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Dear Americans, Define “Worse Off”

Blog Post | Health & Demographics

Dear Americans, Define “Worse Off”

American declinism is a compelling political narrative, but what does the economic data have to say about it?

Summary: Many Americans are pessimistic about their future and believe that life will get worse. However, this narrative does not match the economic reality of the country, which is doing well by most measures. This article challenges the common perception of American decline and shows how the United States remains a prosperous and innovative nation with many opportunities for growth.

The United States is doing quite well. You wouldn’t know it if you read the headlines, listened to the bombastic political disputes, or even asked Americans.

In a March poll, a majority of Americans had low confidence that life would be better for their children. A CNN poll published in April showed that less than a third of respondents would call economic conditions good. A McKinsey survey released in December fully captured the negative sentiment, with pessimism cut across all income groups and demographics: “Americans are feeling opportunity slipping away.”

In stark contrast, The Economist in April ran a cover story in a diametrically different flavor, pointing to all the good things happening in America.

Yes, you read that right. In between the bank collapses, looming recession, runaway national debt, culture wars, political sandbox, Trump obsession in both political camps, shootings, opioid epidemic, runaway costs for food and health care, millions of men out of the labor force, fears of nuclear conflict, etc., there are fundamentally good things going on.

The magazine’s editors and contributors aren’t trying to brush over the troubles—in slanted whataboutism or the style of the “everything is fine” meme (a carefree dog in a room engulfed in flames). Rather, they are trying to balance the overharsh thrashing that American life, economy, and society have endured recently.

One strategy used by those of us trained in history to trivialize the present is to look back far enough. Compared to the miserable toil and pain that was most of humanity’s plight until recently, our present ills look quaint. Striving to get work-life balance right? Struggling to make ends meet? Energy bill unusually large this year? Try having three failed harvests in a row, starving to the point that you boil the leather off your shoes for evening soup; watch nature take most of your children; or huddle together for shared body heat since there is precious little fuel to stave off the winter cold.

The list of ills troubling Americans in 2023 is astonishingly long and of a different kind altogether. But in strictly economic terms, it’s much harder to see what millions of Americans are so pessimistic about. U.S. unemployment is around record-low levels. Real earnings, while they’ve come down from the recent years’ pandemic-infused turbulence, are on par with pre-pandemic levels, noticeably higher than ever before.

Inflation—a nominal rather than real metric that worries households much more than it does economists—is also coming down. The U.S. economy, as a share of the G7—an international grouping of the United States and seven other rich economies—is larger than it was 30 years ago. “Adjusted for purchasing power, only those in über-rich petrostates and financial hubs enjoy a higher income per person,” concludes The Economist. The poorest states in the United States are on par with the richest European countries.

The stylized facts about U.S. and European economies—found in economics textbooks or old social policy reports—used to be that Americans work harder and longer for higher income, but Europeans live better lives with better social safety nets. These days even that seems to be changing, as the U.S. welfare state is approaching European levels both in comprehensiveness and total spending. Richer Americans spend more of their resources, public and private, on social ills. According to Organisation for Economic Co-operation and Development statistics, government social spending (as a share of gross domestic product) is above Australia, Iceland, and Norway, trailing “socialist” Sweden and Canada only by a few percentage points. (America is second only to France when adjusting for “net” social spending that includes private spending and tax breaks for social purposes.)

The demographic problem hopelessly plaguing many other countries is much smaller in America, which has “a younger population and a higher fertility rate than other rich countries.”

Americans still work more hours than most Europeans or Japanese, and the hours they put in are, on average, more valuable than those of labor forces elsewhere. Despite millions of (mostly) men making a beeline for the labor market exits, the United States has proportionately added more workers this century than its peers. Still, the number of prime-age American men out of work is rising and is higher than in most European countries. Some reasons men aren’t working include opioids, manufacturing decline, mental illness, and defective care for returning soldiers. They indicate that despite the nation’s economic success, not all is well.

The United States has deeper financial markets, issues the world’s preferred money, has more funds available for venture capital, and fewer rigid labor laws, which allows its world-class managers to hire and fire at need. It is home to the best universities, which still attract the smartest minds from across the world, and dominates innovation; the Silicon Valley powerhouse unquestionably upped Americans’ productivity in the 2010s, its recent spout with banking failures and Californian exodus aside.

How to account for this negativity bias? One gut-fueled answer is that the numbers are wrong. The stats showing the marvels of the U.S. economy just aren’t correct—think mismeasurement or corrupt statisticians. Another is that recent bias clouds our judgment: we forget the pains of the “good old days” and romanticize how glorious they really were. There is always something bad somewhere that we can hone in on and conclude that, therefore, things are going in the wrong direction. Bad things happening in front of one’s eyes or slapped on newspaper headlines can overshadow the gradual improvement of most things going well or moving in the right direction.

