The real cause of Western world high property prices

A documentary on  Dateline  in Australia highlights the perils of Chinese investment in Western property. The argument is brought to the for...

The context-dropping thesis that technology is causing unemployment

Those who would posit that there is a trade-off between robots and humans for jobs are correct.[i] The problem is that too many humans are being marginalized for the sake of parochial humans engaged in extortion rackets. Unions are legalized extortion rackets. When a group of people are able to elicit through coercion, whether intimidation of companies or capitulation by political parties in government, they are using a populist mandate to marginalize the interests of another group for their own betterment. That is antithetical to justice. But politics has its pseudo-intellectual ‘soldiers’ engaged in misinformation, who would sympathize or serve political interests by espousing views that just don’t hold up ’empirically’ or ‘analytically’. In most cases, the weak analytical engagement is evident in the predilection for context-dropping empirical data selection, or evasion. If there is a truism in science, it ought to be that, you don’t, for the sake of convenience, drop ‘inconvenient data’. What did Al Gore say about ‘inconvenient truths’. Oh, the irony. Or psychology projection. But we are examining the arguments today, and not engaging in psychotherapy.
Interestingly, there are academic economists who argue that we ought to accept the greater marginal utility of robots. There is no question that robots make sense in a certain context. But not every context. The problem is that context-dropping research can ultimately marginalize the interests of workers by extolling this idea that technology (aka robotics) is the cause of unemployment. It does not make sense to distort the price of labor so that the interests of robot owners is incompatible with the interests of marginalised ‘unemployed’ workers. It does not make sense to have idle workers doing nothing. It does not make sense to pay for workers in the form of unconditional love. This state of affairs arises because:
  1. Governments have arbitrarily regulated and over-taxed the utilization of workers; in effect bringing about the forced redundancy of workers. It might even be construed as a ‘statutory subsidy’ of robots that discriminates against willing workers.
  2. Western factories are competing with Asian factories for ‘unskilled labor’, and in this contest, we have seen stagnant wages in the context of rising cost-of-living inflation resulting in a decline in real wages for unskilled workers in the West, whilst the wages of skilled workers has taken off.
For this reason, the thesis of the economists,[ii] Daron Acemoglu of MIT and Pascual Restrepo of Boston University is simply context-dropping rationalisation that fails to identify the correct underlying cause to explain the data they observe. This is the problem with research today. It is light on analysis, and weighted towards ‘data crunching’. I will argue that said data analysis is often highly selective and context-dropping, and could be used to serve a certain disingenuous narrative.
For every robot per thousand workers in US factories, up to six workers lost their jobs and wages fell by as much as three-fourths of a per cent…due to the negative effects of robots. [iii]
Unfortunately, this research is wrong. Wrong in the sense that it is context-dropping. There are opportunities elsewhere, created by the real wealth benefit of adopting robots. The best indicate of its wrongness is Japan. Japan has been even more committed in its adoption of robotics. Japan is struggling with a tight labor market, which is a nice problem to have. The difference is that:
  1. Japan has a low minimum wage
  2. Japan doesn’t have the same level of regulatory imposts as the United States, even though the US also has a low minimum wage
  3. Japan is strategically located close to Asian suppliers of components
  4. Japan has a strong work culture, i.e. The stigma against working in McDonalds is lower
  5. Japan has a lesser welfare provision, and no ‘culture of entitlement’
The implication is that, whilst the US minimum wage is low, it could arguably be lower to retain jobs in the United States. It might also be argued that the Japanese worker is more productive than the American worker. This likely reflects the differing values of workers in Japan.
They also said “it was likely that increased automation would create new, better jobs, so employment and wages would eventually return to their previous levels. Just as cranes replaced dockworkers but created related jobs for engineers and financiers, the theory goes, new technology has created new jobs for software developers and data analysts”.
