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Last week, on Art and Finance:
“I hope you see that the issue of jobs is not just political, but also geopolitical, and, as with most things, rarely black and white. The unfortunate reality is that governments and politicians might promise simple answers to complex problems.
Oh, and I forgot address the elephant in the room. Let’s talk about that, and a potential solution to our economic problems, worldwide, next week. See you then.”
Is technology the answer to our current problems? If not, then what is?
Welcome to Art and Finance. Now, anyone can understand business, economics, and finance.
I want to start this video with an important definition. Capitalism means many things to many people, but let’s go with this one. Capitalism, at its best, is a system where competition and innovation improve our standard of living. Keep this definition in mind, because we’ll be going back to it later in this video. Now, let’s move forward.
Last week, we talked about whether or not the Donald could bring jobs back to the US. Probably not, and he should instead focus on generating new jobs. But how could he even do that when, in fact, jobs have purportedly been disappearing due in large part to technological advancement?
That’s right, the machines are taking over. And, for all our white-collar viewers, the bad news is that automation/AI is coming for your jobs too, including even the most prestigious ones.
But this has been a long time coming. For example, in the US, the share of economic output that goes to wages has been falling since the 1980’s. Two economists from the University of Chicago attribute half of this loss to automation. The Atlantic gives the example of AT&T in 1964, worth $267B in today’s dollars and employing over 700,000 people, versus Google, which in 2015 was worth $370B but only employing 55,000 people.
The logical question to ask is, even if automation and trade remove some jobs, wouldn’t new jobs be created to replace them, like we mentioned last episode? Not necessarily. And that’s what I think is the problem with blindly assuming that trade and technological advancement, which may be intertwined, will generate new jobs. The whole point of technology, as we’ve previously discussed, is to cut out the middleman and do more with less. In that sense, of course fewer and fewer people will be employed!
If it’s the case that jobs worldwide are bound to be lost, then it falls on economists to figure out a solution. That solution might be universal basic income, or UBI. The idea with UBI is to give every citizen money to cover the basic costs of living. However, there is no one agreed way to go about UBI. Indeed, several experiments are on the way to see how UBI might affect different populations.
The questions and implications surrounding UBI are massive. First, there is debate on how it would be funded. Second, what would human life be like under UBI?
We can look at the latter issue to address the former. Because, while experiments are on the way to see what would happen under UBI, in fact, there are some real-life examples hiding in plain sight. Take the tech sector.
Obviously, I’m not talk about the large, profitable tech companies. I mean, Apple, at one point, had enough cash to bail out Greece. TWICE.
No, I’m referring to the startups. Some of them are being funded, often by rich venture capitalists, to make the world a better place, despite being currently unprofitable, if they ever will be. Isn’t this somewhat similar to a situation where individuals are given some money just to pursue their passions? Isn’t it, in a way, a form of basic income?
Another example is Japan, which I’ve covered rather extensively. Here, the government borrows from the public on one hand, and, on the other hand bails out Japanese companies that keep the public employed. Isn’t this another, very indirect form of basic income, where taxpayer money keeps almost everyone employed, whether business is profitable or not?
This leads us to the question of how UBI would be funded. Would money come from the rich, as in our Silicon Valley example, or from a broad base of taxpayers, as in our Japan example?
How human society would change under UBI is open to much debate, although I strongly recommend that you read “A World Without Work”, an article in The Atlantic, that sketches out what might happen (separate link in the description). Whatever shape our society takes in the future, is such a society the natural end state of capitalism?
Going back to our definition of capitalism, remember that it’s all about competition, innovation, and, above all, a higher standard of living, and NOT necessarily working a soul-crushing 9 to 5 job. If UBI is the inevitable outcome of capitalism, then we should take steps to prepare for major changes in our society, for better and/or worse.
I’d like to end this video with some speculation. Major pre-industrial societies, for all their problems, might have emphasized the renaissance person as the model of success, rather than the merchant, which is what many today may see as successful. Would a post-industrial, UBI-based economy allow us to focus more on our own self-development and live up to traditional human ideals?
PS I know I haven’t talked about if robots will take over, but let’s save that for another video, another time. Otherwise, here’s what we’ll be talking about next episode.
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Ramon Rodrigo Cuenca, CFA
Art and Finance