The Blue Model for Economic Recovery. By Walter Russell Mead. Video. Claremont Institute, September 19, 2013. YouTube.
Is “Bladerunner with food stamps”America’s future? By James Pethokoukis. AEI, May 22, 2013.
Blade Runner with Food Stamps and Benefits Street. By Justin Bowles. Risk and Well-Being, January 26, 2014.
As the latest round of scandals swirls around the White House, there is the usual empty chatter from various spokesmen about the President’s intention to “pivot toward the economy” (again!) and to prioritize unemployment.
If only that would happen; America’s jobs problem is big enough and crucial enough that it should be the President’s priority every day, not something to pivot toward every now and then. Creating an environment conducive to job creation is make or break for our society, and there is much to be done to get things on the right track.
There are really two choices before us as we think about the future of jobs in an age of information. Either most human beings are about to become economically obsolete, or the information economy can find a use for their talent and hard work. Much depends on which of these two pictures turns out to be the best description of the future.
If we believe in the first alternative, we are going to start planning for the mother of all welfare states. There will be a period of transition, but something like 80 percent or more of the population is going become superfluous to the economy. There will be no jobs where the work of this group could command a living wage; the state must somehow make provision for them or wait for them to fall into poverty and risk the social explosion that will probably follow.
It’s likely that an information age welfare state would consist of two components: straight out welfare and “social inclusion” payments for some, subsidized make-work jobs (like Postal Service employment in an age of email) for others. The money to fund these programs will have to come from corporate profits and from the incomes of those who still manage to surf on the waves of digital change. That suggests rising tax burdens and a constant class struggle between the economically connected citizens who want to keep what they have earned and the clients of the welfare and make-work state.
If the information economy works like this, the whole country would start looking more like California and New York City: unbridgeable class divides, huge inequality, fountains of innovation, and tiny islands of great wealth and privilege surrounded by proles on the dole. Inside the glittering bubble, the digirati and their courtiers would live lives of intense purpose and excitement. Outside the bubble, meaning would be the good in scarcest supply. To have a life where your work means something and your hands help steer the world would be the exclusive privilege of a tiny handful of enlightened, intelligent, and energetic people.
This is Blade Runner softened by food stamps, but as in the public housing projects and other warehouses where we store “surplus” people today, the most acute form of poverty and deprivation will not be the lack of food, clothing or even shelter. It will be a lack of social connection, of independence founded on achievement, on the human dignity that comes from doing work. Bellies will be full, but lives will be empty, and with that emptiness will come ills of every kind: addiction, brutality, ugly, and stunted sexual and emotional lives for many, neglect of the young and the old.
Fortunately, this does not have to be the future. Barring a singularity in which the AIs go rogue and take over the planet, the information revolution is going to create more jobs and better jobs than the ones it destroys. What we are looking at is the humanization of the economy: a shift from interaction with nature to interaction with other people as the locus of human work. Fewer people will spend their lives wresting food and raw materials from the earth or transforming those raw materials into the necessities of life. More people will spend their lives enriching the lives of other people through social interactions. There will be fewer coal miners and more ballet teachers, fewer truck drivers and more blues guitarists, fewer farmers and more life coaches, fewer factory workers and more entrepreneurs.
What will make all this possible—and what makes it necessary—will be the falling prices of various goods and services as the makers of these items become more productive. This phenomenon is already with us; go to Walmart and see just how little basic manufactured goods now cost.
It is a pattern the world has seen before. The industrial revolution saw a revolution in agricultural productivity. Steam driven ships and the railroad made it possible for food to be shipped to big cities from all over the world; the remote prairies and pampas of the New World, the Outback of Australia and the far-flung fields of Russia could all produce food for the burgeoning cities of the day. Advances in agronomy raised yields; new techniques allowed better and cheaper preservation of more kinds of food. Inventions ranging from barbed wire to harvesters and tractors meant ultimately that 2 percent of the population could feed the other 98 percent throughout much of the world.
That revolution had two consequences. On the one hand it drove labor from non-economic small farms into the cities on a vast scale. (The process is continuing today in much of the world; only recently did we reach the point where half the world’s population lived in cities.) This labor surplus depressed urban wages, enabling faster industrialization, but falling prices for both agricultural and industrial goods meant that living standards ultimately rose.
We are in an analogous situation today. The information revolution is raising productivity in manufacturing as well as in data processing. Millions of jobs are being lost, with more and more people at many different skill levels having to look for different ways of making a living than those they knew. That labor surplus is depressing wages or keeping them from rising in many fields. Again, however, the effect of this on living standards is cushioned by the fact that prices are also stagnant or even falling for many of the things we need most. Anything having to do with information processing and computers is getting cheaper and better; most mass produced industrial goods are stable or even declining in price. (Even when prices aren’t falling, quality—as in cars—continues to improve.)