This is true, but it is also true that the unskilled jobs would remain if not for the imposts of statutory creep. After all, there are plenty of unskilled jobs being created in Asia. Unskilled work has not ceased to exist – its just been discouraged in the West by arbitrary statutory regulation, particularly minimum wage setting. Having established a pretext for manufacturing in Asia, there is a corresponding ‘weight’ of incentives towards the siting of new factories in Asia to avail of cost advantages, both in terms of market access, logistics, less regulation and lower labor costs.
It is interesting that the study started out as “a conceptual exercise”, before they sought to rationalize “using real-world data”. The reality is that any implied “pessimistic future” derives from the specter of political interference into the labor market. This is not new of course. Before we had unions threatening work stoppages to achieve arbitrary wage increases, we had barriers to invest in the Third World, formerly colonial ‘newly independent’ governments. From the 1960s to 1980s, we had Asian autocrats locking out Western investment that would have ensured a ‘balanced’ global labor market earlier. The legacy of these political distortions are belatedly evident today. These over-arching considerations are simply ‘too abstract’ for consideration by economists today, but they set the pretext in which modern ‘distorted’ market economics plays out. By it does highlight the compartmentalized bubbles that academic researchers live in, whether the consequences of their ‘subsidized’ research, propped up by coercive tax regimes, underpins political misinformation.
“The researchers said they were surprised to see very little employment increase in other occupations to offset the job losses in manufacturing”.
This is the problem with academic economists who lack real-world life experience. The reason for the lack of increases in employment in other sectors is because of the high minimum wage levels in the West, and the perceived threat of arbitrary increases, as was evident in Australia in recent times. No sooner had a Labour Party govt in Australia pushed the minimum wage to $A18.50/hour, than the collapse of commodity prices made the increase outlandish, prompting a collapse in the terms of trade and curtailment of all business investment. This is the price marginalized prospective workers pay for the betterment of ‘privileged union workers’.
“That increase could still happen, they said, but for now there are large numbers of people out of work, with no clear path forward – especially blue-collar men without college degrees”.
It won’t happen for decades until all the unskilled prospective workers in emerging markets are employed. It will take a long time because these countries have relatively young populations. Some of these cultures are more disciplined than others, though you can always count upon greater prosperity to bring about a stronger work ethic. There was a time post-WWII, when Japanese workers were considered ‘lazy’.
Daron Acemoglu, MIT: “The conclusion is that even if overall employment and wages recover, there will be losers in the process, and it’s going to take a very long time for these communities to recover”.
There is no reason to expect a recovery for decades, even if Western governments stop intervening in the employment market. The prevailing market distortion is just too great. Wage levels are not really a harbinger of anything. The issue is the extent to which governments facilitate or hinder real and efficient market outcomes. It ought to be apparent that, given their wage distortions and arbitrary regulatory frameworks, that there is little hope of efficient market theory prevailing.
Daron Acemoglu, MIT: “If you’ve worked in Detroit [making cars] for 10 years, you don’t have the skills to go into health care….The market economy is not going to create the jobs by itself for these workers who are bearing the brunt of the change”.
This is not the case. Western countries are currently recruiting semi-skilled, semi-literate Asians to act as carers in elderly care facilities because Westerners are too entitled to work in these facilities for low pay. They instead seek government benefits. The problem is not so much the adoption of robots. Robots might make sense anyway. The issue is the fact that jobs are destined to go to Asia because of:
  1. High minimum wages
  2. Low work ethic as a result of inter-generational welfare entitlement
The result is that we have degraded the preparedness of Westerners to work. We have elevated some Westerners at the expense of others. This is ‘localized’ mercantilism. Parochial injustice at its finest.
“Robots are to blame for up to 670,000 lost US manufacturing jobs between 1990 and 2007, it concluded, and that number will rise as industrial robots are expected to quadruple”.
