"Man and Machine"

Sydney M. Williams

Thought of the Day

“Man and Machine”

October 27, 2011

“Deniers” is a term generally associated with those who deny that climate change is largely due to man. But pessimists abound in all aspects of our lives. We have now reached a point where there are those who worry that any new jobs will be going to machines, not people. Such attitudes would seem to ignore the historical and natural trend toward increased automation and enhanced productivity. Time and again, man has demonstrated his ability to innovate.

Earlier this week, at a fund raiser in San Francisco, President Obama worried that we, as a nation, have “lost our ambition, our imagination.” This is a President, with his “Great Recession”, who wants to be compared to FDR and his Great Depression. Specifically, Mr. Obama was referring to the Golden Gate Bridge and the Hoover Dam, both federal projects built during the 1930s. He lamented that Congress will not let him build such monumental projects today. Like President Roosevelt, Mr. Obama has been attacking the investor class (the job creators), dividing the nation instead of unifying it, as had been his campaign promise. However, dissimilar to Mr. Roosevelt, it is unlikely that President Obama will have a world war to bail out the economy. (At least, we had better hope not.)

But in terms of aspiration and innovation, how does Mr. Obama explain Silicon Valley? Was not Steve Jobs and are not Eric Schmidt and Mark Zuckerberg examples of imaginative, ambitious entrepreneurs? The United States is replete with such men and women with ideas, and others with capital. Government should be encouraging them. They can simplify, lower and broaden the tax code. They can reduce and eliminate unnecessary regulation. The role of government should be to set the rules, umpire the game and then step back and let the players play. The fact is that machines have been replacing people since the advent of the Industrial Revolution in the early 19th century. Adjustment has never been easy. The Pony Express disappeared with the advent of the railroad. Carriages were replaced by cars. Ocean liners fell to transatlantic flights. Some people get left behind. But most people adapt, and my guess is that they will continue to do so.

The cause of this, perhaps, emotional reaction was an article in Monday’s New York Times, written by Steve Lohr featuring the economist Erik Brynjolfsson and the director of the MIT Center for Digital Business, Andrew McAfee. The two recently published an e-book, Race Against the Machine. The authors conclude: “Many workers, in short, are losing the race against the machine.” Mr. Lohr reports that originally the authors had been planning to write a paper entitled “The Digital Frontier”, but had changed their minds, as the “employment picture failed to brighten.”

Of course the picture hasn’t brightened. The ‘Great Recession’ was a result of de-leveraging. Consumers had feasted for two decades, placing themselves in hock to an extent hitherto unknown, using their homes as ATM machines. This house of cards collapsed when home prices retreated. Since the consumer represented 70% of the economy, manufacturing, exports and government have been unable to make up the shortfall. With the consumer now attempting to rebuild his balance sheet, with state governments perilously close to bankruptcies and with the federal government stretched near the breaking point the result is, unsurprisingly, modest economic growth at best. Growth is dependent on the expansion of credit. Today, the only sector of the economy expanding credit is the federal government, which is also the least efficient dispenser of capital. The problem has been made manifestly worse by Washington’s implementing regulatory policies that have hindered the unleashing of the private sector, the one area of the economy unencumbered with debt. And also the most efficient sector when it comes to investment, because it is motivated by profit.

There is no question that persistently high unemployment and even higher under-employment have caused a great deal of distress in the labor market. Compounding the employment situation are three factors. Most importantly, the internet has allowed people to work remotely, permitting skilled workers from all corners of the globe to compete for jobs. Second, while many jobs remain scarce, there is a shortage of skilled workers. A year ago, Manpower noted a shortage of electricians, carpenters and welders. Similarly, states such as North Dakota have reported a deficit of skilled job applicants in the energy sector. Trade schools and apprenticeships should be encouraged. Not everybody needs a four-year college education. And third, insufficient savings and depleted retirement accounts has meant that many older people must continue working, competing for scarce jobs.

The cause of the anemic growth in jobs we are experiencing is not machines replacing people – it is true that they are, but that is a phenomenon that dates back almost 200 years and one to which we have adjusted over the decades. The problem stems from the fact that over the last ten years the growth of debt has exceeded the growth in GDP by a factor of two. Slow growth can be seen as atonement for past excesses. Unfortunately, the consequence is high unemployment.