—For every economic system there are advocates who insist on both its inevitability and its fairness. They are always wrong.
—The Mohammedan may want his virgins in the afterlife, and the tribesman in the New Guinea Highlands may as yet desire a shrunken head, but the enticement of a large flat-screen television and nice car is a powerful monoculture.
In this thought-experiment, consider what might happen if labor costs were suddenly reduced to zero throughout the economy. Though the idea of zero labor costs seems delusional—and it is—this experiment involving an economic extremum affords us the opportunity to consider the concept of labor costs and its place in the overall economy.
It is not unreasonable to suggest that the entirety of the cost of a good or service is reflected in an aggregate of the labor costs involved. At every step in the process which results in the creation of a good or service, those involved are paid wages for their efforts. The surveyor and geologist who evaluate a site for mining are paid wages. Those who provide the equipment and materials used in the mining are paid wages. The miners are paid wages. The trucker or train operator who transports the ore to the smelter are paid wages. And so on until, for example, a washing machine is fashioned out of the metal produced and ultimately sold to a consumer who was able to pay for the appliance from his own wages. At no point in the journey from raw materials to finished product was there an absence of labor costs.
There are unusual twists to this notion. A Honus Wagner baseball card placed in a desk drawer and then brought out years later to be sold at vastly greater price has not increased in value due to greater input of labor—unless one considers the opening and closing of a desk drawer to be an action of tremendous worth. The purchaser, though, is willing to pay more for the card, and this may (or may not) represent the total labor required of him in order to afford this frivolous purchase. The role of these speculative goods in an economy is a tricky thing to account for: Do these items represent actual wealth? Does the increase in their value increase society’s overall wealth? Does the desire for these non-essential items make the buyer work harder, longer, and more productively and innovatively? In other words, do we really want to include the long-deceased Honus Wagner in our calculations of GDP?
A responsibly run business or other entity (e.g., government) keeps a close watch on its labor costs, striving to contain these, if not outright reduce them. Reasonable cost-containment is generally a good thing, but like many a “good thing”—be it doses of vitamin D, lowered mortgage rates, or reducing the unit cost of producing a good or service—there are toxic doses or otherwise too damn much of a seemingly good thing.
Identifying where that line is crossed and the consequences of said crossing are the challenge we face. Keep in mind that medals are not pinned to the chest of those heroes who prevent bad things from happening. We reserve our laudations for those who put out the fires and clean up the messes, even if it’s the same person who both causes the conflagration (via negligence or fiscal arson) and then douses the flames. This is because human beings are an inherently foolish species. Magnificently foolish, yes, the epitome of our planet’s evolution, yes, but fools nonetheless.
Therefore, what if…
A bus-sized, jagged block of rock tumbles silently through the icy void of space heading towards Earth. Could we somehow gently lower it to the ground, this rock is a rich source of raw materials—sci-fi economics to discuss another time. Too bad we cannot do this cost-effectively at the present, shackled as we our with our current technology, even for a mere bus-sized rock.
The greater risk, were it a bigger rock, is it slamming into the planet and causing extensive damage. A large enough rock and the damage is cataclysmic. But, at the moment, the rock is without a single negative or positive externality, since it’s not yet a “part” of Earth’s economy and cannot at this point have an economic impact one way or another.
That’s about to change. Big time.
From whence the extraterrestrial rock came is not important to our experiment. To where it’s aimed is very relevant. Among its nooks and crannies, slumber tiny alien creatures. Based on their microscopic size, we humans might classify these as viruses—but they lack DNA and, most importantly, are much more durable than any terrestrial microbe. Freezing cold. Cosmic rays. Time. Endless time. None of these harms them in the least. Heat as we shall see does nothing more than wake them from their eons of somnolence…and activate them.
The first noticeable turbulence caused by Earth’s outermost atmosphere rudely jars the rock and creates heat-producing drag on its 25,000 MPH speed. Onboard, like tourists dozing in an airplane seat until woken by the announcement to return those tray tables to those goshdarn upright and locked position, our alien “viruses” awaken, eager to disembark and take in the sights and partake of local food and customs. Tourists. Tiny tourists. But some visitors misbehave and disrupt the sleepy towns that come to regret their visit. Fortunately, such bad behavior is rare—but it does occur. And the outraged villagers talk about it for years afterwards.
The alien conveyance screams down through the steadily thickening air, glowing hot, flaming, smearing ferrous fireworks in its wake. Despite its bus-like size, it’s too small a rock to survive the trip, vibration and orange-hot heat breaks it apart into many smaller pieces, and these burn up before striking the ground. A meteor shower we call it. Whimsical souls look up, see it, make a wish, turn back to their lives not expecting anything to come of it; it’s doubtful they got what they hoped for—unless among their number happened to be short-sighted factory owners.
And the microscopic visitors drift down upon us…fully awake, now…ready to upend economic equilibria.
This thought-experiment could just as well be titled, “The Factory Owner’s Dream Come True.” As is the case with many idealistic fantasies, there’s a nightmare component lurking just out of view, ready to spring out, all claws and fangs, at opportunities which inevitably present themselves. Those darn unintended consequences, which are often readily foreseen if only a smattering of brain cells were put to the task. We, the inherently foolish species that we are, rarely invest such a smattering. Cue Rod Serling’s voice for the next paragraph…
What I’m about to ask you to do is something that may sound as much a topic for an economics textbook as it is a science fiction story; that is to say, imagine an extraterrestrial virus journeys to Earth as an unwitting stowaway on a hunk of interstellar rock that arrives here as a wayward meteorite. This invisible speck of alien life disembarks and then infects the world’s workers with a single unusual symptom; a permanent one and with a decidedly economic spin to it. Ask yourself an odd question and you have identified the symptom associated with this peculiar affliction brought here from afar: What if the Earth’s workers suddenly offered to cheerfully work for free? Be they factory workers, toilers in a field, or employees of a stock exchange, this earnestly compliant workforce requires neither salary nor benefits. All they ask to do is the same thing they did the day before the virus arrived: go to work and do one’s job without complaint, only now at no direct cost to the employer. Free labor. An employer’s dream…or so it at first seems…in the Twilight Zone.
