Wednesday, May 23, 2018

Income, jobs, automation, and our future


I've written several times in the past about jobs, the impact of automation, the economy, and our future.  It's not a very comfortable subject, but it's becoming more and more critical for everyone in this country to be aware of what's going on and plan accordingly.

Two recent articles drive home this point.  They're long, and therefore likely to be overlooked by many who want a quick fix of information without having to work at it, but they repay our attention.  I'll quote from both at some length.  Even if you don't read both articles in full (which I hope you will), please read and think about these excerpts.  They're important to your future, and mine.  I've highlighted some points in bold print.

The first article is titled "The Long Death of America’s Middle Class".

The American middle class is dying.

In 2015, it dipped below 50% of the population for the first time since data collection started on the issue. It’s now an official minority group.

Meanwhile, nearly half of Americans don’t have enough money to cover a surprise $400 expense. Many are living paycheck to paycheck, with little to no cushion. And US homes are less affordable than they’ve been in decades—possibly ever.

. . .

The late 1950s was the golden age of America’s middle class ... Around then, a husband could support his family on an average income. He and his wife likely owned their own home, as well as their car. They had multiple children—and didn’t think much of the cost of having more. Plus, they had money to save.

Compare that to the average family today. Both spouses likely have to work—whether they want to or not—just to afford the same basic lifestyle.

Plus, it now costs well over $200,000 to raise a child, on average. And that doesn’t even include college costs. Back in 1960, it cost roughly $25,000.

This hefty price tag is one of the main reasons middle-class families are having fewer children… or none at all.


In short, the average American’s standard of living has taken a huge hit over the past generation or so.

For example, consider a typical high school teacher’s financial situation.

In 1959, the median annual salary for a US high school teacher was $5,276, according to the Department of Labor. Meanwhile, the median US home value was $9,627, according to the US Census Bureau.

That means a teacher made enough money each year to cover over half of the price of a middle-class home. Or 55%, to be exact.

Take a minute and think… How does your annual income compare to the price of your home? I’d bet many people make far less than 55%.

Today, the median purchase price of a US home is $241,700. To maintain the 1959 income-to-home price ratio, a high school teacher would need to make $132,935 annually.

Of course, the average high school teacher doesn’t make nearly that much. Not even close.
He or she makes around $48,290—just enough to cover 36% of the median home price.

. . .

Cars are another large expense for Americans. Debt has helped camouflage a big price increase there, too.

Americans are now over $1.1 trillion in auto debt. This figure has skyrocketed 2,954% since 1971.
Americans have also racked up more than $1 trillion in credit card debt. This debt explosion also started in the early 1970s. Credit card debt is up 14,281% since 1971.

So why are Americans going deeper and deeper into debt?

It’s simple: The cost of living for the average middle-class family has risen dramatically faster than its income.

Since 1971, there’s been a dramatic—and growing—split between work and wages. As the next chart shows, the average person’s real wages have more or less stagnated since the early 1970s.



With higher expenses and stagnating wages, people have made up the difference with debt.

There's more at the link.

When you combine that with the employment situation, the red warning lights are flashing ever brighter.  John Mauldin sets out the scale of the problem in an article titled "The Great Jobs Collision".

Bain thinks automation will eliminate up to 25% of US jobs by 2030, with the lower-wage tiers getting hit the hardest and soonest. That will be devastating, and it’s not that far away. Remember 2006? Right now, you are halfway between then and 2030. Time flies, and this time it won’t be fun. Interestingly, though, Bain predicts that the manpower needed to build out the technology that will ultimately eliminate all those jobs will be enough to keep us all working until 2030. The Bain team is a tad more optimistic than I am. But they have their reasons.

Why is this happening? Demographics and automation are mutually reinforcing trends. One we already see: Employers turn to automation increasingly because they can’t find workers with the skills they need in sufficient numbers. The Baby Boom generation is leaving the workforce (though many Boomers are delaying retirement as long as they can). The additional labor that came from one-time factors like China’s opening has mostly run its course. If sufficient numbers of qualified people aren’t available, employers turn to machines.

At the same time, technology is making the machines better and less expensive. Much of the job automation so far has been fairly benign, jobs-wise. It has replaced dangerous factory work or other repetitive, unpleasant manual labor. Often the automation makes human workers more productive instead of replacing them. That’s about to change as artificial intelligence technology improves. Machines will be able to perform cognitive tasks that once required highly trained, experienced humans.

