Will robots take our jobs? Not “if” but “when”.

Jan 5 JDN 2458853

The prospect of technological unemploymentin short, robots taking our jobs—is a very controversial one among economists.

For most of human history, technological advances have destroyed some jobs and created others, causing change, instability, conflict—but ultimately, not unemployment. Many economists believe that this trend will continue well into the 21st century.

Yet I am not so sure, ever since I read this chilling paragraph by Gregory Clark, which I first encountered in The Atlantic:

There was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle. But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed.

Based on the statistics, what actually seems to be happening right now is that automation is bifurcating the workforce: It’s allowing some people with advanced high-tech skills to make mind-boggling amounts of money in engineering and software development, while those who lack such skills get pushed ever further into the margins, forced to take whatever jobs they can get. This skill-biased technical change is far from a complete explanation for our rising inequality, but it’s clearly a contributing factor, and I expect it will become more important over time.

Indeed, in some sense I think the replacement of most human labor with robots is inevitable. It’s not a question of “if”, but only a question of “when”. In a thousand years—if we survive at all, and if we remain recognizable as human—we’re not going to have employment in the same sense we do today. In the best-case scenario, we’ll live in the Culture, all playing games, making art, singing songs, and writing stories while the robots do all the hard labor.

But a thousand years is a very long time; we’ll be dead, and so will our children and our grandchildren. Most of us are thus understandably a lot more concerned about what happens in say 20 or 50 years.

I’m quite certain that not all human work will be replaced within the next 20 years. In fact, I am skeptical even of the estimates that half of all work will be automated within the next 40 years, though some very qualified experts are making such estimates. A lot of jobs are safe for now.

Indeed, my job is probably pretty safe: While there has been a disturbing trend in universities toward adjunct faculty, people are definitely still going to need economists for the foreseeable future. (Indeed, if Asimov is right, behavioral economists will one day rule the galaxy.)

Creative jobs are also quite safe; it’s going to be at least a century, maybe more, before robots can seriously compete with artists, authors, or musicians. (Robot Beethoven is a publicity stunt, not a serious business plan.) Indeed, by the time robots reach that level, I think we’ll have to start treating them as people—so in that sense, people will still be doing those jobs.

Even construction work is also relatively safe—actually projected to grow faster than employment in general for the next decade. This is probably because increased construction productivity tends to lead to more construction, rather than less employment. We can pretty much always use more or bigger houses, as long as we can afford them. Really, we should be hoping for technological advances in construction, which might finally bring down our astronomical housing prices, especially here in California.

But a lot of jobs are clearly going to disappear, sooner than most people seem to grasp.

The one that worries me the most is truck drivers. Truck drivers are a huge number of people. Trucking employs over 1.5 million Americans, accounting for about 1% of all US workers. It’s one of the few remaining jobs that pays a middle-class salary with entry-level skills and doesn’t require an advanced education. It’s also culturally coded as highly masculine, which is advantageous in a world where a large number of men suffer so deeply from fragile masculinity (a major correlate of support for Donald Trump, by the way, as well as a source of a never-ending array of cringeworthy marketing) that they can’t bear to take even the most promising “pink collar” jobs.

And yet, long-haul trucking is probably not going to exist in 20 years. Short-haul and delivery trucking will probably last a bit longer, since it’s helpful to have a human being to drive around complicated city streets and carry deliveries. Automated trucks are already here, and they are just… better. While human drivers need rest, sleep, food, and bathroom breaks, rarely exceeding 11 hours of actual driving per day (which still sounds exhausting!), an automated long-haul truck can stay on the road for over 22 hours per day, even including fuel and maintenance. The capital cost of an automated truck is currently much higher than an ordinary truck, but when that changes, trucking companies aren’t going to keep around a human driver when their robots can deliver twice as fast and don’t expect to be paid wages. Automated vehicles are also safer than human drivers, which will save several thousand lives per year. For this to happen, we don’t even need truly full automation; we just need to get past our current level 3 automation and reach level 4. Prototypes of this level of automation are already under development; in about 10 years they’ll start hitting the road. The shift won’t be instantaneous; once a company has already invested in a truck and a driver, they’ll keep them around for several years. But in 20 years from now, I don’t expect to see a lot of human-driven trucks left.

I’m pleased to see that the government is taking this matter seriously, already trying to develop plans for what to do when long-haul trucks become fully robotic. I hope they can come up with a good plan in time.

Some jobs that will be automated away deserve to be automated away. I can’t shed very many tears for the loss of fast-food workers and grocery cashiers (which we can already see happening around us—been to a Taco Bell lately?); those are terrible jobs that no human being should have to do. And my only concern about automated telemarketing is that it makes telemarketing cheaper and therefore more common; I certainly am not worried about the fact that people won’t be working as telemarketers anymore.