I know this sounds impossible, which it is, of course (well, sort of, as you’ll see). But we need do some musing here, the kind we might do on a warm summer evening swaying in a hammock strung between two shade trees. Look up, catch a glimpse of the starry sky between the leaves. Microbes silently drift down on our unsuspecting world. Take a deep breath of sweet summer’s night (or winter’s night if you’re in the Southern Hemisphere). Now nestled cozily within blood-rich human lungs, an extraterrestrial bug germinates a new utopian economic system.
After this virus infects Earth—we’ll stipulate it’s done very quickly, just to eliminate the variable of progressive, time-delayed spread—workers, everywhere, show up at their jobs eager to work for free. No salary. No benefits. No complaints. Workers fully satisfied with the pure joy of waiting tables, paving roads, plowing fields, building houses, unclogging pipes, cleaning bedpans, selling shoes, hitting baseballs, teaching students, transplanting hearts, go-go dancing, etc. Everything else about the workers is the same: productivity, innovation, skill sets. Also assume that minimum wage laws, in those countries which have them, are ignored and not enforced. This virus is the perfect mechanism for eliminating labor costs—or so it seems.
While this appears it’s a capitalist’s wet dream, it’s also not far afield from the fantasy world of communism. The communists faced the sticky problem of providing their people consumer goods and meeting basic living needs (e.g., clothing, food, shelter, medical care). The post-infection economy is comprised of whistling obedient workers whiling away their time, expecting no remuneration in pursuit of a greater good—which initially (and ironically, comrade) means higher stock prices for Wall Street, where success is measured by the size of one’s bonus and the market capitalization of one’s company (not the financial reality which led to either); and which means a workers’ paradise for the communists, for whom success is measured by the sameness of rewards…or the universal acceptance of a lack thereof. A seemingly perfect inequality or equality is achieved, depending on your politics.
We are at this point wise to remind ourselves of earlier dangerous pursuits of utopia here on Earth, those guaranteed roads to Hell, those earnest plans promulgated by smug fools who believe they alone know what’s best for everyone else, rather than us knowing what’s best for ourselves. What they believe is best for us is usually anything but; an irony for which humans have paid dearly with misery, loss of freedom, and lost lives.
So as to have uninfected observers of these strange events, we submit that the virus possesses an interesting quirk: It leaves business owners, corporate elites, and our other betters, asymptomatic—they still want their pay and bonuses and stock options. And power over us.
As expected, the giddiness on Wall Street is palpable—these fools play financial checkers, not chess. Upon learning of their good fortune, the corporate titans dance ecstatically in boardrooms throughout the world. Puzzled as hell, but as happy as capitalistic clams. Think of all the new profit! Parties are planned in The Hamptons, Cape Cod, Pacific Heights, any place where our betters accrete in celebration of this good fortune. No more labor costs! Hell, the catering staff won’t even expect a tip; though those bastard catering company owners probably won’t discount their prices despite costs which now lack a labor component. What the hell, though; this is a time to party, not to quibble with our other betters.
This initial euphoria is understandable, particularly in a world that fancies itself full of chess players…but most of whom never study carefully the present move, let alone several moves ahead. Any business school graduate (and many who aren’t) knows that for most businesses, labor is their largest cost—reduce it and (keeping “other factors” constant) profits are increased. It’s that simple. Isn’t it? While we’re at it, let’s extend this concept to government (we did say every worker). Payroll costs are by far the largest expense for most government agencies. All labor costs are now zero, except for those at the top of the economic food chain.
We already detect a serious flaw in this supposed employer paradise: “Other factors” are not constant. Not even close. Shortly, the unpaid workers are not spending, saving, or investing money in the economy—they don’t have any income. For an individual company, zero wages seem like the greatest thing in the world—but if every employer faces the same good fortune, then it is obvious that nobody has money to spend on anybody’s goods or services. Good fortune quickly becomes not so good.
This doesn’t mean that workers (or executives on-high) should receive wages that bankrupt a company or that governments should borrow or print money to subsidize excessive wages into existence (or an equivalent wealth redistribution). There must be wages. Wages are the motivation for work, the result of work. Wages have a natural, beneficial role in the economy if paid in the context of balanced budgets, be these budgets individual, corporate, or government. Wages tell us—and the economy—that we’ve produced a good or provided a service of value and what that value is. Ideally, the information related to this value is accurately reflected in both the amount of our wages and the price of the good or service.
We can distill this down further and suggest that wages represent the amount of someone’s time required to purchase a good or service, which itself required someone else’s time to provide (or many someone elses). The custodian might work ten hours in order to purchase a good or service that requires the brain surgeon work thirty minutes. This time-accounting consideration is also useful when comparing the price of things over long periods of time. An example is a flat screen television set, which requires far fewer hours of a worker’s labor to purchase today when compared to that required to buy the first color television sets. There is an ultimate comparison: Today’s minimum wage earner can buy a cell phone; King Midas could not buy one of these remarkable devices using all his wealth.
It is here that I must disappoint you, dear readers: I possess no magic formula which shows the world the ideal wages and prices, be they salaries or the price of stocks, houses, or back-rubs. All I can offer is that we are most likely to find them—or get fairly close—in a world of balanced budgets and a level of debt that is actually repaid. Additionally, an absence of government tinkering and politically-motivated distortion of markets is necessary to get to the truth regarding wages and prices. Consider real estate prices. Subsidized mortgages, directly or via tax deductions for mortgage interest or artificially low interest rates, severely distort the housing market. Absent these machinations we’d find out the true value of housing, the true value of the money used to buy it on credit. (That the government bemoans housing “unaffordability,” while at the same time ginning up housing prices via its foolish economic voodoo, epitomizes the fact that our betters are themselves a pernicious virus.)
The Wall Streeter and “professional” economist scoff at my admitted simplicity, but they’re the boneheads who bring us financial disasters—and herd us there again and again. It as if they cannot believe their good fortune (literally) in rushing up to the brink further enriched, only to watch everyone else but themselves tumble over its edge. They spout the same tripe over and over: “That was fun, let’s do it again.”
And so they shall.
We’ll see you smug bastards at the bottom…eventually.
