Must Oligarchy and Technological Unemployment Continue to Decimate the Middle Class?

By Richard Clark, OpEdNews, January 25, 2014

In 1930, when the world was "suffering from a bad attack of economic pessimism," John Maynard Keynes wrote a broadly optimistic essay, "Economic Possibilities for our Grandchildren." It imagined a middle way between revolution and stagnation that would leave the said grandchildren a great deal richer than their grandparents. But the path was not without dangers.

One of the worries Keynes admitted was a "new disease": "technological unemployment" due to our discovery of means of economizing the use of labor that would outrun the pace at which we can find new uses for labor." His readers might not have heard of the problem, he suggested - but they were certain to hear a lot more about it in the years to come.

For the most part, however, they did not hear about it. And nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economizes on the use of labor will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers. To think otherwise was a career killer, for it meant being tarred as a Luddite--the name taken by 19th-century textile workers who smashed the machines they thought were taking their jobs.

For much of the 20th century, those arguing that technology brought ever more jobs and prosperity seemed to have the better of the debate.   Real incomes in Britain and the US tripled from 1570 to 1875.   And they more than tripled from 1875 to 1975.   Industrialization did not end up eliminating the need for human workers.   On the contrary, it created employment opportunities sufficient to soak up the 20th century's exploding population.   Keynes's vision of everyone in the 2030s being a lot richer was largely achieved.   However, his belief that they would work just 15 hours or so a week has not come to pass.   Why not?

In America the median wage (corrected for inflation and measured in constant dollars) is stagnant and has hardly budged over the past four decades.   Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade.   Recent research suggests that this is because substituting capital (i.e. automation) for labor is increasingly attractive in the business world;   and, as a result, owners of capital have captured ever more of the world's income since the 1980s, while the share going to labor has fallen -- until now when we have 85 people who have managed to accumulate a body of wealth so large that it is equal in amount to that gathered by fully half the world's population.

At the same time, even in relatively egalitarian places like Sweden, inequality among the employed has risen sharply, with the share going to the highest earners soaring.   For those not in the elite, argues David Graeber, an anthropologist at the London School of Economics, much of modern labor consists of stultifying "bullshit jobs" -- low- and mid-level computer-screen-sitting that serves mostly to just occupy workers for whom the economy no longer has much need.   Keeping them employed, and shopping, Mr Graeber argues, is not an economic choice;   it is a political one, i.e. it is something the ruling class does mostly just to keep control over the lives of these millions, who, if too many of them were to become well educated and well informed, and then well-organized politically (instead of falling prey to shopaholism and workaholism), could easily become a major threat to the ruling class, politically.   As John Maynard Keynes could have pointed out, they could all be working 15-hour weeks (or 3-month years) were it not for their devotion to the fanciest new consumer items that rule most of their lives, and the devotion to warfare and war spending that results from the perverse needs of our military-industrial complex.

Be that as it may, drudgery may soon enough give way to ever more stark amounts of unemployment.   There is already a long-term trend towards lower levels of employment in some rich countries.   The proportion of American adults participating in the labor force recently hit its lowest level since 1978, and although some of that is due to the effects of aging, some is not.   In a recent speech that was modeled in part on Keynes's "Possibilities," Larry Summers, a former American treasury secretary, looked at employment trends among American men between 25 and 54.   In the 1960s only one in 20 of those men was not working.   According to Mr. Summers's extrapolations, in ten years that number could well be one in 7.

This is one indication, Mr. Summers says, that technical change is increasingly taking the form of "capital that effectively substitutes for labor".  And there may be a lot more for such capital to do in the near future.   To wit:   A 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, argued that jobs are at high risk of being automated in 47% of the occupational categories into which work is customarily sorted.   That includes accountancy, legal work, technical writing and a lot of other white-collar occupations.

Answering the question of whether such automation could lead to prolonged pain for workers means taking a close look at past experience, theory and technological trends.   The picture suggested by this evidence is a complex one.   It is also more worrying than many economists and politicians have been prepared to admit.

Be sure to read the rest of the foregoing article in the latest issue of The Economist, an edited version of the beginning of which article you've just read.

As Robert Reich recently pointed out, the oligarchic concentration of power at the top -- which flows largely from the concentration of income and wealth there -- has prevented Washington from dealing much with the problems of the poor and the middle class.   To the contrary, as wealth has accumulated at the top, Washington has:   a) reduced taxes on the wealthy, b) expanded tax loopholes that disproportionately benefit the rich, c) deregulated Wall Street, and d) provided ever larger subsidies, bailouts, and tax breaks for large corporations -- all at the expense of the poor and our shrinking middle class!   The only things that have trickled down to the middle class and the poor, besides ever fewer good jobs and smaller paychecks, are public services that are increasingly inadequate because of being starved for money.