But a lot of good jobs, even white-collar jobs, are at risk of automation. Algorithms are already performing at about the same level as human radiologists, contract reviewers, and insurance underwriters, and once they get substantially better, companies are going to have trouble justifying why they would hire a human who costs more and performs worse. Indeed, the very first job to be automated by information technology was a white-collar job: computer used to be a profession, not a machine.

Technological advancement is inherently difficult to predict: If we knew how future technology will work, we’d make it now. So any such prediction should contain large error bars: “20 years away” could mean we make a breakthrough next year, or it could stay “20 years away” for the next 50 years.

If we had a robust social safety net—a basic income, perhaps?—this would be fine. But our culture decided somewhere along the way that people only deserve to live well if they are currently performing paid services for a corporation, and as robots get better, corporations will find they don’t need so many people performing services. We could face up to this fact and use it as an opportunity for deeper reforms; but I fear that instead we’ll wait to act until the crisis is already upon us.

Good for the economy isn’t the same as good

Dec 8 JDN 2458826

Many of the common critiques of economics are actually somewhat misguided, or at least outdated: While there are still some neoclassical economists who think that markets are perfect and humans are completely rational, most economists these days would admit that there are at least some exceptions to this. But there’s at least one common critique that I think still has a good deal of merit: “Good for the economy” isn’t the same thing as good.

I’ve read literally dozens, if not hundreds, of articles on economics, in both popular press and peer-reviewed journals, that all defend their conclusions in the following way: “Intervention X would statistically be expected to increase GDP/raise total surplus/reduce unemployment. Therefore, policymakers should implement intervention X.” The fact that a policy would be “good for the economy” (in a very narrow sense) is taken as a completely compelling reason that this policy must be overall good.

The clearest examples of this always turn up during a recession, when inevitably people will start saying that cutting unemployment benefits will reduce unemployment. Sometimes it’s just right-wing pundits, but often it’s actually quite serious economists.

The usual left-wing response is to deny the claim, explain all the structural causes of unemployment in a recession and point out that unemployment benefits are not what caused the surge in unemployment. This is true; it is also utterly irrelevant. It can be simultaneously true that the unemployment was caused by bad monetary policy or a financial shock, and also true that cutting unemployment benefits would in fact reduce unemployment.

Indeed, I’m fairly certain that both of those propositions are true, to greater or lesser extent. Most people who are unemployed will remain unemployed regardless of how high or low unemployment benefits are; and likewise most people who are employed will remain so. But at the margin, I’m sure there’s someone who is on the fence about searching for a job, or who is trying to find a job but could try a little harder with some extra pressure, or who has a few lousy job offers they’re not taking because they hope to find a better offer later. That is, I have little doubt that the claim “Cutting unemployment benefits would reduce unemployment” is true.

The problem is that this is in no way a sufficient argument for cutting unemployment benefits. For while it might reduce unemployment per se, more importantly it would actually increase the harm of unemployment. Indeed, those two effects are in direct proportion: Cutting unemployment benefits only reduces unemployment insofar as it makes being unemployed a more painful and miserable experience for the unemployed.

Indeed, the very same (oversimplified) economic models that predict that cutting benefits would reduce unemployment use that precise mechanism, and thereby predict, necessarily, that cutting unemployment benefits will harm those who are unemployed. It has to. In some sense, it’s supposed to; otherwise it wouldn’t have any effect at all.
That is, if your goal is actually to help the people harmed by a recession, cutting unemployment benefits is absolutely not going to accomplish that. But if your goal is actually to reduce unemployment at any cost, I suppose it would in fact do that. (Also highly effective against unemployment: Mass military conscription. If everyone’s drafted, no one is unemployed!)

Similarly, I’ve read more than a few policy briefs written to the governments of poor countries telling them how some radical intervention into their society would (probably) increase their GDP, and then either subtly implying or outright stating that this means they are obliged to enact this intervention immediately.

Don’t get me wrong: Poor countries need to increase their GDP. Indeed, it’s probably the single most important thing they need to do. Providing better security, education, healthcare, and sanitation are all things that will increase GDP—but they’re also things that will be easier if you have more GDP.

(Rich countries, on the other hand? Maybe we don’t actually need to increase GDP. We may actually be better off focusing on things like reducing inequality and improving environmental sustainability, while keeping our level of GDP roughly the same—or maybe even reducing it somewhat. Stay inside the wedge.)

But the mere fact that a policy will increase GDP is not a sufficient reason to implement that policy. You also need to consider all sorts of other effects the policy will have: Poverty, inequality, social unrest, labor standards, pollution, and so on.

To be fair, sometimes these articles only say that the policy will increase GDP, and don’t actually assert that this is a sufficient reason to implement it, theoretically leaving open the possibility that other considerations will be overriding.

But that’s really not all that comforting. If the only thing you say about a policy is a major upside, like it or not, you are implicitly endorsing that policy. Framing is vital. Everything you say could be completely, objectively, factually true; but if you only tell one side of the story, you are presenting a biased view. There’s a reason the oath is “The truth, the whole truth, and nothing but the truth.” A partial view of the facts can be as bad as an outright lie.