Nobody is thinking ahead. Instead, imagine the extra profit! The reduced budgets! The lower prices and taxes possible if the bosses and bureaucrats are willing to share the savings from these erstwhile labor expenditures! The extraterrestrial virus is the most beneficent microbe that ever lived. Readily trumping those that give us cheese, yogurt, and penicillin.
A car that once cost $30,000 now retails for $15,000 (no pay or bonuses for the autoworker or car salesman). A pair of shoes that once cost $20 now retails for $10 (the Chinese factory worker is even cheaper, now). An action movie that would’ve last week paid its famous star $20 million now pays him nothing…we hope the movie ticket prices drop in cost to the consumer. Because teachers are no longer paid salary and benefits, the property taxes for schools presently assessed at $3,000 per year are now lowered to $1,500. And so on. Huge cost savings gush throughout the world’s economy…or put another way, vast amounts of wages no longer flow. It is as if the brain, momentarily bereft of its senses, celebrated effusively at the energy no longer “wasted” by the heart to pump blood throughout the body. “Think of the energy savings!” A shortsighted notion whose continued existence can be measured in mere seconds.
In this scenario, the only initial limit on the drop in prices is scarcity—assuming people have credit cards (soon to be bloated with unpaid balances) and some savings. There must be some brake on consumption or we’d consume goods and services like locusts loose in a farmer’s fecund field, and the consumption of these goods or services could be substantially greater than the economy’s ability to provide them. On a related matter—incestuously so, in fact—by the end of 2023, Americans alive today (and those dead) have received approximately 33 trillion dollars more in goods and services (and waste) from their federal government than they’d paid in taxes and other government revenue…in other words, the current federal debt gave us far more stuff than we paid for. Well, maybe prices aren’t such a brake, after all, if there’s debt to fuel the consumption…and somebody dumb enough to lend us (or print) the fuel…and light the match…and stare admiringly at the flames.
We could consider as many different scenarios as we like. Thought-experiments galore. What if the virus affects only one country or state or industry? What if the infection occurred only in the Western countries (turning the tables on those low-cost toilers overseas)? What if the good workers perform the same, but the marginal workers become good workers? What if the virus only eliminates a single desire on the part of workers: health insurance, pension, or vacation? What if the result is everyone accepting the same salary, whether the person is a janitor or a brain surgeon? What if that salary is minimum wage, mean salary, or median salary? What if consumption stays the same, increases, or becomes much less materialistic? How would labor and other resources reallocate in response to each of these? What if the motivation to innovate and improve efficiency stays the same, increases, or decreases?
There are numerous delectable options. We’ll stick with the widespread pandemic here and everybody showing up to do the same job as the day before the infection. Expecting neither salary nor benefits, which is actually worse than slave “wages” because a slave counted on his owner providing food, clothing, and shelter, as the slave’s owner knows he must, otherwise, the slave is of no use. This is the same economic rationale for the care and feeding given humble beasts of burden or the fuel and maintenance required of a tractor. Labor, whether it’s performed by humans, animals, or machines, is never free of costs.
All this sounds unprecedented, but it isn’t. Throughout history, mankind has attempted to lower the costs of providing goods and services, sometimes successfully, sometimes not, sometimes deliberately, on other occasions inadvertently. Some efforts were done at the individual, family, tribe, or small business level; others were part of a grand scheme involving entire nations. Most efforts at reducing costs involved the labor factor. Whether reducing the costs per worker, reducing the number of workers needed, or making workers more productive, the basic premise for the capitalist (and communist) is to achieve one of the following goals:
- Pay the worker less for the same amount of work.
- Pay the worker the same but get more work out of him.
- Pay the worker more but get enough additional work out of him to more than offset the increased pay.
Each of these options has political, economic, and social ramifications. The business owner or corporation appears to benefit from any of these options; the worker is more likely to prefer the latter. In fact, the first option is rarely available to an employer, even if the reduction in wages is modest; it is flat-out not doable if the proposal is to cut salaries to the level at which they could be had in a less-developed foreign country. We cannot imagine a factory owner possessed of such chutzpah as to offer his workers this Hobson’s choice: “I won’t move the textile factory to Bangladesh if you agree to work for the same wages as its workers would.”
Therein lies the race to the bottom for us; upwards from the bottom for the Bengali. We hope there’s as yet a way upward for both.
The challenge—and it may be one without a clear path to success—is how to reduce labor costs without sowing the seeds of revolution or lowering the living standard. Which is to say, a widespread stable or improving standard of living for the people, in the context of a (reasonably) free market economy, one in which all parties are playing by the same rules on a level playing field—at the present time the field is so tilted and uneven that it’s a wonder we don’t all roll right off. The ideal situation is to increase a society’s actual wealth, increase wages, while maintaining zero inflation. In this case, everyone shares in the increased productivity or innovation. Good luck with that.
There is a bullet-point left off the above list, and which benefits no economy: Paying workers (or idlers) for doing less work, unproductive work, or no work. This option—which really is no option at all—is found in too much government employment and in any welfare system, certainly; but it’s also rife on Wall Street, where financial fantasies are concocted, blessed, packaged, and sold to the unwitting and the witting, all in pursuit of our mutual economic doom. These financial alchemists are well-paid and worthless; that their publicly-subsidized housing is much nicer than our homes only add to the outrage we feel. They also benefit from other publicly-subsidized tax incentives not available to the unwashed masses (e.g., carried interest).
There are many ways to reduce labor costs: Replacing workers in one country (or state) with cheaper workers living somewhere else. Replacing workers with machines. Providing workers with better tools and machines, which enables them to increase productivity. Better use and more efficient organization of workers. Paying current workers less—or, alternatively, making the goods or services the workers buy more expensive (thank you, quantitative easing), which has the effect of reducing the value of their wages. Paying more for good workers, whose extra pay is more than off-set by their increased output or the quality of their work. Having the government underwrite part of the cost (e.g., tax subsidies), which merely hides the wage reduction in the form of higher taxes or inflation (eventually). Paying workers nothing, as in slavery…but this is never a cost-free option as slaveowners have always known.
