The Political Economics of an Oxymoron.

June 13, 2014

Every ascending president brings personal projects to the job. Clinton and Obama tackled healthcare. President Bush the Latter chose education. Bush the Former spearheaded NAFTA, and the START I Treaty. Reagan? Supply-side economics and tax reform.
Yet, each administration tackles a variety of common burdens. Among them, the full employment objective ranks as the singular most important. Because a healthy labor market begets a healthy economy which begets a positive national psyche which leads to reelection.
Five years into the recovery, U.S. payroll employment rose to a new high in May -- finally replacing the 8.7 million jobs lost during the recession. Moreover, job growth has accelerated to more than 200k per month.
Still, underemployment remains frustratingly high. The number of people out of work for six months or more, and those who are no longer looking for jobs - remains at a 36-year high. The civilian labor force participation rate, those of working age currently participating in the labor force (working or looking), stands at 62.8 percent. Not since 1978 has that figure been so low.
How can the unemployment stand at 6.3 percent, while the participation rate remains abysmal?
For starters, technological innovations have displaced some of the workforce.
Millions lost their jobs during the financial crisis. When the economy began to recover in 2009, companies were not motivated to begin rehiring the laid off. The economy remained murky. The healthcare overhaul tweaked the optics through which employers make hiring decisions. Yet, business was percolating.
So, companies sunk capital into resources that enhanced systemic efficiencies. Technologies that enabled fewer employees to accomplish a wider array of tasks.
Soon, organizations were realizing improved margins and earnings growth on the backs of smaller, more efficient workforces. Accordingly, executives realized that companies were getting by with 12,753 employees as opposed to the 17,900 employed in 2007.
Increasingly, technology serves as a substitute for labor. Consider all of the travel agents that have been replaced by Priceline. The book stores replaced by Amazon. The newspaper printers replaced by The Drudge Report.
Historically, greater access to capital led to higher employment which meant higher productivity and wage increases. Today, access to capital does not necessarily lead to higher employment or wage increases.
In a sense, capital has become a substitute for labor in the nation's economic kaleidoscope.
This enhances the value of capital, which can cheaply affect increased efficiencies and productivity through expenditures on technological innovations.
Conversely, this diminishes the value of labor, which also increases productivity -- but at a higher fixed cost.
Consequently, there are two types of jobs that remain extremely secure. The first are the low-wage jobs that cannot be replaced by technology. Think of your barber. Your computer cannot cut your hair. The second are those high-wage positions requiring extensive analytical abilities. These too are difficult to replace with technology. Think executives. Negotiators. And consultants.
The careers victimized by continuing innovation will be the assembly line workers, retail clerks, travel agents, low-paid office workers, bus and taxi drivers.
That's right. Bus and taxi drivers.
As you read this, Google is developing self-driving cars that will, eventually, replace humans employed in the driving business. Already, Google's self-driving prototypes have logged thousands of miles around the country. Navigating all varieties of traffic, weather and geographies.
Computers don't fall asleep at the wheel. They are constantly vigilant. And can self-monitor all interior systems to assure peak performance and prevent accidents related to parts and systems failures.
Mark my words: there will come a day, sooner than you might expect, whereby buses, shuttles and taxis drive themselves. Much to the dismay of bus, taxi and shuttle drivers.
This explains why the technology industry and labor unions have been combatants these last few years.
Domestic technology leaders know that the U.S. needs more STEM (science, technology, engineering and mathematics) specialists if the nation's tech sector is to maintain its competitive position. So, they want to see policies instituted that allow foreign STEM workers, and students studying to become STEM workers, to more easily immigrate to the U.S.
Conversely, organized labor realizes that establishing immigration policies that pave the way for higher skilled employees also means opening the door for millions of low skill, low wage employees. The kind that will compete with their membership for jobs.
Apple says, bring 'em in! But, the AFL-CIO says, keep 'em out!
Which brings us to the hot political topic of comprehensive immigration reform.
We are a nation of immigrants. In need of immigration reform. What troubles me, however, is the hyper myopic views of both political parties. Remember, politics is a short game. Carried out between election cycles. Immigration reform, however, has long-lasting implications. Some of which may contradict the de facto justifications for such reform.
Consider recent arguments postulated by Joe Biden.
Now, I have the utmost respect for the office of the vice president. But this guy has been on the wrong side of more arguments than Charlie Sheen.
Last week, Vice President Biden publicly lectured that the U.S. needs a "constant, unrelenting stream" of immigrants to bolster the economy (here). But, do we?
Historically, yes, we did. As a manufacturing based economy where human beings fulfilled all divisions of labor, immigrants played a vital role in filling swaths of vacant and vital positions.
But today, ours is no longer a manufacturing based economy. Moreover, technology has replaced human labor throughout the production process. Leaving fewer low-skill, low-wage jobs for which to compete. Year after year.
So, let us assume that immigration reform opens the door to millions of well-meaning, poor, unemployed, uninsured new Americans. Simultaneously, let's assume that technological innovations continue to replace many of the jobs those immigrants might be competing for. What happens then?
Mr. Biden is no economist. Nor is he a futurist. If his 2012 debate performance against Paul Ryan was any indicator, I doubt he owns a financial calculator. So, please pardon my glib response to his economic assessments.
Has Mr. Biden seriously thought through the long-term economic ramifications of millions of low-wage, low-skilled new Americans competing for an ever diminishing supply of low-wage, low-skilled jobs? Millions of new Americans who will require healthcare? Welfare? Educations? Housing assistance? Food programs? Social programs? Child care?
If Moore's Law continues to relentlessly displace large facets of the American workforce, just as the American workforce dramatically expands, isn't that a problem?
Yet, nobody seems to be discussing that. At least not publicly.
I'm obviously no expert on immigration reform. Or even an economist. But I'm capable of thinking ahead. And I'm able to realize that neither those for or against immigration reform are discussing these kinds of more forward looking assessments. Which worries me.
When I make an ill-conceived decision without truly assessing the longer-term consequences, I end up with the name of an ex-girlfriend tattooed upon my bicep. When politicians do the same, the trajectory of the nation's economic prosperity can shift irretrievably.

When a politician, with a track record of saying anything at anytime to anyone, in fact, willing to plagiarize anything (here), make insensitive pronouncements to minorities (here), in fact, make insensitive comments to anyone (here), embarrass the handicapped (here), make dangerously self-deprecating comments (here), mock chief justices (here), misstate economic issues (here), incite panic among tourists (here), or finally, falsely announce the death of a foreign head of state and use profanity during a public engagement (here) -- when that guy exclaims with such bravado exactly what the U.S. economy needs?

 

I hope that someone is helping Joe think this through.

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