Of course, it’s unreasonable to expect you to present every possible consideration that could become relevant. Rather, I expect you to do two things: First, if you include some positive aspects, also include some negative ones, and vice-versa; never let your argument sound completely one-sided. Second, clearly and explicitly acknowledge that there are other considerations you haven’t mentioned.

Moreover, if you are talking about something like increasing GDP or decreasing unemployment—something that has been, many times, by many sources, treated as though it were a completely compelling reason unto itself—you must be especially careful. In such a context, an article that would be otherwise quite balanced can still come off as an unqualified endorsement.

Green New Deal Part 4: Guaranteeing employment and housing is very hard—but we should still try (public policy)

Apr 28 JDN 2458602

In previous posts I have talked about the “easy parts” of the Green New Deal (infrastructure, healthcare and education), as well as one of the “hard parts” (net-zero carbon emissions). But today it’s time for the “very hard parts”: guaranteed employment and housing.

“Guaranteeing a job with a family-sustaining wage, adequate family and medical leave, paid vacations, and retirement security to all people of the United States.”

“Providing all people of the United States with – […] (ii) affordable, safe, and adequate housing; (iii) economic security; […].

Let me start by giving you a sense of how difficult this is: No country on Earth has ever successfully guaranteed employment and housing. Even Scandinavia’s extensive social safety nets and active labor market programs are not sufficient to eliminate homelessness or unemployment (though they do dramatically reduce them).
The Soviet Union came close to guaranteed employment, but only as part of a labor system that was extremely inefficient and unproductive. Effectively, they guaranteed everyone a job by not even firing people who didn’t actually do the jobs they were given. This is clearly not a sustainable solution.
There are serious proposals on the table for a job guarantee program, but they are extremely ambitious.
The Center on Budget and Policy Priorities has a proposal that would add 9.7 million people to the federal workforce and cost over $500 billion per year to operate. For comparison, the current non-postal federal workforce is only 2.1 million. The postal service has about another 600,000. So we are talking about quintupling the federal workforce, at a cost comparable to the entire (bloated) military budget. That’s a huge number of people and a lot of money.
The basic idea of such a program is that we can (hopefully) find various forms of public service that need to be done, and pay people to do that public service at a certain minimum level of pay and benefits. These jobs would be available to anyone who wanted them, and any time you lost a private-sector job you could always take the guaranteed job. This would effectively create a floor on wages and benefits; any job that offered a worse deal than the government job would be competed out of existence.
I’ve written before about why I’m skeptical of such programs. If there is all this work that needs done, why aren’t we already doing it? If people have the skills they need to do this work, why is no one currently employing them?
Maybe there is a way to solve these problems. Maybe I’m underestimating the public goods that could be produced by people with low levels of skill. But at the very least we need to face up to the fact that it is a problem. We need to actually find work that it makes sense to guarantee—we can’t just wave our hands and say that “obviously” there is plenty of valuable work to be done that will happen to line up exactly with the skills of the people who are currently unemployed.
And then we need to think about the fact that we can’t really guarantee it, not the way the Soviet Union did. We do need to be able to fire people. We need to be able to fire them for not showing up to work, for being drunk at work, for sexually harassing co-workers, or simply for being incompetent. We need to be have some sort of policy in place for what happens to people who get fired: How long before they can get another guaranteed job? And being fired should hurt: It’s supposed to be an incentive to do your job correctly. We don’t need to punish laziness or incompetence with homelessness—but we do need to punish it with something.
Ultimately what I would like to see is not guaranteed jobs but guaranteed income: A basic income that everyone gets, no questions asked. And then I would hope that our norms about work would change, and people would stop defining themselves by their paid employment and start defining themselves by other things, like creating art, supporting their family, or contributing to their community.
What about guaranteed housing? On that front I am more optimistic.
Housing is quite expensive, particularly in major cities. But homelessness is also very expensive from a societal perspective. In the long run, free housing might actually pay for itself.
One of the most successful programs at reducing homelessness is called Housing First. Rather than going through the usual machinations of shelters and transitional housing, the program just takes people off the streets and gives them homes. Like a basic income, it sounds ludicrously simple; it’s the sort of thing a five-year-old would suggest. Surely it can’t be that easy?
Well, the results speak for themselves. Implementation of Housing First programs in several major US cities has resulted in reductions in homeless of over 30% and reductions in the social cost of homelessness of over 50%.

The current population of about 80,000 chronically homeless Americans each cost taxpayers about $40,000 per year in social costs, via emergency room visits, shelter maintenance, crime, court costs, and so on. This is about $3 billion per year. For that same amount of money—or potentially even less—we could have put all those people into homes.