To some extent we’ve already seen this show before, albeit to a lesser degree than our alien-induced pandemic; and, in fact, it didn’t require a capitalistic Andromeda Strain. Specifically, the transfer of labor to lower-cost countries has been going on for many years. The prices paid for shoes and clothes is much cheaper nowadays because the manufacture is outsourced to overseas companies employing far cheaper labor. Cheaper labor is also in-sourced via illegal immigration; these “imported” workers do jobs for substantially less money than native born workers would deign accept. Imbued with sufficient flippancy, it could be claimed that these foreign workers are more “robot-like” than our own workers in that they work for much lower wages and oftentimes under terrible working conditions…they’re usually less uppity, too.
Therein, a point of this chapter: The lower the labor cost, the more robot-like the worker—mindless, compliant, doing the same work for less pay and less concern for working conditions (or less protest of working conditions). I won’t add “expendable” to the list of similarities because there is a key difference between a human worker and his mechanical competitor/replacement/colleague: The factory owner typically shells out a lot of money for an industrial robot (or other labor-replacing device) and is not likely to consider it expendable, whereas he might look upon human workers with lesser concern, perhaps markedly so.
The restaurant owner probably has a greater emotional attachment to his Hobart dishwashing machine than he does to his dishwasher, Pedro, who operates it. A dishwashing machine is essentially a robot, albeit one not sexy-enough for the subject of a sci-fi movie. Depending on the circumstances, a dishwashing machine either reduces labor costs or improves upon the cleaning process that a human-only dishwashing operation might accomplish—if it achieves both these, then the economy gains an apparent win-win result.
In the “good old days” casinos had slot machines (essentially robots) and many blackjack tables manned by human beings. Over the years, the casino owners found it much more profitable to reduce the games requiring human-to-human interaction and replace them with slot machines, poker machines, etc. We can’t fault a casino owner for his economic choice. The development of a wide variety of gaming machines gives his customers many more entertainment options. Machines break down and require maintenance, but, nevertheless, there are cost savings compared to flesh and blood employees. Machines don’t require health insurance or pensions. Machines don’t call in sick, take vacations, or go out on maternity leave. Machines don’t file workplace injury claims. Machines don’t go on strike. Machines don’t sexually harass a co-worker or serve as a victim of untoward shenanigans. Machines performing similar tasks don’t vary markedly in competency, motivation, or trouble-making ability. On a square-foot basis, the gaming machine, generally, makes more money than an equal square-footage of gaming table space staffed by a human. Today, casinos have far fewer gaming tables in relation to slot machines than they once did.
“Where did all the blackjack dealers go?” This includes the ones who lost their jobs and the ones not yet born who no longer have available to them a future career as a card dealer. If they found other useful work in the economy, earning a wage which allows them a decent standard of living, and this employment adds to the standard of living for the rest of us, then society has gained something of value. If the displaced workers—or future workers left unemployed or underemployed or misemployed—drain us of “wealth” or contribute less of it than they otherwise could, then the result is a lower standard of living for themselves, and likely for the rest of us, as well. Therein lies the conundrum of technological change, globalization, and workforce displacement and metamorphosis.
You can’t outsource a slot machine to a foreign country (unless the customers are willing to travel), but you can move a slot machine factory overseas. Likewise, many factories, even ones that were heavily automated and located in the United States, are now humming away, far away, in China, Vietnam, India, Mexico, Brazil. We no longer send our armies to far off lands to conquer and exploit the colored folks and force them to enrich our colonial empires (in reality, these overseas possessions enervated the home countries). We send our factories instead; for the same intended purpose, but the result is the unintended destruction of the empire’s homeland. A self-induced comeuppance if there ever was one!
That a worker living in a Third World or developing nation and desperate for work accepts a job once done here in the United States is not a surprise. He or she is right in doing this. These poor souls want a better life for themselves and their families, and the significant comparative advantage they have over more advanced countries (more ossified is an apt description) and their higher-paid workers is a willingness to perform work for wages unimaginable in “richer” nations. This is particularly true for low-skilled jobs, but we see evidence of it in high-skilled professions also; for example, medical tourism in countries like India and Thailand, which cater to Westerners willing to travel to these places for high quality healthcare at much more affordable prices (even when throwing in the cost of travel and lodging!).
With delightful maliciousness, I believe the discussion would change markedly (and overnight) if the following jobs were more cheaply outsourced overseas or in-sourced to illegal aliens: elected offices, editorial boards of Liberal newspapers, Liberal activists, union officials, film and television roles. In which case, fifty-foot-tall walls, topped with razor-wire would rise overnight around the entire United States. To be fair, Conservatives are well-represented by hypocrites, too; for example, the farmer getting his welfare check from the Department of Agriculture (farm subsidies) and the anti-gay congressman boinking his male intern. Hypocrisy doesn’t necessarily invalidate a position; it just undermines its cogency and provides the rest of us with hours of delightful schadenfreude.
Further complicating matters is the remarkable fact that these poorer workers, particularly those in other countries, also manage to save a substantial portion of their earnings and then—and this is the truly odd part—rather than buy an equal amount (in value) of goods and services from us, they lend the money back to us, so we can purchase even more of their less-expensively manufactured products, and this “half-fulfilled symbiosis” gives us a fascinating economic dynamic: They make our stuff and then help us buy it! All on credit that we have no hope of ever paying back in full. What’s the end game in lending us money we can’t pay back, and for how long do they do it before we reach the grand finale of this end game? These are the unanswered questions that nobody, neither borrower nor lender, wants to ask…or answer. To do so is to risk ending a party we want to go on forever; that it’s a party destined to end, and end badly, likewise goes unspoken.
Most how-to writing books inform the budding Hemingway never to use a cliché; the more tired the adage the worse the literary crime. But here we have to interject one, simply because nothing else does the job as well: Be careful what you wish for, because you just might get it.
Zero labor costs are great…until we get them.
Day One on our newly zero-labor-cost world hums along quite nicely. People still have some money (and active credit cards); therefore, their spending habits (we’ll assume these remain unaltered) don’t change as abruptly as did their newfound salary altruism. For a few days, at least, until the cash and credit run out. Not only are the bosses getting free labor, they’re as yet collecting revenue in the form of sales—or sales taxes in the case of government agencies, although income tax revenue, of course, stops immediately. (The government only gets a net tax revenue benefit if the income tax comes from workers other than its own, i.e., the private sector; otherwise, all it need do is hire more workers to balance its budget, which is preposterous math, and yet I’ve heard economists essentially argue in favor of this point, hiring government workers to help gets us out of a recession.)