As in the past, this creates both a painful downdraft in wages and living standards and an opportunity to build something new. People at all skill levels—lawyers, accountants and journalists as well as auto and steel workers—suddenly can’t make a living in fields that once seemed secure. Students emerging from school face a transformed economic landscape. The “widget fundamentalists” think that the only new jobs opening up are for pedicurists and pool boys, but the opportunities are not only much wider than pessimists think. They are by and large more interesting and fulfilling than the jobs that are passing away. With the right policies in place, the transition to a new and more human economy can accelerate. With the cost of labor low, living costs mostly under control (except in areas like medicine and education that still resist the logic of the information age), and the price of IT falling fast, the opportunities to launch new businesses and careers meeting human needs have never been brighter.
Some Americans, either libertarian in principle or driven to despair by the evident dysfunction of a growing government dedicated to preserving an increasingly unsustainable blue model society, think that the answer is simply to shrink government. Perhaps…but that isn’t how things worked in the past. Government action linked to the opening of new economic frontiers has a decent track record in American history; Alexander Hamilton had some pretty good ideas.
Both of the previous versions of America’s prosperous middle class economies rested on a creative mix of far-sighted government policy and private initiative. The rise of the owner-occupied farm, the source of most American jobs right through the end of the 19th century, was facilitated by a series of policy measures going back to the Northwest Ordinance passed under the Articles of Confederation. The pattern of surveying western lands, opening them to settlement, and providing a framework for territorial governance and statehood helped make the development of the west possible. Later policies, including the Homestead Act and the support of the railroads (scandalous though some of that support was), helped put a majority of Americans, many with little or no capital, into farms that they owned.
Government policy also helped the development of a middle class society in the industrial age. Ranging from the public health policies that allowed dense urban conglomerations to rise to the creation of a national single market for manufactured goods, federal policy helped lay the foundation for the industrial revolution. Labor legislation and above all federal housing and finance policy aimed at helping the average middle class family own a home and car, and created a framework for the emergence of a new kind of society. Once again, land policy and transportation played important roles: policy favored the rise of subdivisions and the construction of the road and infrastructure network that made suburbanization possible.
In both the agrarian and industrial eras, American democracy made the government responsive to the most pressing need of the citizenry: access to the means to build a middle class life through hard work and individual initiative. Over time, some of these policies became counterproductive. The Homestead Act created the equivalent of a “farm bubble” that saw pioneer families move into marginal land that could not support agriculture and also led to many new farms being created just as the world economy turned decisively against the old system. The line from the Homestead Act to the Okie migration is just as direct as the line from Fannie Mae to the housing bubble and the financial crash of the past few years.
Chastened by these examples of policies that passed their sell-by dates, we should still be looking for the 21st-century equivalents of the strategic ideas that shaped the American reality over the past 200 years. None of it will work unless the American people are moved to take advantage of the opportunities before them, but all experience suggests that people still want to make a living and to improve their situation in life. If the opportunities are there, the people will move.
If we are serious about creating a new era of middle class jobs, there is a series of steps that we need to take. Some are extensions of current policies, some are reversals. But taken together, these ideas could accelerate the arrival of a new era of mass prosperity.
First, make hiring easy and cheap.
Wages are ultimately a function of supply and demand. When the labor market is tight, wages rise and employers scramble to keep workers happy. The best way to ensure a generation of rising wages in America is to find ways to increase the demand for labor; this is especially important at a time when the information revolution is destroying jobs at a rapid rate. Very often this involves small business and start ups more than long established companies; during a major economic transition like ours today, that is truer than ever.
Jobs policy today must also be about small business policy and about promoting and facilitating entrepreneurialism. The jobs of yesterday are passing away; we must lay the foundations of the industries and jobs of the future.
Today’s employment policy descends from the quasi-feudal conditions of the industrial age when most jobs came from large, well established corporations and jobs were often for life. Making retirement, health care and social insurance dependent on employers made social sense in those days, and it also simplified government’s task of accounting and tax collection.
But these practices have another consequence: they make it harder for start ups to hire people. Social insurance becomes a tax on job creation. The more people you employ, the more money you must pay to the government, and the more records you have to keep. Small businesses and new businesses need fewer obstacles; a smart jobs policy would do everything possible to smooth the path for them.
I am not arguing against social insurance; it is a very good thing. But when we are worried about job creation and trying to spark the rise of new firms and industries, there might be better ways of paying for it. Rather than putting burdensome financial and regulatory requirements on the people who are creating new jobs, perhaps the employer’s share of social insurance should be partly or wholly paid by the government out of general tax revenues.
Employer-based social insurance and pension programs have other drawbacks in today’s workplace. People change jobs frequently, and many people work part time. Rather than shoring up a system that seeks to offer fringe benefits through employment, we should develop a system that bases social insurance and health care on individuals. Social insurance payments (for Social Security, Medicare, unemployment insurance, workers’ compensation and so on) would be a matter for individual workers and would usually be handled by the bank into which their earnings were deposited. Aid can be targeted more effectively to low income workers, and part timers will end up benefiting substantially from this shift. It’s likely that targeted assistance (retirement savings matches, for example) would help low-income and part-time workers do better under this system. Social insurance could become more worker friendly and less of a drag on employment at the same time.
Second, put the service economy and especially small business and entrepreneurship front and center.