Unequal political power is the most noxious and nefarious consequence of widening inequality, . . and is also the most fundamental threat to our democracy.   With Citizens United, big money has now all but engulfed Washington and many state capitals -- drowning out the voices of average Americans, filling the campaign chests of the candidates who will (of course) do the bidding of their "providers,' as those providers finance attacks on organized labor, and bankroll a vast empire of right-wing think-tanks and publicists who, along with bought-off university professors and high paid "journalists,' fill the airwaves and lecture halls with the lies, half-truths and distortions that maintain the interests of their "providers.'   Problem is, our Republican friends "don't see or acknowledge any of this, which is a sign of how far the right has moved, away from the increasingly frustrating and even painful reality that many if not most Americans live in every day.

When almost all the gains from growth go to the top, as they have for the last 30 years (as the new oligarchy has taken control), the middle class no longer has the purchasing power necessary for the economy's buoyant growth.   Therefore, not enough jobs can be created to provide adequately paid work for anywhere near the number who need it.   Three people now look for every job that pays above minimum wage.

Once the middle class exhausted all its coping mechanisms -- e.g. wives and mothers surging into paid work (as they did in the 1970s and 1980s), longer working hours (which characterized the 1990s), and deep indebtedness (2002 to 2008) -- the inevitable result of that exhaustion was fewer jobs and slower growth, just as we have continued to experience.   Then, when the middle class became stressed, it became harder for them to be generous to those most in need.   The "interrelated social problems" of the poor require money to solve, but the fiscal cupboard is bare.   And because the middle class is so financially insecure, it doesn't want to (nor does it feel it can afford to) pay more in taxes, as would be required.

America's shrinking middle class also hobbles upward mobility, which now trails that of crusty old Great Britain.   Not only is there ever less money for good schools, job training, and social services, in the USA, but "the poor" (which now includes a huge number of former members of the middle class) now face an ever more difficult challenge moving upward because the income ladder is far more extended than it used to be, and, as Reich also points out, its middle rungs have disappeared.

Once oligarchy takes over, the possibilities for economic democracy and/or free markets are dead

After the takeover, if collectively we can't cost the oligarchic rich any significant amount of money (by way of enormous mass protests that are sufficiently large and frequent), why should they let us have any of the surplus of society beyond the bare minimum we need to remain useful to them?   As the savage cutback in food stamps in the US recently showed us, the survival of all of us is not a priority for the oligarchy.   Yes, highly talented professionals will continue to be paid well, to ensure their co-optation, and loyalty (to the oligarchy), but by far the largest part of America's great middle class will continue to slip into powerlessness and poverty.   Why, exactly, will that hapapen?   Because once the oligarchy takes power (as it already has in the USA), the distribution of goods and money in the economy becomes ever more unrelated to any idea of merit or deservedness.   Example:   Banksters, being some of the best-compensated people in the world, have recently destroyed far more wealth in the US than they've earned, and yet they are still paid billions of dollars in bonuses every year.   They receive the money they do because they've been allowed to take power over our government.   What power, for example?   The power to make the government make them whole after they recklessly gambled and lost spectacularly.   And then they acquired the power to make the government make them richer still. 

How can this be, you ask.   The answer is that they control a bundle of invaluable rights that are granted by the government -- a government which they now indirectly own and control.     I refer of course to their right to borrow at the prime rate (very low), the right to huge leverage (i.e. "borrowing' huge sums of other people's money to use for investment and very high-stakes gambling, e.g. derivatives); and the right to lend billions (and charge staggering amounts of interest).   These then are the methods by which ever more, if not most, American money is actually "earned" these days.   In reality these folks -- who "earn' billions in the stock market and by way of bonds, various scams, and derivatives -- are like a colony of parasites feeding on an ever weakening host.

Parasitism is why they're rich -- not because they produce net value.   In fact they destroy net value.   They're rich because they have the power to:   a) make the government do what they want it to do, b) make it not prosecute them when they break the laws, and c) change the laws so they can take even more money from the system (of which they are by now the clear masters).

The distribution of income and wealth in an economy is therefore based, virtually entirely, on political power.   With such an arrangement, some groups can (if they play their cards right over a long-enough period of time) receive goods and money because they find ways to cleverly force others to release it to them, often without many of these others even understanding the details of the arrangements whereby they are being systematically robbed. 

The libertarian fantasy of free markets and free choice is exactly that, a fantasy.   Free markets don't exist today, they have rarely existed in the past.   And to the extent they have existed, they have owed their existence entirely to a   government . . which must take steps to make sure that said free markets continue to exist!   However, as soon as any group or class gains enough power to take control of the government, such a group, if not stopped by the larger body politic, will do precisely that (i.e. take control), and free markets will then cease to exist.  These groups make the government give them special rights, whether those are rights to create money out of nothing, borrow low and lend high, "borrow' other people's savings with which to gamble on derivatives, or thrive on the basis of so-called intellectual property rights, which let them continue to profit obscenely from ideas and inventions created many years ago, often with thanks to government funded research.