Oh, did I mention that the virus left the bosses and other upper muckety-mucks unaffected: The greedy bastards still want to earn profits. We’ll define bosses as anyone directly responsible for a budget (revenues and expenditures).
I think you’ve already figured out that things start to unravel pretty quickly with this “gift” of free labor. Not unlike the emotional downer we experience after opening our Christmas presents, only on a much grander scale.
A serious problem is evident once the money runs out: Workers have no income with which to buy goods and services. This means that whatever stuff they do get, somebody else is giving it to them. And this somebody else must possess both the means and the motivation for providing it. Good luck with that in a world absent wages.
Early on in this alien-induced economic fantasyland, employers realize that without an income the workers are unable to care for themselves. Oh, sure the workers dutifully show up for work, do their job, cheerfully punch out at the end of the day, but they have nothing to eat…nowhere to live…renters can’t pay rent…homeowners can’t pay mortgages, property taxes, and other costs of ownership…no clothes…no way to get to work unless they happen to live within walking or biking distance (that is until they wear out their shoes or blow a bicycle tire)…the buses run for a while, but as the money runs out (no income = no bus fares and no taxes)…there’s no money to pay for mass transit (not that it pays for itself, now!).
We could speculate that employers continue to pay for their workers’ health insurance—at least their workers would be able to get medical care—but wait a minute: How would the doctors, nurses, pharmacists, drug factory workers, etc. provide medical services if they work for free and are unable to care for themselves? How would the employer get money to pay for this benefit even if he or she wanted to?
They wouldn’t.
The business owners, in theory, could spend their cash among themselves on behalf of their workers and the businesses—sort of a hilarious capitalistic central planning that surely would make Marx chuckle (a perversely grand B2B)—but it’s doubtful this would result in an economy as vibrant as the one the virus replaced. Or the bosses could keep track of the “value” of each employee’s work and agree among themselves to give this employee an “equal” value of goods and services—sort of like a global Company Store in search of a Tennessee Ernie Ford song—but good luck with getting the employers to figure out efficiently and accurately which employee gets how much of what stuff. They’d quickly learn that a centrally-planned economy is beyond the ability of us humans.
That’s not to say The Economy is the be-all-end-all expert in such matters, but at least Mr. Economy doesn’t pretend to be. Such unreserved presumptuousness is left for the commissars and the Wall Street capitalists.
The employees in this alien-virus-induced employer nirvana complain not one whit. Hell, they toil away—a pleasant smile permanently fixed on their faces (which quickly comes to terrify the bosses)—until they starve, freeze, or walk themselves to death.
Employers soon realize the need to provide basic necessities to their employees, or their usefulness as workers suffers. The factory owner finds he must provide food, shelter, transportation, clothing, possibly even some entertainment to keep his workers mentally healthy. You know, the basic stuff a slavemaster provided his slaves.
Once again, we ask the obvious: Where is the employer going to get the funds to do this? There is no revenue coming in (unless, as we said above, they shuttle the cash or chits around among themselves or keep accurate ledgers at the company store).
We reiterate. If everyone works for free, there is no income for workers to spend on the very goods or services their employers are producing. In a capitalistic society there is no profit possible without a payroll somewhere; and the aggregate sustainable payroll throughout an economy, its distribution, and what it can purchase is what equates to the overall standard of living.
The rub—and it’s as big of a rub as a bath sponge made out of an angry porcupine—is a balance of payroll, business revenue, business expenses, profit, tax revenue, and government spending, such that everyone in the economy is motivated to work long, hard, creatively, innovatively, and productively. We add an additional condition: The parasitism of idlers, incompetents, and financial flimflammers must be kept to a minimum. This group includes the fake disabled, the too-early retired, and a large segment of the financial Brahmin class.
Would things be different if the bosses, too, were infected and worked for free? No more need for stock options and obscene bonuses. In essence, a world fully devoid of the motivations we associate with profits and tax revenues. Just everyone grinning stupidly and doing what they’ve always done, including maintaining their identical spending habits. What would happen?
Without accurate costs for labor (including the upper mucky-mucks), raw materials, goods, and services, there is no way to make sure resources are put to their most productive or desired uses, nor is there a good way to allocate resources throughout an economy or establish realistic levels of consumption, unless we foolishly believe central-planning can accomplish this task. Without costs, there is no way to account for how things are going—are we gaining wealth, losing wealth, paying “accurate and sustainable” wages and prices, improving our standard of living, saving for the future, or getting ourselves into financial hot water?
Costs, in the form of wages and the price of goods and services, are the most fundamentally important information in any economy, whether it’s capitalist or communist. Distort or remove this information and we’re left to grope around blind in the dark. Print money indiscriminately and we’re blinded by light—and as yet left groping.
Eventually, without the self-correcting effect of real numbers, problems arise. The utopian dream of mindless do-gooders—that we altruistically do everything for the greater good of mankind rather than in our own self-interest—would crash down around us. Similarly, the equally foolish dream that the Free Market absent honest accounting (including debt that is actually repaid) is a benign god dispensing riches created out of thin air is an idea insanely indulged by far too many of us, particularly our elected “leaders” and their Wall Street masters—that politicians have long been robots under the control of corporate interests is an irony not lost on us here.
Absent wages and prices, nobody has a clue what to do. Do we make wine or wire, and how much or little of each? What kind of wine and wire do we make? Where does it go if we make it and for what uses? How much wine or wire do we make this week, next month, next year? Do we plant new vineyards or plow some under? Do we dig the copper mine deeper, scale back its output, or shut it down? Do we improve the winemaking or copper smelting process, or leave these unchanged? Do we seek greater efficiency in transporting wine or copper, or focus our efforts at improved efficiency elsewhere? What is the “best” way to prepare and sustain a workforce for these industries? Where is the “best” place to manufacture wine or wire? If we find a better place, do we move the processes there?
For every good or service in an economy of any type, a host of similar questions exists and these must be continually asked and answered. Without some idea of cost and value, neither the capitalist nor the communist can answer these questions. Certainly, grinning automatons don’t bother to inquire.