Now, at any given company this trend can look like a good thing to the owners. Invest in machines, lay off people, mint more profits. But that’s short-sighted in the aggregate because someone has to buy your products. The workers your company and others just laid off won’t be able to spend as much unless new jobs replace the ones you just eliminated.

In theory, automation will enable lower prices, which will raise demand and create more jobs. Bain does not think it will happen that way. They foresee up to 40 million permanent job losses in the US, even accounting for higher demand.

In other words, in the next 10–12 years the US economy will swing from a labor shortage to a huge labor surplus. With the labor force presently around 160 million, this implies an unemployment rate around 25%. I find it hard to see how we could call that an economic boom.


But let’s be optimistic and assume other jobs do appear for many displaced workers. The situation still won’t be ideal for either them or the economy at large, because they will likely make less money and have less spending power. Karen’s report points out that wages will face downward pressure long before workers get replaced by machines. The mere existence of the new technologies will cap wages as the price of automating vs. employing humans falls.

. . .

As you might imagine, this doesn’t end well. The best case is that reduced consumer demand caps growth and we’ll see more decades of flat or mild growth. The worst? Economic dislocation and inequality lead to social breakdown and more calls for government intervention, higher taxes on the wealthy, and more generous welfare programs.

. . .

As we see large parts of jobs destroyed, displaced workers won’t meekly surrender, nor will they be happy that small numbers of highly talented, mostly older workers receive most of the rewards. They will want help, and in a democracy they will have the power to demand it.

This response means that the populist movements springing up all over the world will probably keep gaining momentum and, increasingly, taking control of governments. Resulting policy changes could be significant ... mild measures like job retraining probably won’t suffice this time. We could see major expansion and redesign of the “safety net” programs.

. . .

The potential for a left-wing populist movement to arise is at least 50-50. And those odds mean higher taxes. And larger government and more government controls ... populist movements look for a strong leader to be able to direct the country and the correct path.

. . .

How to pay for all this? Karen expects pressure for a wealth tax. Not an income tax, mind you, but a tax on all your wealth. That will be aggravating to many who have already paid tax once when they earned that wealth. Now imagine having to “donate” 1% or 2% of your net worth to the IRS every year. It could happen, and if it does, it will make it that much harder to keep your assets growing against other headwinds. I agree that we won't see a wealth tax under a Republican-controlled Congress and White House, but these things do not last forever. When a populist backlash takes us to a different state of mind, when a Bernie Sanders/Elizabeth Warren type figure emerges, likely much younger and more charismatic than his or her predecessors, with the siren song of how the rich should be made to pay to make society more “just” and equal, because they benefited the most and the majority of the population did not, that message will resonate.

Again, more at the link.

We need to be thinking about these things now, and planning our futures accordingly.  If our jobs are likely to be affected by automation, we should be planning right now to get whatever education and/or training we need to move into a field where that's less likely to happen.  I suspect many so-called "service" jobs (e.g. plumber, electrician, auto service and repair, etc.) will remain in high demand, simply because people can't afford to do without them.  Increasingly, such jobs will be a lot more "automation-proof" than working at a call center, or customer service center, or shop assistant.

It's already reached a point where many of the "voices" you hear when you call a bank, or insurance company, or other major corporation aren't human at all.  They're artificial intelligence systems, designed to screen all incoming calls and direct them to the most appropriate department or person - or deal with them through a series of automated menus, so that no human contact is needed.  That's faster and cheaper for the company, so expect getting through to a human being to become more and more difficult - by design.  Expect the same automation-centered approach to dominate more and more businesses.

It's an "interesting time" to be alive, in the sense of the apocryphal Chinese curse.

Peter

11 comments:

B said...

Yeah, but a lot of folks buy big houses and lots more car than they need.....

Part of the issue is the people themselves and the choices they make.

Rob said...

Soma.

MrGarabaldi said...

Hey Peter;

As far as one person working vs 2. Keep in mind in the 1950's the tax rate was much lower, now the 2nd person of a family works to pay the tax burden that the family is obligated to pay, and because the 2nd person is working, it does effect the number of kids that they can "afford".
As far as automation goes, it is a fact of life, the thing we as smart people is to keep updating ourselves, the computers do it, why not us? We go to classes or what not to keep our skills fresh. It is in our best interest to stay relevant. The days of 40+ years to the same company is rare in this day and age, it is the reality.
With the "free Shit" army, yeah envy is a powerful tool of the politicians, especially after the crappy way they explain economic theory in schools, that is why you have all these bernie supporters in collages. The same people that want free stuff are the same ones getting the worthless degree that believes that someone should pay for it. Again our schools have failed to prepare the new generation. I don't know how to fix this, Stress more Tech schools rather than regular collages, there is a stigma against well paying "blue collar" jobs. I as a aircraft Mechanic make 6 figures, that isn't bad for a blue collar worker and people look down on my profession because I get dirty...a lot, LOL...eh it is what it is. The "wealth" tax does concern me because my wife and I scrimp and save so we can have a decent retirement, we max out our 401K's and pay cash for most everything and drive older vehicles. I guess we got smarter as we got older.