There is an additional population of about 500,000 transient homeless—people who are homeless for a short period after an adverse life event (such as losing a job, having a divorce, or getting their mortgage foreclosed) but will find housing within a few weeks or months. Their situation is not as dire, and the costs they impose on society are not as large. But standard estimates are still generally over $10,000 per person per year—which, if given to them in cash, would probably be enough to get most of these people into homes.
So this is not a question of affordability: We are already paying these costs, but doing so in a way that doesn’t actually solve homelessness.
The real challenge is subtler than that: How do we make this fair and politically feasible?
When we’re talking about chronically homelessness, I think we can make a pretty strong case: These people are in a really bad way and they need our help. Since we’re already spending all this money anyway, we may as well spend it in a way that would actually help them.
But transient homelessness gets a bit more complicated. Many people who are transiently homeless are not all that poor. They may be college students, or recent divorcees, or failed entrepreneurs, or people who could afford a home but not the expensive home they actually tried to buy. Once they get back on their feet, they will probably go on to maintain a middle-class standard of living. So it really does seem unfair to just hand these people free homes that other people would not get.
And making housing in general completely free is simply a pipe dream. No country has ever even gotten close to that. Housing is such a huge part of a country’s expenditures that even a country like Denmark where the government is half the economy still can’t afford to put everyone in public housing.
I think what I would do instead is provide guaranteed subsidized loans—much as we do for student loans. These loans could be used to pay rent, to pay a mortgage, or even to make a down payment. They would be available to any adult US citizen, regardless of credit history, in relatively large amounts (the average down payment in the US is about $14,000, but as high as $50,000 is not unusual), at very low interest rates (I’d say aim for 0% real interest, so target the nominal interest rate to inflation) and very generous repayment terms (like student loans, you would never be required to pay more than a certain percentage of your adjusted gross income on the loan). If someone did try to avoid paying, their wages could be garnished or their taxes could be increased—this would make the default rates very low.
This policy would allow people who are temporarily homeless to get back into a home immediately, rather than having to wait until they can get more income—which can become a paradox as most employers will require a permanent address. But it wouldn’t be a free home; this policy would cost taxpayers next to nothing. The only costs would come from subsidizing interest rates and bearing defaults, which wouldn’t be more than about 5% of the outstanding balance—even if we loaned out as much as $100 billion, that still wouldn’t be more than what we’re currently losing in social costs of homelessness.
Had this policy been in place during the 2008 crash, people who lost their homes to foreclosure would have been able to immediately re-borrow and buy new homes. This would have blunted the financial crisis and maybe even done as much as the far more expensive stimulus package and quantitative easing programs.
These policies would not, unfortunately, eliminate unemployment and homelessness. Maybe that’s not even possible. But they would at least greatly reduce the harm caused by unemployment and homelessness, and that alone makes them worth doing.

I don’t care what happened in that video

Jan 27 JDN 2458511

Right now there is an ongoing controversy over a viral video of a confrontation between young protesters wearing MAGA hats and an elderly Native American man. Various sources are purporting to show “a fuller picture” and “casting new light” and showing “a different side”. Others are saying it’s exactly as bad as it looks.

I think it probably is as bad as it looks, but the truth is: I don’t care. This is a distraction.

If you think litigating the precise events of this video is important, you are suffering from a severe case of scope neglect. You are looking at a single event between a handful of people when you should be looking at the overall trends of a country of over 300 million people.

First of all: The government shutdown only just ended. There are still going to be a lot of pieces to pick up. That’s what we should be talking about. That’s what we should be posting about. That’s what we should be calling Senators about. This is a national emergency. The longer this lasts, the worse it is going to get. People will die because of this shutdown—from tainted food and polluted water and denied food stamps. Our national security is being jeopardized—particularly with regard to cybersecurity.

The shutdown was also a completely unforced error. Government shutdowns shouldn’t even exist, and now that this one is over, we need to change the budget process so that this can never happen again.

And if you want to talk about the racist, sexist, and authoritarian leanings of Trump supporters, that’s quite important too. But it doesn’t hinge upon one person or one confrontation. I’m sure there are Trump supporters who aren’t racist; and I’m sure there are Obama supporters who are. But the overall statistical trend there is extremely strong.

I understand that most people suffer from severe scope neglect, and we have to live in a world filled with such people; so maybe there’s some symbolic value in finding one particularly egregious case that you can put a face on and share with the world. But if you’re going to do that, there’s two things I’d ask of you:

1. Make absolutely sure that this case is genuine. Nothing will destroy your persuasiveness faster than holding up an ambiguous case as if it were definitive.
2. After you’ve gotten their attention with the single example, show the statistics. There are truths, whole truths, and statistics. If you really want to know something, you use statistics.

The statistics are what this is really about. One person, even a hundred people—that really doesn’t matter. We need to keep our eyes on the millions of people, the directions of entire nations. For a lot of people, looking at numbers is boring; but there are people behind those numbers, and numbers are what tell us what’s really going on in the world.

For example: Trump really does seem to have brought bigotry out in the open. Hate crimes in the US increased for the third year in a row last year.

Then there are his direct policy actions which are human rights violations: The number of children detained at the border has skyrocketed to almost 13,000.