The prices assigned to goods and services, and this includes labor, (1) allows a continual assignment of value; (2) motivates the allocation and reallocation of resources; and (3) helps keep score. This is true if money is a truthful giver of information. This crucial role is undermined by the printing press and phony-baloney accounting, and this makes us slaves to misinformation and unreliable information, which lead to false hopes and unrealistic expectations. Furthermore, this leads us to speculate if politicians, central bankers, and Wall Streeters aren’t long infected with some form of virus, the primary symptom a pathological propensity toward financial tomfoolery.
Now we’re ready for a different science fiction angle on our topic. No microbes involved. This time capitalism and science result in something truly remarkable…
The following are the Three Laws of Robotics from Isaac Asimov’s classic novel, I, Robot:
1—A robot may not injure a human being, or, through inaction, allow a human being to come to harm.
2—A robot must obey the orders given it by human beings except where such orders would conflict with the First Law.
3—A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.
With apologies to the late Mr. Asimov, we consider a fourth:
4—A robot must work for a wage that is most beneficial to the human economy, as determined by human economists.
The implementation of the Fourth Law would be a hoot. Imagine watching a room full of economists, even if they are supposedly of the same ilk, struggle to come up with this “beneficial” wage. Theory colliding with reality is a train wreck, at first entertaining to watch…that is until we realize the train is our economy and we’re onboard. Damn, that wasn’t so fun, after all.
These economists at work, snug inside their conclave, would most certainly make sausage-making seem palatable by comparison. The rest of us mill about outside, we await the white smoke to come out the chimney; this signals that the oracles have, at last, put away entrails and tea leaves, and from the balcony are ready to render unto us their wise decision: entrails and wet tea leaves are tossed down upon us, but called impenetrable wisdom.
What exactly is that ideal wage? Is it a minimum? A maximum? Is it based on some definition of the “worth” of the job done? Is it paid regardless of the ability to pay (i.e., with borrowed or printed money)?
The ideal wage for me is the most I can get. The ideal wage I pay somebody else is the least I can get away with. Both positions are in eternal conflict; both are right, both are wrong.
Tis, admittedly, no answer at all.
Herein is an important difference between hard science and wannabe-hard science: A room full of rocket scientists, even embroiled (or spurred on) by contentious debate, would eventually decide on a course of action that is successful in getting a spaceship to the moon and back. In fact, they succeeded at this numerous times. That a room full of economists is capable of anything other than slamming an economy into the ground is an idea fewer of us dispute each day. But, by gosh, those spunky economists keep on trying; unfortunately, the rest of us are paying for their experiments.
As an alternative to the virus scenario, we consider a future time in human history more likely to occur than the aforementioned meteorite-induced pandemic: Robot, Inc., invents the perfect robot, one that can be programmed to perform any job that a human can do, with perhaps the exception of artistic endeavors. No robot poets, authors, sculptors, or painters. Yet.
In this exercise, we’ll focus on the grunt work that has to occur in the world, which is fully necessary if the artists of the world are to do their creative work and afterwards pontificate on the evils of capitalism.
Robot, Inc., employs talented human beings and they successfully develop an array of capable and reliable robots, and someday, perhaps, their own replacements (irony is always lost on those being ironical). The showrooms of Robot, Inc., are filled with a wide variety of robot models: gardeners, farmers, cooks, waiters, dishwashers, busboys, brain surgeons, cab drivers, golf caddies, prostitutes, teachers, firefighters, police, pilots, ship captains, carpenters, truck drivers, soldiers, etc. “Real robots for real work” might serve as the company slogan; or perhaps the deeper, “You’ve spent 150,000 years getting here…go ahead, take a break!”
A general needs a battalion of infantrymen. Robot, Inc. has got it covered. A contractor needs a bricklayer, electrician, and framer. Ditto. Lonely, tonight, or any night? The “pleasure models” are a delight (this term is from Philip K. Dick’s novel, Do Androids Dream of Electric Sheep on which the movie Bladerunner was based), and they don’t expect you to love them in the morning—but you will!
In addition to the arts, there are other jobs that may or may not avail themselves of this wonderful technology. For instance, scientific researchers or athletes. In the first example, we face the classic philosophical conundrum: Can you invent a brain that can understand itself? In the second, we wonder if there’s drama and excitement in watching sports battles waged by artificial surrogates rather than flesh and blood human beings—though a pilotless racecar is not so far-fetched that we can’t speculate on a realistic hypothetical in the not-too-distant future.
In theory, robots could free up all of man’s brain power for “higher” academic or scientific endeavors and the arts—and give us unlimited leisure time for sports—but if they eventually can do these jobs, also, then what need does the world (or the robots) have of us? And if robot scientists can improve upon their own designs, and these “descendants” do likewise…essentially mechanical gods…therein, science fact does become science fiction.
In our scenario, the technology falls a bit short; we find that robots can do 95 percent of the jobs humans can do, and at least as capably; we leave entertainment, sports, science, and the arts to human beings—for now. Hell, if Robot, Inc., can make a robot salesperson, that’s a twisty twist if there ever was one—the robot sells himself! Science fiction is full of examples of robots making other robots—and improving upon the design.
Snarkily, I wonder: What if a robot CEO was one of this year’s new models? Would the CEO authorize its purchase? Perhaps a robot economist the year after. I can’t wait for the robot politician. To reap what you sow is a delectable comeuppance, don’t you think?
There are obvious questions brought about by our mental cud chewing:
- At what price levels are various human jobs replaced with robots?
- What happens to the replaced human workers?
- Under what conditions does the replacement benefit society at large, and in what ways?
- How are these benefits “distributed”?
- Is the human standard of living increased, decreased, or does it stay the same?
- If the replacement of human beings by robots does not result in a lower standard of living—or even increases it—what do the humans do to fill their days?
- How do these robots effect immigration, legal and illegal?
It certainly seems these robots would be expensive—at first—just as it was with computers when that technology first came out. Today’s computers are ridiculously cheap and used throughout the world in a host of applications, both trivial and profound, and integrated down into many of the lowest demographic strata.