Monetary economists often talk about “money illusion,” where sticker shocks at the store give us the impression that we are poorer simply because the numbers are bigger—even if our wages kept pace with inflation or even exceeded it, which they historically have done.

If prices in aggregate increased by roughly 8 percent last year, but the Social Security cost-of-living adjustment raised benefits by 8.7 percent, it takes a lot of statistical wiggling to conclude that pensioners therefore are (much) worse off.

The grand irony, concludes a story from The Economist, is that knee-jerk reactions from a political class obsessed with the decline that they think they see may create that very decline:

Most of these potentially self-harming policies have their roots in a declinist view that, economically at least, simply does not reflect the facts. The diagnoses are that China is getting ahead, or that immigrants are a menace, that large corporations are bastions of woke power and free trade a form of treachery.

Disaster and declinism, as appealing and captivating as they are on a personal level and as persuasive and all-encompassing they become in the political arena, remain poor guides to the modern world.

The Human Progress Podcast | Ep. 49

Jay Richards: Human Work in the Age of Artificial Intelligence

Jay Richards, a senior research fellow and center director at The Heritage foundation, joins Chelsea Follett to discuss why robots and artificial intelligence won't lead to widespread unemployment.

Blog Post | Science & Technology

Human Work in the Age of Artificial Intelligence | Podcast Highlights

Chelsea Follett interviews Jay Richards about why robots and artificial intelligence won't lead to widespread unemployment.

Listen to the podcast or read the full transcript here.

Your book, The Human Advantage, is a couple of years old now, but it feels more relevant than ever with ChatGPT, DALL-E 2, and all of these new technologies. People are more afraid than ever of the threat of technological unemployment.

There’s something that economists call the lump of labor fallacy. It’s this idea that there’s a fixed amount of work that needs to be done, and if some new technology makes a third of the population’s work obsolete, then those people won’t have anything to do. Of course, if that were a good argument, it would have been a good argument at the time of the American founding, when almost everyone was living and working on farms. You move forward to, say, 1900, and maybe half the population was still on farms. Well, here we are in 2022, and less than 2 percent of us work on farms. If the lump of labor fallacy were true, we’d almost all be unemployed.

In reality, there’s no fixed amount of work to be done. There are people providing goods and services. More efficient work makes stuff less expensive, giving people more income to spend on more things, creating more work. But a lot of smart people think that advancements in high technology, especially in robotics and artificial intelligence, make our present situation different.

Is this time different?

I don’t think so.

Ultimately, the claim that machines will replace us relies on the assumption that machines and humans are relevantly alike. I do not buy that premise. These machines replace ways in which we do things, but there is no reason to think that they’re literally going to replace us.

A lot of us hear the term artificial intelligence and imagine what we’ve seen in science fiction. But that term is almost all marketing hype. These are sorting algorithms that run statistics. They aren’t intelligent in the sense that we are not dealing with agents with wills or self-consciousness or first-person perspective or anything like that. And there’s no reason beyond a metaphysical temptation to think that these are going to be agents. If I make a good enough tractor, it won’t become an ox. And just because I developed a computer that can run statistical algorithms well doesn’t mean it will wake up and be my girlfriend.

The economy is about buying and selling real goods and services, but it’s also about creating value. Valuable information is not just meaningless bits, it has to be meaningful. Where does meaningful information come from? Well, it comes from agents. It comes from people acting with a purpose, trying to meet their needs and the needs of others. In that way, the information economy, rather than alienating us and replacing us, is actually the economy that is most suited to our properties as human beings.

You’ve said that the real challenge of the information economy is not that workers will be replaced but that the pace of change and disruption could speed up. Could you elaborate on that? 

This is a manifestation of the so-called Moore’s Law. Moore’s Law is based on the observation that engineers could roughly double the number of transistors they put on an integrated circuit every two years. Thanks to this rapid suffusion of computational power, the economy is changing much faster than in earlier periods.

Take the transition from the agrarian to the industrial economy. In 1750, or around the time of the American founding, 90 percent of the population lived and worked on farms. In 1900, it was about half that. By 1950, it halved again. Today, it’s a very small percentage of the population. That’s amazingly fast in the whole sweep of history, but it took a few hundred years, a few generations.

Well, in my lifetime alone, I listened to vinyl records, 8-track tapes, cassette tapes, CDs, and then MP3 files that you had to download. Nobody even does that today. We stream them. We moved from the world of molecules to the world of bits, from matter to information.