Props on the posting

Chris Mallory said...

I got into this over on Breitbart a couple of years ago. Point out that automation, outsourcing, and immigration are destroying the job market in the US. That there will have to be major changes, including a basic income, or we will be seeing the social breakdown sooner rather than later.
It caused the "conservatives" to have kittens. "Conservatives will work, we won't be marching in the streets and rioting." "We own the guns and........."

They didn't seem to understand that the jobs are going away.
Automation will be taking jobs in trucking, warehousing, construction.
How many videos have we seen of machines laying bricks or extruding concrete walls?

We have 126 million people with full time jobs in the US today.
7.5 million are involved with trucking in some way, shape or form and that excludes self employed truckers.
2.2 million work in call centers.
10 million work in construction.
3.8 million fast food workers.
What are we going to do when a large number of those jobs disappear?

Will we turn into Brazil? Will the fall make 1789 France and 1917 Russia look like tea parties?

Unknown said...

The middle-class tax rates in the 1950s may have been lower than current rates, but the maximum rates were a lot higher (90% tax bracket, anyone?) More to the point, the 1950s middle class life was not nearly as luxurious as we expect now. Houses were 1000 - 1500 sq feet, rather than our current expectation of 2000 - 3000 sq ft, families usually owned only one car, home electronics was one small black & white TV and a radio, maybe a record player as compared to having a large color TV in multiple rooms. No microwave, no electric can-opener, no garage-door opener (if you had a garage), etc. etc.

Note also how some things have improved significantly when factoring in the high prices - a 2018 automobile is far superior in almost every respect to its 1958 ancestor. That's a notable justification for the higher price.

Inflation has certainly hurt, but so have our increased expectations. A family willing to live a 1950s middle-class existence could do so on a lot less money than our current middle-class expectations, even if still not on a single person's salary.

Y. said...

Let's consider that automation will make employing most people unprofitable, because their job can be done more cheaply and reliably if automated.

What then?

These people'll mostly be unemployed as only a very small fraction of such people can be retrained into something useful.

The basic income thing looks better than masses of poor people who have no way of getting any money. The problem is if people have nothing to do they act out or get involved in politics.

I kinda, sort envy you old people.

Unknown said...

On the possible wealth tax -- how would that be different from inflation?

The value of your wealth goes down. Plus, when you get capital gains or interest, you are even taxed if you loose money in constant-value terms.

One way to look at the last 100 years is to note that we have had a wealth tax of 2 to 3% for that entire period.

zuk said...

Hi Peter. There have been several times recently I'd like to have contributed a comment, but you are still restricting comments to verified users. Since the internet is forever, and we've seen how vicious the left can get when in power, I'm not willing to voice controversial thoughts in a permanent way, in any persona that can be linked back to me or my family. The left is very willing to visit the sins of the father on the children.

People are having their reputations and livelihoods destroyed by SJWs over offhand comments that were well within societal norms from FORTY YEARS AGO.

I'm not giving them any ammunition against me or my family voluntarily. If some people think that means they win, tell it to my 9 year old when she gets beat up at school because of her daddy's views.

zuk

Jennifer said...

Everyday, I am actively automating the job that just a few years ago required a cash application specialist with either an associates degree or a similar level of experience. I make a BOT pull bank data and load it, something that used to require a person every day. I've got another one that is smart enough to match those payments against invoices. That's easily 2 full time positions that don't need people anymore because of me. I'm the freaking reaper. We're not taking about mindless repetitive work. Sure, the BOT can't make complex decisions, but I train it to get smarter all the time.

Y. said...

@zuk

Just use non-googleable usernames, Tor, and ditch them repeatedly.

No one's gonna bother de-anonymizing you.

Technomad said...

Part of the problem is that employers want "qualified" people---meaning people with experience. Nobody wants to be the person who gives experience to the inexperienced. And gods help you if you're trying to get a job without experience!