On the other hand, the economy is doing quite well: Unemployment stands at about 4%, and median income is increasing and poverty is decreasing.
Global extreme poverty continues its preciptious decline, but global climate change is getting worse, and already past the point where some serious consequences are going to be unavoidable.

Some indicators are more ambiguous: Corporate profits are near their all-time high, even in inflation-adjusted terms. That could be a sign of an overall good economy—but it also clearly has something to do with redistribution of income toward the wealthy.

Of course, all of those things were true yesterday, and will be true tomorrow. They were true last week, and will be true next week. They don’t lend themselves to a rapid-fire news cycle.

But maybe that means we don’t need a rapid-fire news cycle? Maybe that’s not the best way to understand what’s going on in the world?

What does a central bank actually do?

Aug 26 JDN 2458357

Though central banks are a cornerstone of the modern financial system, I don’t think most people have a clear understanding of how they actually function. (I think this may be by design; there are many ways we could make central banking more transparent, but policymakers seem reluctant to show their hand.)

I’ve even seen famous economists make really severe errors in their understanding of monetary policy, as John Taylor did when he characterized low-interest-rate policy as a “price ceiling”.

Central banks “print money” and “set interest rates”. But how exactly do they do these things, and what on Earth do they have to do with each other?

The first thing to understand is that most central banks don’t actually print money. In the US, cash is actually printed by the Department of the Treasury. But cash is only a small part of the money in circulation. The monetary base consists of cash in vaults and in circulation; the US monetary base is about $3.6 trillion. The money supply can be measured a few different ways, but the standard way is to include checking accounts, traveler’s checks, savings accounts, money market accounts, short-term certified deposits, and basically anything that can be easily withdrawn and spent as money. This is called the M2 money supply, and in the US it is currently over $14.1 trillion. That means that only 25% of our money supply is in actual, physical cash—the rest is all digital. This is actually a relatively high proportion for actual cash, as the monetary base was greatly increased in response to the Great Recession. When we say that the Fed “prints money”, what we really mean is that they are increasing the money supply—but typically they do so in a way that involves little if any actual printing of cash.

The second thing to understand is that central banks don’t exactly set interest rates either. They target interest rates. What’s the difference, you ask?

Well, setting interest rates would mean that they made a law or something saying you have to charge exactly 2.7%, and you get fined or something if you don’t do that.

Targeting interest rates is a subtler art. The Federal Reserve decides what interest rates they want banks to charge, and then they engage in what are called open-market operations to try to make that happen. Banks hold reservesmoney that they are required to keep as collateral for their loans. Since we are in a fractional-reserve system, they are allowed to keep only a certain proportion (usually about 10%). In open-market operations, the Fed buys and sells assets (usually US Treasury bonds) in order to either increase or decrease the amount of reserves available to banks, to try to get them to lend to each other at the targeted interest rates.

Why not simply set the interest rate by law? Because then it wouldn’t be the market-clearing interest rate. There would be shortages or gluts of assets.

It might be easier to grasp this if we step away from money for a moment and just think about the market for some other good, like televisions.

Suppose that the government wants to set the price of a television in the market to a particular value, say $500. (Why? Who knows. Let’s just run with it for a minute.)

If they simply declared by law that the price of a television must be $500, here’s what would happen: Either that would be too low, in which case there would be a shortage of televisions as demand exceeded supply; or that would be too high, in which case there would be a glut of televisions as supply exceeded demand. Only if they got spectacularly lucky and the market price already was $500 per television would they not have to worry about such things (and then, why bother?).

But suppose the government had the power to create and destroy televisions virtually at will with minimal cost.
Now, they have a better way; they can target the price of a television, and buy and sell televisions as needed to bring the market price to that target. If the price is too low, the government can buy and destroy a lot of televisions, to bring the price up. If the price is too high, the government can make and sell a lot of televisions, to bring the price down.

Now, let’s go back to money. This power to create and destroy at will is hard to believe for televisions, but absolutely true for money. The government can create and destroy almost any amount of money at will—they are limited only by the very inflation and deflation the central bank is trying to affect.

This allows central banks to intervene in the market without creating shortages or gluts; even though they are effectively controlling the interest rate, they are doing so in a way that avoids having a lot of banks wanting to take loans they can’t get or wanting to give loans they can’t find anyone to take.

The goal of all this manipulation is ultimately to reduce inflation and unemployment. Unfortunately it’s basically impossible to eliminate both simultaneously; the Phillips curve describes the relationship generally found that decreased inflation usually comes with increased unemployment and vice-versa. But the basic idea is that we set reasonable targets for each (usually about 2% inflation and 5% unemployment; frankly I’d prefer we swap the two, which was more or less what we did in the 1950s), and then if inflation is too high we raise interest rate targets, while if unemployment is too high we lower interest rate targets.

What if they’re both too high? Then we’re in trouble. This has happened; it is called stagflation. The money supply isn’t the other thing affecting inflation and unemployment, and sometimes we get hit with a bad shock that makes both of them high at once. In that situation, there isn’t much that monetary policy can do; we need to find other solutions.

