertain at best, and extra employees may not bring in an extra cent, and they cost a shitload each. Re training, who wants to spend money on a millennial, who are notorious for cutting and running at a moment’s notice. Etc etc etc.
And, if my memory serves, big corps are currently making record profits. Gee, wonder how that is happening. Capelli wants y’all to know if they followed his advice they would make even moar. bullshit.
The problem big corps have is that they are LARGE. As a result, they use very rigid systems in order to control the behemoth. People must stick to rigid ways of doing things. The system is designed to accommodate the least common denominator. And thus bright folks do not get to implement their ideas. It is a two edged sword – the system prevents fuck-ups, but it prevents and slows innovation, too.
Capelli is just another dumbass professor. The world is full of them. See Krugman for Exhibit A.
These professors are just full of good ideas on how other people should act, hire, invest, spend their money.
And when it all goes to shit, they say “whoops, guess I got that wrong”, or, more often, that “it would have worked if only the person/country/organization had spent/hired/invested more”.
Fuck those academicians. They love to play with other folks money, and they can kiss my ass.
Here is the deal – if left alone, markets are rational. They are way smarter than Capelli or anyone else. Millions of folks, betting/investing/using their own money, will as a group tend to act very rationally indeed. Where it all goes to shit is when special interests are allowed, when minimum wages are set, when trade barriers are put up, when irrational taxes are levied. And that is where it is now. And Capelli is no more capable of analyzing the situation as is my dog. It is fucked up beyond all reason.
Mark, flash, llpoh is right on this one. Wanting dumbasses working for you is a disaster if you’re the guy signing the checks. Sounds like something government workers might do. You need people that show up every day, don’t repeat mistakes, and have an internal clock so they can hit numbers. Without people like that you are toast.
@DC.sunsets
Actually, the machines can do a much better job. An MRI maps you out to within a mm and a machine that now knows you better than you know yourself gets to work. Its appendages move with a precision that no human can even begin to compete with. Its fingers can take on any shape and can cut, cauterize or sample in a manner that, again, no human can match. Also, the machines don’t become alcoholics, think about golf or screwing the nurse. I’d rather have some fine precision German cutting tool attached to a high speed computer than a ham-fisted debt burdened surgeon that has just been served divorce papers by his trophy wife digging around in my body.
This isn’t fantasy – I saw what these people already have waiting to go and, guess what, if they can replace a surgeon then they most certainly can replace you.
You are either an owner in this new world or you are nobody. As for myself, I’ll take my chances with the owners.
Yes. Almost everything will eventually be replaced by machines. Even humans, if we get too cocky. It all depends will road we take.