The number is rising only because political interference is creating an incentive for business to outsource jobs or product manufacturing to Asia, or to shift sooner rather than later to robots, when the cost of said premature investments are being unnecessarily carried (in a distorted market) by the taxpayer in the form of ‘unconditional’ welfare payments. You might wonder if this is a bad thing. From another perspective, there is actually a positive to the distortion of Western markets:
  1. Westerners feel unskilled work is undignified
  2. Westerners have a greater proclivity to set up innovative businesses
  3. More cheaper Asian workers can be employed for the same dollar value; which means a global rebalancing will occur sooner
It is however questionable whether these values are destined to be achieved or realized in a context of suffocating regulation, high minimum wages and pervasive ‘tragic’ liberal values.
“The study analysed the effect of industrial robots in local labor markets in the United States”.
If you are going to make insights about what is happening in a particular market, it serves you to look beyond your immediate context. i.e. They ought to have looked at the Japanese labor market. Japan is struggling to cope with a structural shortage of labor. Partly, the reason is:
  1. Aging, declining population
  2. A low minimum wage rate
In fact, the paper seems politically motivated, or perhaps this is the spin of the journalist, who would have us believe that “this paper adds to the evidence that automation, more than other factors like trade and offshoring that President Donald Trump had waged his campaign on, has been the bigger long-term threat to blue-collar jobs”.
In fact, neither is the case. The source of the problem is ‘minimum wage levels’ and more broadly the cost of complying with statutory creep generally.
Robots affected both men’s and women’s jobs, the researchers found, but the effect on male employment was up to twice as big. Acemoglu surmises that ‘women are more willing than men to take a pay cut to work in a lower-status field’.
This is a reasonable explanation, however the nature of ‘women’s work’ is another reason. There are however other reasons. i.e. Men are more likely to take on different roles.
“The economists looked at the effect of robots on local economies and also more broadly. In an isolated area, each robot per thousand workers decreased employment by 6.2 workers and wages by 0.7%. But across the United States, the effects were smaller, because jobs were created in other places”.
Clearly considering the impact on Detroit is an exercise in ‘context-dropping’. Of course there are flow-on effects in Detroit. It is a dying city because the workforce has left, and not simply lost their jobs. The numbers do highlight the big improvement in productivity as a result of robotics.
What is interesting with this analysis by these academics is that they really set their argument up to avoid the truth. By adopting as their ‘sphere of research’ a period from 1990 to 2007, they consider a period in which Western labor became increasingly non-competitive in the face of growing outsourcing of jobs to Asia. It was in the late 1980s that Asia dropped its autocratic ways, followed by the collapse of the Berlin Wall in 1989.
They “analyze the effect of the increase in industrial robot usage between 1990 and 2007 on US local labor markets”.[iv]
Research of this type, peer reviewed and celebrated as it is, only highlights the low quality of research coming out of academia. It only highlights the risk posed by research on other issues like climate change. This is the ‘new religion of government’, every bit as manipulative as Constantine’s rewriting of Christianity in the 4th Century. Academia has become a tool for leftist propaganda.
So how did exactly Japan go unnoticed in this study? Well, it was as simple as ‘omitting damning evidence’ on a ‘technicality’.
“Though the IFR also reports data by industry for Japan, these data underwent a major reclassification. We follow the recommendations of the IFR and exclude Japan from our analysis”.[v]
Japan is important because it has a very low minimum wage. In Japan, there is a corresponding ‘labor shortage’, and an absence of incentives to remain unemployed.[vi]
At the end of the day, Western governments have removed ‘consequences’ from personal decision-making, or at least, the illusion of ‘consequences’, so people are not inclined to accept the responsibility of finding a job. But there is a corresponding real difficulty in finding work because of the statutory imposition.
[i][iii] “Man versus machine: Evidence that robots are winning the race for jobs” by Claire Cain Miller, SMH Online, website, 29th March 2017.
[ii][iv][v] “Robots and Jobs: Evidence from US Labor Markets” by Daron Acemoglu (MIT) and Pascual Restrepo (Boston University), website, 17th March 2017.
[vi]“Japan’s ultralow jobless rate masks grim reality”, Japan Times & AFP-JIJI, website, 31st May 2017.