But how does targeting interest rates lead to inflation? To be quite honest, we don’t actually know.

The basic idea is that lower interest rates should lead to more borrowing, which leads to more spending, which leads to more inflation. But beyond that, we don’t actually understand how interest rates translate into prices—this is the so-called transmission mechanism, which remains an unsolved problem in macroeconomics. Based on the empirical data, I lean toward the view that the mechanism is primarily via housing prices; lower interest rates lead to more mortgages, which raises the price of real estate, which raises the price of everything else. This also makes sense theoretically, as real estate consists of large, illiquid assets for which the long-term interest rate is very important. Your decision to buy an apple or even a television is probably not greatly affected by interest rates—but your decision to buy a house surely is.

If that is indeed the case, it’s worth thinking about whether this is really the right way to intervene on inflation and unemployment. High housing prices are an international crisis; maybe we need to be looking at ways to decrease unemployment without affecting housing prices. But that is a tale for another time.

Is a job guarantee better than a basic income?

Aug 5 JDN 2458336

In previous posts I’ve written about both the possibilities and challenges involved in creating a universal basic income. Today I’d like to address what I consider the most serious counter-argument against a basic income, an alternative proposal known as a job guarantee.

Whereas a basic income is literally just giving everyone free money, a job guarantee entails offering everyone who wants to work a job paid by the government. They’re not necessarily contradictory, but I’ve noticed a clear pattern: While basic income proponents are generally open to the idea of a job guarantee on the side, job guarantee proponents are often vociferously opposed to a basic income—even calling it “sinister”. I think the reason for this is that we see jobs as irrelevant, so we’re okay with throwing them in if you feel you must, while they see jobs as essential, so they meet any attempt to remove them with overwhelming resistance.

Where a basic income is extremely simple and could be implemented by a single act of the legislature, a job guarantee is considerably more complicated. The usual proposal for a job guarantee involves federal funding but local implementation, which is how most of our social welfare system is implemented—and why social welfare programs are so much better in liberal states like California than in conservative states like Mississippi, because California actually believes in what it’s implementing and Mississippi doesn’t. Anyone who wants a job guarantee needs to take that aspect seriously: In the places where poverty is worst, you’re offering control over the policy to the very governments that made poverty worst—and whether it is by malice or incompetence, what makes you think that won’t continue?

Another argument that I think job guarantee proponents don’t take seriously enough is the concern about “make-work”. They insist that a job guarantee is not “make-work”, but real work that’s just somehow not being done. They seem to think that there are a huge number of jobs that we could just create at the snap of a finger, which would be both necessary and useful on the one hand, and a perfect match for the existing skills of the unemployed population on the other hand. If that were the case, we would already be creating those jobs. It doesn’t even require a particularly strong faith in capitalism to understand this: If there is a profit to be made at hiring people to do something, there is probably already a business hiring people to do that. I don’t think of myself as someone with an overriding faith in capitalism, but a lot of the socialist arguments for job guarantees make me feel that way by comparison: They seem to think that there’s this huge untapped reserve of necessary work that the market is somehow failing to provide, and I’m just not seeing it.

There are public goods projects which aren’t profitable but would still be socially beneficial, like building rail lines and cleaning up rivers. But proponents of a job guarantee don’t seem to understand that these are almost all highly specialized jobs at our level of technology. We don’t need a bunch of people with shovels. We need engineers and welders and ecologists.

If you propose using people with shovels where engineers would be more efficient, that is make-work, whether you admit it or not. If you’re making people work in a less-efficient way in order to create jobs, then the jobs you are creating are fake jobs that aren’t worth creating. The line is often credited to Milton Friedman, but actually said first by William Aberhart in 1935:

Taking up the policy of a public works program as a solution for unemployment, it was criticized as a plan that took no account of the part that machinery played in modern construction, with a road-making machine instanced as an example. He saw, said Mr. Aberhart, work in progress at an airport and was told that the men were given picks and shovels in order to lengthen the work, to which he replied why not give them spoons and forks instead of picks and shovels if the object was to lengthen out the task.

I’m all for spending more on building rail lines and cleaning up rivers, but that’s not an anti-poverty program. The people who need the most help are precisely the ones who are least qualified to work on these projects: Children, old people, people with severe disabilities. Job guarantee proponents either don’t understand this fact or intentionally ignore it. If you aren’t finding jobs for 7-year-olds with autism and 70-year-olds with Parkinson’s disease, this program will not end poverty. And if you are, I find it really hard to believe that these are real, productive jobs and not useless “make-work”. A basic income would let the 7-year-olds stay in school and the 70-year-olds live in retirement homes—and keep them both out of poverty.

