Provocative Observation

Here is an observation from Tom Dyson of the Palm Beach Letter:
“According to the Bureau of Labor Statistics (BLS), worker productivity has still increased by 107% since 1973.

The pool of labor is getting larger, but the average worker isn’t getting richer…

So, who’s benefiting?

Corporations, business owners, and investors.

Things used to look like this:Increasing productivity ? rising wages ? consumer spending ? growing economy.
Now, they look like this:Increasing productivity ? profits for businesses ? mass unemployment ? rich get richer and standards of living fall for everyone else.”

Is he right?

I’m not really sure.  Just looking at results, it certainly appears that it is likely to be true.  Over recent history we have certainly seen that businesses are profitable, there certainly is mass unemployment, the rich are getting richer and household earnings have fallen substantially.

But, why is this happening?

Tom’s hypothesis is that increases in productivity is being driven by more sophisticated automation.

In the past automation required employees to design, install and maintain the automation.  Essentially the automation created higher paying jobs for those employees who were not replaced by the automation.  Additionally, consumption was expanding and thus employment was growing.  The net effect was rising wages and a growing economy.

Tom believes the automation has become so sophisticated that we no longer need as many designers, installers or maintenance employees.  Fewer employees are making more but the rise in unemployment means less consumption.  This equates to constricting employment, lower consumption and a very slow economy.

If Tom is correct we are in dire straights.  I don’t see how to reverse such a scenario.  If we simply accept this scenario it undoubtedly will lead to more and more redistribution of wealth.  If all the wealth is concentrated in a relative few, the only way to keep the rest of the population from revolution is to take from the wealthy and give to everyone else.  Isn’t that exactly what Bernie Sanders and Hillary Clinton talking about?  (Unfortunately, just taking from the rich and giving to the poor will only increase the demands for ‘more’ and ‘more’.  It cannot succeed.)

I don’t accept Tom’s scenario.

I do agree with his observation that even with increased productivity, wages are going down and unemployment up.  I even agree that the rich are becoming richer.

I don’t agree that more sophisticated automation is the cause.

I believe the real problem is that the manufacturing jobs, which are higher paying, are being sent off-shore and the jobs being created are service jobs that are inherently lower paying.

These jobs are being lost because our policies and regulations have made our manufacturing to expensive to be competitive.

We need to revise our policies and regulations so that manufacturing in the U.S. can be competitive.

Some actions that would help:

  1. Quite taxing business.  The cost of taxes are simply passed on to the consumer in higher product costs.  Eliminating the tax would immediately make U.S. products more competitive.  Eliminating the tax on business will also eliminate many of the benefits to large corporations and encourage competition.  Competition results in high quality and/or lower cost products.
  2. Regulations are artificially increasing the cost of production in the U.S.  We are blessed with sources of energy and for a long time our cheap energy permitted higher labor costs.  Regulations that increase energy cost depress wages and actually cost jobs when those jobs are exported to more ‘friendly’ countries.

Unfortunately, most politicians are opposed to either of these solutions.  Only advocates of the Fair Tax support eliminating the tax on business.

Republicans and Libertarians typically advocate reducing regulations.  I haven’t heard any Democrat or Socialist advocate reducing the burden of regulations.  They see increased regulations as vital and necessary.

Now, let’s assume this won’t resolve the problem and instead assume that redistribution is the only alternative.

If this is really inevitable, then  we need to find a way to employ all those people receiving the largess of that redistribution.  We must not simply ‘give’ them the money.  It is obvious from the increased drug and gang activity in high unemployment areas that ‘giving’ will simply not work.

Recipients must ‘earn’ those benefits with physical effort.  This will provide direction to their lives and a sense of self worth.  Both are necessary for a happy, peaceful society.


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