The Bear’s Lair: Productive economies require participation

Many of Maynard Keynes’ dreams were destructive to civilization. The euthanasia of the rentier, which central bankers worldwide are still trying to achieve, has hopelessly corrupted the capital allocation process and brought productivity growth to a halt. But perhaps his most destructive vision was that of a universally leisured society, in which only a few worked and the great majority drew an income from the efforts of innumerable machines. It is a vision that has not gone away in Silicon Valley and it will end human civilization.

The central fallacy of Silicon Valley’s call for a universal basic income is that non-workers generally do not have a zero cost beyond the subsistence you pay them. Deprived of a meaningful role in society, they become thoroughly miserable, develop expensive illnesses, both mental and physical, ingest harmful drugs and commit crimes that hugely damage the lives of those around them. Hence a society in which say a third of the population did not work and drew a universal basic income would be one that had enormous social problems, with “social costs” far above the out-of-pocket cost of the basic income, and living standards for those who did work correspondingly depressed.

Maynard Keynes, in his 1930 essay “Economic Possibilities for our Grandchildren” had looked forward to 2030, seen the possibility of almost infinite leisure, and had welcomed it. “The economic problem” as he defined it of “the struggle for existence” would be solved by 2030, as Europeans and Americans would be eight times as rich as in 1930, and all non-status goods would therefore be abundant. He believed it would set us free to follow the dictates of religion and traditional virtue – abolish usury and abhor the love of money.

Of course, Keynes’ worldview had certain lacunae: “The absence of important technical inventions between the prehistoric age and comparatively modern times (he referenced 1700) is truly remarkable” suggests they did not study the history of science and technology much at Eton in Keynes’ day.

Keynes admitted that the leisured class of his day had “most of them failed disastrously” in using their leisure, but nevertheless felt that abolishing the “distasteful” urge to acquire money would greatly improve the human race’s behavior.

Keynes’ upper classes had money, a good education and at least reasonable exposure to the best in Western culture, yet most of them were unable to prevent themselves leading lives of useless dissipation. Consider that the recipients of Silicon Valley’s Universal Basic Income will have had none of these advantages, and you can see that the great majority of them will lead lives that are not only damaging to the economy, in terms of petty crime and increased medical costs (both for them and for those with whom they come in contact) but also unenjoyable even to themselves.

Doubtless Keynes envisioned a future perfected human race with a much better education and a high appreciation of culture reveling in performances like his wife’s ballet or his Bloomsbury friends’ unattractive paintings and unreadable books. In reality, few if any of the people forced into moderately impoverished idleness today, armed only with the appallingly modest educational offerings of the U.S. public school system, will have those intellectual tastes and opportunities.

A society with a Universal Basic Income is thus a dystopia, not a utopia. Rather than discouraging participation in the economy by the modestly skilled, we must encourage it. In the current economy, this can best be done by the policies of President Trump, restricting entry to low-skill foreigners and pressuring companies to bring manufacturing jobs back to the United States. President Obama’s policy mix, of funny money, high immigration, legal and illegal, of low-skilled people and infinite regulation of sectors such as energy where blue-collar jobs abound, was precisely wrong for the welfare of the modestly skilled. Conversely Trump’s policy is pretty well spot on right, however much it may be disdained by the intelligentsia with three ever-more-useless college degrees.

However, preserving the participation of the modestly skilled is going to become increasingly difficult as robotization arrives. In some areas, better IT will attack the upper middle classes – the need for human lawyers will drastically decline, although doubtless the law lobby will pass new legislation that proliferates their glutinous and ineradicable presence in the otherwise well-oiled wheels of commerce. While governments have the size and power they have today, we need not fear for lawyers’ ever-increasing incomes.

Nevertheless, the availability of robotized servers in fast food joints and supermarkets, for example, has the potential to remove the jobs of many modestly skilled modestly paid humans. Hence the job of government is to lean against its doing so. This should not be done by regulation limiting the availability of fast food robot servers – this would merely make the economy suboptimal, as did so much regulation during the Obama years and before.

Instead, legislation should include a lower a minimum wage for those under 20. In that way, disadvantaged teenagers would get their first step on the ladder and thereby be introduced to the world of work. In most fast food joints, most customers prefer to deal with a human being rather than a machine (the exception is high-volume outlets in business districts, where the lunchers are above all looking for the “fast” element in fast food.) Hence if the cost disadvantage to employing human staff is not too great, fast food outlets will continue to use them.

The cost playing field can also be tilted on the other side. Remove the excessive tax incentives for capital investments; they incentivize replacing humans with machines. More important, restore real interest rates to a substantially positive level, and keep them there. In the 1982-86 recovery, when real interest rates were high, the incentives for hiring more staff as compared to installing more machines were substantial; they should be that way today.

Retail and fast food jobs are crucial to the employment of the less skilled, because it is impossible to outsource them overseas (except to a limited extent through Internet services like Amazon, which will take market share from retailers, but will not replace them altogether, because of the need to “touch” merchandise and choose between alternative offerings.) The initial jobs obtained by less skilled in fast food or retail will give them experience, and will thus make them more valuable employees, who will be able to earn a decent wage.

Policy must in all sectors tilt towards the employment of low-skill humans and against the employment of robots. Removing once and for all Amazon’s sales tax advantage against bricks and mortar retailers, as President Trump has proposed, is another very substantial step in the right direction. Trucking, too will remain largely human-occupied because of the difficulty of “last mile” delivery of goods.

In general, localization is a very good way to improve low-skill employment. For this, the Trump administration cannot point the policy way forward, however; it must be done by state and local authorities. Here we have the problem of leftist entities in cities such as New York, Chicago and Los Angeles, who by adding regulation and taxes and encouraging crazed real estate bubbles, drive small business out of their cities and concentrate wealth in a very few hands, most of which employ limited numbers of low-skill people, except as maids. They also act as “sanctuary cities” for low-skill illegal immigrants, thus artificially depressing the demand for low-skill domestic workers, forcing them onto welfare dependency. The problem is made worse by hyped-up real estate prices, which make it impossible for low-skill workers to support themselves in major cities.

Big cities are in any case the enemy to low-skill people, because of their high cost of living. To the extent possible, good policy will support new employment in dying communities like Binghamton N.Y., for example by removing the disgraceful rules that prevent a fracking boom around that city. Currently, Binghamton and many other medium sized and small towns are haunts of unemployment and addiction; with proper economic policy, national and local, they can regenerate employment and turn their citizens into happy and productive members of the community.

Under Presidents Bush and Obama, globalist, funny money, over-regulatory economic policies of all kinds were designed to reward large organizations, the extensively (if often badly) educated and the rich, while driving the less-skilled population onto welfare, drugs and destitution. We have now begun to reverse these policies. With robots in the offing, we must tilt the playing field further in the new Trumpist direction, to ensure that all our citizens remain productive and contented members of the community.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)