In the early 19th century, government revolved around the needs of westward expansion, the provision of cheap credit to new farmers, and the development of an environment favorable to family farming. Protecting settlers against Indians on the frontier, promoting roads, canals and later railroads to connect interior farms to the coast and the world market, developing a banking system linked to the needs of a farm economy, surveying western lands and providing an orderly legal and political system in new territories were issues that Congress and state legislators worked to address. Throughout the 19th century, farm-oriented policies continued to play a significant role, and, through the land grant college system and the development of agricultural agents, federal and state authorities promoted research into agricultural issues and provided education for aspiring and practicing farmers. Schools were oriented to the needs of agricultural communities, with sessions suspended during peak farm time and the curriculum based on what young people in an agricultural world needed to know.
During the age of industry, social institutions and government policy shifted to favor the needs of the industrial/bureaucratic society of the 20th century. National and state infrastructure looked at the needs of industry and mass urban society. The financial industry changed to address the need of large, capital intensive businesses like steel mills and rail roads on the one hand, and to provide thirty-year mortgages and consumer credit to ordinary people on the other. The educational system became more bureaucratized and intensive, focusing on preparing some kids for industrial work and others for work in the burgeoning bureaucracies of large private corporations as well as government.
Today, governments and other institutions need to pivot again toward the needs of the emerging service economy and, at least at this stage, the start ups, entrepreneurs, and small businesses who are getting the ball rolling. The financial system needs to move toward better credit conditions for individual businesses and small, service-focused enterprises. The educational system needs to reshape itself to teach kids to be more creative and entrepreneurial, with less emphasis on order, conformity and moving in lockstep through the grades. Government should concern itself with creating a legal and regulatory landscape that is favorable to the establishment and growth of small business. Regulations that serve as barriers to entry need to be reviewed; zoning and housing policy should look for ways to encourage homes to be used as workplaces as well as living spaces. Government and private support for research needs to highlight research that will be useful for the construction of a service economy just as the land grant colleges originally focused on agricultural studies. We don’t know enough about how to measure productivity in services, and we certainly don’t understand the dynamics of the economic transition through which we are passing. We need much more research into the various ways that IT can support the emergence of new kinds of services and products. Just as George Washington Carver revolutionized the lives of Southern farmers by finding hundreds of uses for the humble but profitable peanut, we need thinkers, tinkerers, and inventors who can find thousands of new uses for the extraordinary tech and software capabilities pouring into our world.
Third, we need to feed the state to the people even as we individualize its services.
A characteristic of American political economy going back to colonial times has been the use of the resources of the state to promote the welfare of what today we would call the middle class. For much of our history we “fed the state to the people” by turning over publicly owned lands at low and ultimately zero cost. The public lands, which once included virtually all of the continental United States, were a possession of almost infinite value, but it seemed wiser (and more politically sustainable) to the leaders of the day to make them cheaply available to the people rather than to hoard them or try to retain a larger share of their value for the public purse.
During the industrial age, federal spending and federal assets (like the government’s ability to borrow money at low rates) were continually deployed in the effort to build up the middle class and the industrial economy on which it rested. The construction of the interstate highways, most of which were then opened to toll free travel; the role of Fannie Mae in making a market for securitized home mortgages that reduced borrowing costs and standardized and lowered credit qualifications for aspiring homeowners; and the construction of a large entitlement state primarily oriented to middle class needs—all these were ways of feeding the people on the wealth of the state.
That in some cases these policies are unsustainable and need to be reformed is clear, but it should also be clear that mass prosperity and an active state have not been incompatible through long periods of American history. In today’s world, feeding the state to the people needs to take a somewhat different form: turning bureaucratic government institutions into voucher-based programs will both stimulate the rise of a new type of service-oriented industry and provide better tailored government services at a reasonable cost.
We’ve seen the beginning of this trend in the charter school and school voucher movement. Students and parents have more choices, and a mix of community based enterprises and larger businesses are competing on what used to be state-owned space.
We need to do this with a wider range of government services. Instead of monopoly government enterprises operating bureaucratic services, Americans should be able to choose their service provider from a variety of competing firms. If you become unemployed, you would have the choice of which firm would both process your benefits and help you find new work. Firms would specialize in different fields, offer different kinds of services, and would work with an incentive structure that rewarded them for helping clients find new jobs fast and get off the dole. Veterans could choose from among competing health and other benefit providers.
In some cases, families could provide these services themselves. If grandma becomes disabled and is entitled to insurance or Medicare payments, perhaps her family should be able to offer those services themselves. Perhaps parents who homeschool their children could receive all or part of the credit their kids would have under voucher programs.
It is one thing to point in a general way to reforms like this, and something else entirely to make them work. There are moral hazards to be faced, quality controls and monitoring systems to be developed and it will take trial and error and research to figure out how to do all this well.
But getting it done is a big piece of America’s agenda in the 21st century. Giving people more control over their lives, encouraging greater creativity and initiative in the provision of necessary social services and shifting from the top down bureaucratic structures of the industrial age to the more flexible and effective methods of the new era will help us create new jobs, new industries and new ways of thinking about how people interact with the state and with the economy.
The industrial age was a primitive time; its chief institutions were necessarily crude. The power of IT gives us an ability to develop a much more sophisticated and more deeply human society.
It is time to move on.