Another really baffling argument for a job guarantee over basic income is that a basic income would act as a wage subsidy, encouraging employers to reduce wages. That’s not how a basic income works. Not at all. A basic income would provide a pure income effect, necessarily increasing wage demands. People would not be as desperate for work, so they’d be more comfortable turning down unreasonable wage offers. A basic income would also incentivize some people to leave the labor force by retiring or going back to school; the reduction in labor supply would further increase wages. The Earned Income Tax Credit is in many respects similar to a wage subsidy. While superficially it might seem similar, a basic income would have the exact opposite effect.

One reasonable argument against a basic income is the possibility that it could cause inflation. This is something that can’t really be tested with small-scale experiments, so we really won’t know for sure until we try it. But there is reason to think that the inflation would be small, as the people removed from the labor force will largely be the ones who are least-productive to begin with. There is a growing body of empirical evidence suggesting that inflationary effects of a basic income would be small. For example, data on cash transfer programs in Mexico show only a small inflationary effect despite large reductions in poverty. The whole reason a basic income looks attractive is that automation technology is now so advanced is that we really don’t need everyone to be working anymore. Productivity is so high now that a policy of universal 40-hour work weeks just doesn’t make sense in the 21st century.

Probably the best argument for a job guarantee over a basic income concerns cost. A basic income is very expensive, there’s no doubt about that; and a job guarantee could be much cheaper. That is something I take very seriously: Saving $1.5 trillion a year is absolutely a good reason. Indeed, I don’t really object to this argument; the calculations are correct. I merely think that a basic income is enough better that its higher cost is justifiable. A job guarantee can eliminate unemployment, but not poverty.

But the argument for a job guarantee that most people seem to be find most compelling concerns meaning. The philosopher John Danaher expressed this one most cogently. Unemployment is an extremely painful experience for most people, far beyond what could be explained simply by their financial circumstances. Most people who win large sums of money in the lottery cut back their hours, but continue working—so work itself seems to have some value. What seems to happen is that when people lose the chance to work, they feel that they have lost a vital source of meaning in their lives.

Yet this raises two more questions:

First, would a job guarantee actually solve that problem?
Second, are there ways we could solve it under a basic income?

With regard to the first question, I want to re-emphasize the fact that a large proportion of these guaranteed jobs necessarily cannot be genuinely efficient production. If efficient production would have created these jobs, we would most likely already have created them. Our society does not suffer from an enormous quantity of necessary work that could be done with the skills already possessed by the unemployed population, which is somehow not getting done—indeed, it is essentially impossible for a capitalist economy with a highly-liquid financial system to suffer such a malady. If the work is so valuable, someone will probably take out a loan to hire someone to do it. If that’s not happening, either the unemployed people don’t have the necessary skills, or the work really can’t be all that productive. There are some public goods projects that would be beneficial but aren’t being done, but that’s a different problem, and the match between the public goods projects that need done and the skills of the unemployed population is extremely poor. Displaced coal miners aren’t useful for maintaining automated photovoltaic factories. Truckers who get replaced by robot trucks won’t be much good for building maglev rails.

With this in mind, it’s not clear to me that people would really be able to find much meaning in a guaranteed job. You can’t be fired, so the fact that you have the job doesn’t mean anyone is impressed by the quality of your work. Your work wasn’t actually necessary, or the private sector would already have hired someone to do it. The government went out of its way to find a job that precisely matched what you happen to be good at, regardless of whether that job was actually accomplishing anything to benefit society. How is that any better than not working at all? You are spending hours of drudgery to accomplish… what, exactly? If our goal was simply to occupy people’s time, we could do that with Netflix or video games.

With regard to the second question, note that a basic income is quite different from other social welfare programs in that everyone gets it. So it’s very difficult to attach a social stigma to receiving basic income payments—it would require attaching the stigma to literally everyone. Much of the lost meaning, I suspect, from being unemployed comes from the social stigma attached.

Now, it’s still possible to attach social stigma to people who only get the basic income—there isn’t much we can do to prevent that. But in the worst-case scenario, this means unemployed people get the same stigma as before but more money. Moreover, it’s much harder to detect a basic income recipient than, say, someone who eats at a soup kitchen or buys food using EBT; since it goes in your checking account, all everyone else sees is you spending money from your debit card, just like everyone else. People who know you personally would probably know; but people who know you personally are also less likely to destroy your well-being by imposing a high stigma. Maybe they’ll pressure you to get off the couch and get a job, but they’ll do so because they genuinely want to help you, not because they think you are “one of those lazy freeloaders”.

And, as BIEN points out, think about retired people: They don’t seem to be so unhappy. Being on basic income is more like being retired than like being unemployed. It’s something everyone gets, not some special handout for “those people”. It’s permanent, so it’s not like you need to scramble to get a job before it goes away. You just get money automatically, so you don’t have to navigate a complex bureaucracy to get it. Controlling for income, retired people don’t seem to be any less happy than working people—so maybe work doesn’t actually provide all that much meaning after all.