Early on, at the dawn of the computer age, mankind expected big things from these electronic brains. But I don’t think we dreamed the degree of ubiquity and inexpensiveness we’d achieve, nor the lesser applications that would spread so quickly, be socially transformative, and serve as driving force in the continued development and refinement of technology (e.g., pods, pads, social media). Science fiction became science fact, except in a few areas: (1) We have yet to make a robot that can think as humans think—for example, a computer cannot understand or compose a sonnet or a pun (the latter probably the more difficult task for a computer) and (2) We have yet to produce a practical android, one that is similar in size and appearance to a man and that can do the work that mankind does commonly in its form that God molded from clay.
Robot, Inc., rectifies that.
Move over, God, Robot, Inc., will show you how it’s done.
I’m reminded of a passage from John Milton’s Paradise Lost:
The research and development costs alone are staggering, and need be built into the price of the robots. Like the first plasma and LED televisions, they’re expensive, but the wealthier among us can’t wait to rush on down to the store and pick one up; they do this knowing full well prices will drop and the technology improve markedly in short order, yet they dutifully fulfill their role of juicing the new technology into what will eventually enter the mainstream consumer market. Over time and volume, mixed with creative destruction and technological leaps and refinement, these costs are greatly reduced. Robot prices drop. Quality and performance improve.
Eventually the robots mine the raw materials, manufacture the components, and build themselves; literally, gods unto themselves…while we humans sit back and do…what?
So long as humans have the final say-so on what types of robots are built and how many of each, we control the destiny of both mechanical man and flesh-and-blood man. So long as…
Businesses would express great interest in these machines, not unlike the corporate chieftain of several years ago who arrived in Bangalore to check out the Indian “robots” he envisioned replacing his higher cost American robots, a move likely to result in a nice bonus—for him, not the displaced employees. As is always the case, the present chess move is studied, perhaps poorly, not those moves two or three ahead; therefore, the question asked is thus: Is the cost of change worth the replacement of a human worker with a different human worker (or machine)?
The bean counters say yes, and it is done.
The workers resist and they are told it’s for the greater good.
The rest of us feel uneasy—they are, after all, our fellow Americans thrown out of work—but then we hop on down to Walmart for a basket-full of Chink-made goods, sold to us at prices not possibly this low if made by the aforementioned Americans, now unemployed, receiving unemployment checks and other government assistance that our taxes, rather than Walmart’s prices or profits, pay for.
We may find ourselves not wholly sold on these low prices—
“What happens to the replaced workers?” we naively ask.
“They’re retrained, reabsorbed into other jobs, guided by the Invisible Hand into alternative productive uses,” answers the economist. The Hand gently takes the unemployed worker’s hand and leads him from the despair of job loss to a better place…or death and dismemberment in the woods.
We cannot know which fate it is. No one can. All the more reason for the economist to fill this vacuum with palaver and comical speculation. Funny, that is, unless you’re the one out of work. The only spectacle more amusing than an economist predicting the future is one of them trying to predict the past.
And let’s be clear. To a large extent robots have been with us for a long time. A team of oxen is technically a robot: Non-humans doing the work of men or assisting men. The modern farm combine does work which would’ve required hundreds of humans (and oxen) a few centuries ago. Technological advancement freed up people for other tasks, tasks that in many ways improve our lives, make them easier, more enjoyable, safer, longer. Nowadays, in theory, these replaced humans are performing other tasks we want done: waiting tables, researching a cure for cancer, teaching children, arresting criminals, sewing designer dresses, massaging us to happy endings…waging war. For example, societies could not raise and deploy armies until sufficient food supplies and logistics were developed and put in place. Warfare requires an organized economy, particularly its agricultural component.
Uh oh. I’ve just given the antifood-Taliban another reason against the agricultural-industrial complex. Darn.
Modern farming techniques, primarily mechanization and the use of fertilizers and pesticides, is the primary cause of an improved standard of living and reduced incidence of famine. We require far fewer farmers to produce much more food. The rub is that the shifting of replaced workers from one task to another is often a painful, disruptive, uneven transition that may occur over several generations and with uncertain results. Fear and anxiety are natural emotions among the displaced workers. They see their lives slipping away, and they don’t know what kind of life is to replace it. No one does. Such fears are readily exploited for nefarious purposes, whether these be economic, political, or religious, though distinguishing among the three devils is not easy.
The aforementioned farm combine is an example of a farming robot, though it is largely operated by a human brain, and has freed mankind from the drudgery of back-breaking farm work and brought society a significantly better standard of living. Today it takes far fewer people to feed a much larger population when compared to past agricultural practices.
A philosophical question comes to mind. Are there limits if we extrapolate this mechanization to an absurd degree? Do we strive to replace the farmer behind the steering wheel with a robot that can do the same task equally well? If the farmer owns his land and receives the same price per bushel of grain, and the robot is affordable, does he take that next step to make himself obsolete? Is the farmer then free to spend his days in leisure or higher pursuits; perhaps composing sonnets, painting watercolors, seeking a cure for cancer? If a hired farmhand drove the combine and is thrown out of work, what happens to him?
We turn up the volume.
For the sake of argument, let’s assume Robot, Inc., prices its robots at ten dollars each. These robots require no fuel and only infrequent and inexpensive maintenance. At this price an interesting dilemma presents itself: Even the poorest worker could buy a robot to replace herself. She foregoes a couple packs of cigarettes, buys a robot, and sends her mechanical surrogate off to work each day—and expects a paycheck in return. A craftier worker has a further option: He buys ten robots and sends them off to do his job plus nine others—not unlike the would-be real estate tycoon who bought ten houses in Las Vegas in 2006. Does this squad of robots make their owner a rich man? An often-ignored caution comes to mind: Investments and robots both have the potential to turn on their masters.
A waitress buys a waitress robot to send to work in her place. The economy gets the same labor output, alas, at the same labor cost to the employer (albeit probably with far fewer headaches). This sounds like a win-possible-win situation, both employee and employer benefit. Employee gets paid, employer no longer has the problems associated with a human workforce.
But, of course, even the densest bosses would choose the obvious employer-favorable option, one that is seemingly much more advantageous to themselves: They buy ten-dollar robots to replace all their workers. The same work gets done at no labor cost…no wages…which then means no money for employees to spend…and we have the same result as arose because of the extraterrestrial virus discussed earlier.
Therein lies an economic Hobson’s choice. (Who is this Hobson and why does he keep fucking things up?)
Assume the bosses win out, initially.
