Noah Smith

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World events conspired to start squeezing middle- and working-class Americans in the 1970s, but it was in the following decade of the Reagan Revolution that the games truly began in earnest. The air-traffic controllers got the boot first, but the point of the toe soon came for the rest of us.

Unions, consumer protections and financial regulation headed in the wrong direction for most, and globalization and automation added more layers of pressure. The markets were celebrated over all else. Corporations became “people.”

The current rise of the Gig Economy, that Libertarian wet dream about “freedom” or some such bullshit, is just the supersized version of what we’ve been experiencing. The elevator only goes down.

Noah Smith rightly calls out the plague effect of neo-liberalism in a Bloomberg View column, detailing how many of those who supported politicians selling a bill of goods ended up getting hurt the worst. The most recent election would appear to be the coup de grâce. Trump isn’t the advent of a new con job but the culmination of the decades-old one.

As Smith writes, “there won’t be a quick fix for middle-class boomers and Gen Xers.”

An excerpt:

It wasn’t supposed to turn out this way. Back in the 1980s and 1990s, middle-class Americans looked forward to a future of wealth and leisure. If you were a small business owner, or an engineer, or a lawyer at a small firm, you might not have expected to be rolling in it, but you probably didn’t think things would go so badly awry.

Who’s responsible? Who took your prosperity? Donald Trump’s trade adviser Peter Navarro might tell you it was China, while his political aide Steve Bannon might tell you it was immigrants. Free-market think-tank types might tell you it was government regulation, while conservative lawmakers might tell you it was single moms on welfare or lazy people on food stamps. But these answers are mostly or completely wrong. 

One partially correct answer is that your prosperity was taken by the very people who promised to ensure and enhance it. The decades from 1980 through 2008 were the age of neoliberalism — the ideology of the free market. Financial deregulation, tax cuts and a lax attitude toward consumer protection and antitrust were supposed to free the entrepreneurial potential of the American middle class. And to some degree it did — those decades saw plenty of wealth creation, and the U.S. economy performed a bit better than most rich nations in Europe and East Asia.

But along with real productivity, the neoliberal age saw plenty of grift and middle-class wealth extraction. In the book, Phishing for Phools: The Economics of Manipulation and Deception, Nobel prize-winning economists George Akerlof and Robert Shiller said that all free-market economies are accompanied by some amount of consumer error, simply because sellers are always exploring every possible method of parting people from their money.•

 

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When Silicon Valley stalwart Marc Andreessen directs mocking comments or tweets at those who fear the Second Machine Age could lead to mass unemployment, even societal upheaval, he usually depicts them as something akin to Luddites, pointing out that the Industrial Revolution allowed for the creation of more and better jobs. Of course, history doesn’t necessarily repeat itself. 

In a Bloomberg View column, Noah Smith says that while the statistics say a robot revolution hasn’t yet arrived and may or may not emerge, relying on the past to predict the future isn’t sound strategy. An excerpt:

Predicting whether machines will make the bulk of humans useless is beyond my capability. The future of technology is much too hard to predict. But I can say this: one of the main arguments often used to rule out this worrisome possibility is very shaky. If you think that history proves that humans can’t be replaced, think again.

I see this argument all the time. Because humans have never been replaced before, people say, it can’t happen in the future. Many cite the example of the Luddites, British textile workers in the early 19th century who protested against the introduction of technologies that could do their jobs more cheaply. In retrospect, the Luddites look foolish. As industrial technology improved, skilled workers were not impoverished — instead, they found ever-more-lucrative jobs that made use of new tools. As a result, “Luddite” is now a term of derision for those who doubt the power of technology to improve the world.

A more sophisticated version of this argument is offered by John Lewis of the Bank of England, in arecent blog post. Reviewing economic history, he shows what most people intuitively understand — new technology has complemented human labor rather than replacing it. Indeed, as Lewis points out, most macroeconomic models assume that the relationship between technology and humans is basically fixed.

That’s the problem, though — economic assumptions are right, until they’re not. The future isn’t always like the past. Sometimes it breaks in radical ways.•

 

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While it may not be good for our environment, industrialization has been good for our wallets. Transitioning from an agriculture-based economy to a manufacturing one allows a country to rapidly increase its wealth (and to contribute further wealth to other nations supplying the resources). In this century, China is, of course, the example writ large.