I guess I can’t rule out the possibility that people need jobs to find meaning in their lives, but I both hope and believe that this is not generally the case. You can find meaning in your family, your friends, your community, your hobbies. You can still work even if you don’t need to work for a living: Build a shed, mow your lawn, tune up your car, upgrade your computer, write a story, learn a musical instrument, or try your hand at painting.

If you need to be taking orders from a corporation five days a week in order to have meaning in your life, you have bigger problems. I think what has happened to many people is that employment has so drained their lives of the real sources of meaning that they cling to it as the only thing they have left. But in fact work is not the cure to your ennui—it is the cause of it. Finally being free of the endless toil that has plagued humanity since the dawn of our species will give you the chance to reconnect with what really matters in life. Show your children that you love them in person, to their faces, instead of in this painfully indirect way of “providing for” them by going to work every day. Find ways to apply your skills in volunteering or creating works of art, instead of in endless drudgery for the profit of some faceless corporation.

Most trade barriers are not tariffs

Jul 8 JDN 2458309

When we talk about “protectionism” or “trade barriers”, what usually comes to mind is tariffs: taxes imposed on imports or exports. But especially now that international trade organizations have successfully reduced tariffs around the world, most trade barriers are not of this form at all.

Especially in highly-developed countries, but really almost everywhere, the most common trade barriers are what is simply but inelegantly called non-tariff barriers to trade: this includes licenses, quotas, subsidies, bailout guarantees, labeling requirements, and even some environmental regulations.

Non-tariff barriers are much more complicated to deal with, for at least three reasons.

First, with the exception of quotas and subsidies, non-tariff barriers are not easily quantifiable. We can easily put a number on the value of a tariff (though its impact is somewhat subtler than that), but this is not so easy for the effect of a bailout guarantee or a labeling requirement.

Second, non-tariff barriers are often much harder to detect. It’s obvious enough that imposing a tax on imported steel will reduce our imports of steel; but it requires a deeper understanding of the trade system to understand why bailing out domestic banks would distort financial flows, interest rates and exchange rates (even though the impact of this may actually be larger—the effect on global trade of US bank bailouts was between $35 billion and $110 billion).

Third, some trade barriers are either justifiable or simply inevitable. Simply having customs screening at the border is a non-tariff barrier, but it is widely regarded as a justifiable security measure (and I agree, by the way, even though I am generally in favor of much more open borders). Requiring strict labor and environmental standards on the production of products both domestic and imported is highly beneficial, but also imposes a trade barrier. In a broader sense, differences in language and culture could even be regarded as trade barriers (they certainly increase the real cost of trade), but it’s not clear that we could eliminate such things even if we wanted to.

This requires us to look very closely at almost every major government policy, to see how it might be distorting world trade. Some policies won’t meaningfully distort trade at all; these are not trade barriers. Others will distort trade, but are beneficial enough in other ways that they are still worth it; these are justifiable trade barriers. Still others will distort trade so much that they cannot be justified despite their other benefits. Finally, some policies will be put in place more or less explicitly to distort trade, usually in the form of protectionism to prop up domestic industries.

Protectionist policies are of course the first things to get rid of. Honestly, it baffles me that people even want to impose them in the first place. For some reason they think of exports as the benefit and imports as the cost, when it’s really the other way around; when we impose protectionism, we go out of our way to make it harder to get cars and iPhones so that we can stop other countries from taking our green paper. This seems to be tied to the fact that people think of jobs as something desirable, when really it’s wealth that’s desirable, and jobs are just one way of getting wealth—in some sense the most expensive way. Our macroeconomic policy obsesses over inflation, which is almost literally meaningless (as long as it is not too unpredictable, really nothing would change if inflation were raised from 2% to 4% or even 10%) and unemployment, which is at best an imperfect indicator of what we really should care about, namely the welfare of our people. A world of full employment with poverty wages is much worse than a world of high unemployment where a basic income provides for everyone’s needs. It is true that in our current system, unemployment is closely tied to a lot of very bad outcomes—but I maintain that this is largely because unemployment entails losing your income and your healthcare.

Some regulations that appear benign may actually be harmful because of their effects on trade. Yet I should also point out that it’s possible to go too far the other direction, and start tearing down all regulations in the name of reducing trade barriers. We particularly seem to do this in the financial industry, where “deregulation” seems to be on everyone’s lips until it causes a crisis, then we impose some regulations that fix the worst problems, things look good for awhile—and then we go back around and everyone starts talking about “deregulation” again. Meanwhile, the same people who talk about “freedom” as an excuse for removing financial safeguards are the ones who lock up children at the border. I think this is something that needs to be reframed: Which regulations are you removing? Just what, exactly, are you making legal that wasn’t before? Legalizing murder would be “deregulation”.

Trade policy, therefore, is a very delicate balance, between removing distortions and protecting legitimate public interests, between the needs of your own country and the world as a whole. This is why we need this whole apparatus of international trade institutions; it’s not a simple matter.

But I will say this: It would probably help if people educated themselves a bit more about how trade actually works before voting in politicians who promise to “save their jobs” from foreign competition.