Once again, nobody is getting paid, so nobody has the money to benefit from the robot labors. Do the bosses get together and share the technologically-induced largesse among the unemployed masses? Do the humans send their robots to picket the factories? Do the police send their robots to tear gas and bludgeon the robot picketers? Do the robot miscreants go to robot jails staffed by robot jailers after being sentenced by robot judges and failed by robot defense lawyers? One would assume, at least, that there is no robot rape among the robot prisoners.
Are humans on the sidelines, watching robot surrogacy act out the same bullshit as before? Oh, if only Mr. Asimov had been an economist rather than a real scientist!
What if it were possible? A ten-dollar robot. Hell, a robot at $12.99 makes no difference in this pretend game. Somebody has $2.99 more, somebody $2.99 less, but the end result is the same: The Age of Robocracy.
It seems like someday this game will come to pass, for real. What if tomorrow everybody for ten dollars could purchase a robot that could replace themselves in the workplace and do the job at least as competently? Would our standard of living change? Would the bosses buy the robots themselves and refuse any pay to the erstwhile real workers?
The boss could buy the robot and fire the worker. Or the worker could buy the robot to replace herself and insist on a continued paycheck. Is there an economic difference between the two choices? In theory the same amount of work gets done, and, in the end, it’s work that gives us wealth and our standard of living. That the work is efficient, innovative, and productive is the key. So, what difference does it make if the work is done by a human earning a wage, a serf serving his liege, a communist serving the state, a slave serving his master, or a robot serving whomever?
Perhaps it means no difference to the bean counter, so long as efficiency, innovation, and productivity are comparable. But we doubt the bean counter fails to make a distinction if he himself is given the choice of being a free man, serf, prole, slave, or replaced by a robot bean counter.
Ten dollars is dirt cheap. We doubt one hundred dollars would impact this thought experiment markedly.
What if the robots cost a million dollars? To what extent does the price of the robot impact economic decisions? The quants rush to algorithm. Emerging from the equation birthing room, they proudly show it off to the world. We smile knowingly. Those quants are precious, indeed. For we know that the algorithm is not unique: It’s the same one used to decide on robot welders in auto plants, farm combines in Iowa, and rubber duck factories in China.
Production costs + shipping costs – sale price (retail or wholesale depending on who is doing the selling and buying) = profit (or loss).
Yes, we know production and shipping are complex animals. But they are creatures herded, ultimately, to those two corrals at the beginning of the equation.
To what degree do slaves or exploited human workers serve as surrogates for our magical robots? If your ten-dollar robot allows you to stay home and still collect a paycheck, would you accept a pay cut to some degree? You’re essentially retired. If the boss agrees to pay you seventy-five percent of your current salary merely for sending a robot in your place, why the hell not? What about sixty percent? Fifty?
Again, the stampede to equations that may not answer a damn thing.
Most importantly, what the hell would you do all day if you didn’t work? I don’t see any scenario where such idleness is healthy or desirable. Not that I’d turn it down! At least initially.
Our dreams of a life of leisure assumes, under our present technology, the world is populated by robots to do our bidding. Oh sure, they’re robots of flesh and blood and tears, requiring significant upkeep (even at minimum wages), but still the desired result is the same: nice vacations among swaying palm trees, leisurely lunches set upon gleaming white tablecloths, gourmet coffee filling the air with redolence, regular pedicures, the housecleaning done by Lupe and others like her.
Hopefully, these enablers of our leisure don’t rebel. Hopefully, the laws—way, way beyond three—keep them in line. Hopefully their own dreams of leisure keep them toiling away on our behalf, inspired rather than resentful and plotting. Hopefully, the ones we need to do our bidding don’t get uppity, or worse, revolutionary.
If the bosses are amiable to having robots replace us and still pay us, that doesn’t eliminate the need for determining prices. So, what are the perfect wages and prices? There isn’t an answer, and that is the problem.
A centrally-planned communist regime (that’s sort of redundant) must figure out how to allocate resources. So does a (relatively) free-market economy. The difference is the former is done by a committee of our betters, and perhaps implemented at the point of a bayonet. In a free market, there is a more diffuse approach, seemingly unorganized, but, nevertheless, there is also a large degree of central planning afoot; that is to say, political monkeying with prices by those who either think they know better or who are making a political calculation in their own interest; no bayonets are unsheathed (yet), therefore, it’s done under the guise of subsidies, grants, tax credits, tax loopholes, tariffs, pork barrel spending, and other sundry techniques we might as well call exactly what they are: stealth central planning.
A free-market society is comprised of the consumer choices we make. Consumers are individuals, families, small businesses, corporations. A free market is a profoundly stupid way to run an economy, as evidenced by all the dumb stuff we spend money on. But it’s a hell of a lot smarter than a communist regime that assigns to a small elite group the task of making all the decisions made by billions of consumers who mostly get it right. Well, maybe not mostly, but the outcome is remarkable, nonetheless. Oh, there’s also groups like the World Economic Forum who desire the same centrally planned world as the communists. Think communism with a smile, albeit, a frightenedly evil one. Because such a desire for micromanagey control, regardless of the ideology behind it, is evil.
An experiment we can’t run, but would be fascinating nonetheless, is having Albert Einstein run our economy for a year. Imagine his exasperation at trying to figure how out many brassieres go to Albany and what salary is paid a movie extra in Seattle. How much copper to mine in Nevada and what the price of diesel fuel should be in Tampa. What the tuition should be at Stanford and how large a pension check is sent to Howard Fuhrman in Chicago.
Mein Gott! Relativity vas a cake valk compared to this!
In sympathy to Mr. Einstein, nobody has a clue. Printing money indiscriminately only makes us more clueless, dangerously so.
There is no answer to the “correct” or “best” wage. There is certainly no “perfect” wage.
Is a wage too much, too little, or just right. What do we mean by each of these? We believe a wage that allows a person to provide for himself or herself to the largest degree possible, which is to say the least dependence on the government, is desirable. The problem we face now is we live in a world with excess credit and debt and are delayed from making these determinations because we don’t have to—at the moment, at least. When the time comes, those determinations are going to be doozies.
In such matters, we’re left with two questions:
Do androids dream of electric sheep?
Do androids make stuff actually cheap?
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