A post-Industrial economy in which manufacturing is no longer as valuable would seem to be the new reality, and a Disney economy of service and entertainment isn’t very transferable. In a Bloomberg View column, Noah Smith attempts to figure out a way forward for nations that are playing catch up in the Information Age. An excerpt:

The main engine of global growth since 2000 has been the rapid industrialization of China. By channeling the vast savings of its population into capital investment, and by rapidly absorbing technology from advanced countries, China was able to carry out the most stupendous modernization in history, moving hundreds of millions of farmers from rural areas to cities. That in turn powered the growth of resource-exporting countries such as Brazil, Russia and many developing nations that sold their oil, metals and other resources to the new workshop of the world. 

The problem is that China’s recent slowdown from 10 percent annual growth to about 7 percent is only the beginning. The recent drops in housing and stock prices are harbingers of a further economic moderation. That is inevitable, since no country can grow at a breakneck pace forever. And with the slowing of China, Brazil and Russia have been slowing as well — the heyday of the BRICs (Brazil, Russia, India and China) is over. 

But the really worrying question is: What if other nations can’t pick up the slack when China slows? What if China is the last country to follow the tried-and-true path of industrialization? 

There is really only one time-tested way for a country to get rich. It moves farmers to factories and imports foreign manufacturing technology. When you move surplus farmers to cities, their productivity soars — this is the so-called dual-sector model of economic development pioneered by economist W. Arthur Lewis. So far, no country has reached high levels of income by moving farmers to service jobs en masse. Which leads us to conclude that there is something unique about manufacturing.•

 

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Japan currently has a very low unemployment rate of 3.30%, but economist Noah Smith would like it to rise.

Well, that’s not exactly true. He thinks that number is illusory and the nation’s rife with bullshit jobs (in Graeber-ian terms) and redundancies, positions suited neither for humans nor robots. He argues that elevator operators or extraneous clerks will find something else to do and the economy will gain steam. Perhaps. But if all busywork is eliminated and many in these positions are only qualified for busywork, what would become of them? Even those qualified to do more may have to compete with white-collar automation going forward. What exists is a free-market safety net of sorts, and if you want to eliminate it, there probably should be a Plan B in place. Believing a political solution will necessarily come to pass if the market doesn’t provide seems optimistic.

From Smith at Bloomberg View:

There’s something even better than robots that could replace large numbers of Japan’s human jobs: nothing

Japan is a country famous for its low white-collar productivity; this is borne out by the statistics. Some of that comes from the reluctance by tradition-minded companies to adopt modern workplace technologies — there are still companies using fax machines or copying electronic documents onto paper. Some of it is from outdated management practices. Some of it is from employees staying at work for too many hours, long after their productivity has gone into free-fall. But some of it is certainly just a function of useless jobs. There are Japanese people being paid to do things that no one, not even a robot, should be paid to do. 

Any American who has lived in Japan has a long list of anecdotes about jobs that seem utterly pointless. There are security guards being paid to guard vacant lots. There are women standing in elevators pushing the button for you. There are crossing guards at intersections with functional traffic lights. 

Then there are the useful jobs for which Japanese companies simply hire too many personnel.•

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The opening of Noah Smith’s hopeful new Atlantic article about solar erasing our carbon footprint:

“You may not believe me, but I have news about global warming: Good news, and better news.

Here is the good news. US carbon emissions are decreasing rapidly. We’re down over 10% from our emissions peak in 2007. Furthermore, the drop isn’t just a function of the Great Recession. Since 2010 our economy has been growing, but emissions have kept on falling. The reason? Natural gas. With the advent of ‘fracking’ technology, the price of gas has plummeted far below that of coal, and as a result, essentially no new coal plants are being built. Although gas does release carbon, it only releases about half as much as coal for the same amount of electricity. This is why — despite our failure to join the Kyoto Protocol or impose legal restrictions on CO2 — the United States is now outpacing the rest of the developed world in reducing our contribution to global warming.

Now for the better news. A technology is in the pipeline that has the potential to eliminate CO2 emissions entirely. Solar power, long believed to be unworkably expensive, has actually been falling in cost at a steady exponential rate of 7 percent per year for the last three decades straight. Because of this ‘Moore’s Law for solar,’ electricity from solar panels now costs less than twice as much as electricity from coal, and only about three times as much as electricity from gas. Furthermore, technologies now in the pipeline seem to ensure that the cost drop will continue. 

Within the decade, solar could be cheaper than coal. Within two decades, cheaper than gas. When that happens, assuming we also have electric cars, it is game over for carbon emissions.”

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