There were whole industries built around the 8-track tape industry, making the tapes, making the machines, and repairing them. That has completely disappeared. We don’t sit around saying, “Too bad we didn’t have a government subsidy for those 8-track tape factories,” but this is an illustration of how quickly things can change.

That’s where we need to focus our attention. There can be massive disruptions that happen quickly, where you have whole industries that employ hundreds of thousands of people disappear. You can say, “I know you just lost your job and don’t know how to pay your mortgage, but two years from now, there will be more jobs.” That could be true. It still doesn’t solve the problem. If we’re panicking about Skynet and the robots waking up, we’re not focusing on the right thing, and we’re likely to implement policies that will make things worse rather than better.

Could you talk a bit about the idea of a government provided universal basic income and how that relates to this vision of mass unemployment? 

I have a whole chunk of a chapter at the end of the book critiquing this idea of universal basic income. The argument is that if technology is going to replace what everyone is doing, one, they’re not going to have a source of income, and that’s a problem. People, in general, need to work in the sense that we need to be doing something useful to be happy.

I think there are two problems with that argument. One is that it’s based on this false assumption of permanent technological unemployment that is not new. In the book, I quote a letter from a group of scientists writing to the president of the United States warning about what they call a “cybernetic revolution” and saying that these machines are going to take all the jobs and we need a massive government program to pay for it. The letter is from the 1960s, and the recipient was Lyndon Baines Johnson. This is one of the justifications for his great society programs. Well, that was a long time ago. It’s exactly the same argument. It wasn’t true then. I don’t think it’s true now.

The second point is that just giving people cash payments misses the point entirely. First, it pays people to not work. Disruption is a social problem, but the last thing you want to do is to discourage people from finding new, innovative things to do.

Entrepreneurs find new things to do, new types of work. They put their wealth at risk, and they need people that are willing to work for them. And so you want to create the conditions where they can do that. You don’t want to incentivize people not to do that.

Let’s talk a bit about digitalization. How did rival and non-rival goods relate to this idea of digitalization? 

So, a banana is a rival good. If I eat a banana, you can’t have it. In fact, I can’t have it anymore. I’ve eaten it, and now it’s gone. Lots of digital goods aren’t like this at all. Think of that mp3 file. If I download a song for $1.29 on iTunes, I haven’t depleted the stock by one. The song is simply copied onto my computer. That’s how information, in general, is. If I teach you a skill, I haven’t lost the skill; it was non-rival. More and more of our economy is dealing in these non-rival spaces. It’s exciting because rather than dealing in a world of scarcity, we’re dealing in a world of abundance.

It also means that the person who gets their first can get fabulously wealthy because of network effects. For instance, it’s really hard to replicate Facebook because once you get a few billion people on a network, the fact that billions of people are on that network becomes the most relevant fact about it. There’s a winner-take-all element to it. But, in a sense, that’s fine. Facebook is not like the robber baron who takes all the shoreline property, leaving none for anyone else. It’s not like that in the digital world. There are always going to be opportunities for other people to produce new things that were not there before.

And then there’s hyper-connectivity. You’ve said that this is something you don’t think gets enough attention; for the first time, a growing share—soon all of humanity probably—will be connected at roughly the speed of light to the internet. Can you elaborate on that? 

Yeah, this is absolutely amazing.

Half of Adam Smith’s argument was about the division of labor and comparative advantage. When people specialize, the whole becomes greater than the sum of its parts. In the global market, we can produce everything from a pencil to an iPhone, even though no one person or even one hundred people in the network knows how. Together, following price signals, we can produce things that none of us could do on our own. Now, imagine that everyone is able to connect more or less in real time. There will be lots of cooperative things that we can do together, of course, that we could not do otherwise. 

A lot of people imagine that everybody’s going to have to be a computer engineer or a coder or something like that, but in a hyper-connected world, interpersonal skills are going to end up fetching a higher premium. In fact, I think some of the work that coders are doing is more likely to be replaced.

Do you worry about creative work, like writing, being taken over by AI? 

Algorithms can already produce, say, stock market news. But the reality is that stock market news is easily systematized and submitted to algorithms. That kind of low-level writing is going to be replaced just as certain kinds of low-level, repetitive labor were replaced. On the other hand, highly complex labor, such as artisanal craft work, is not only going to be hard to automate, but it’s also something we don’t necessarily want to automate. I might value having hand-made shoes, even if I could get cheaper machine-made shoes.

To sum up, how do you think people can best react to mass automation and advances in AI? 

I think the best way to adapt to this is to develop broad human skills, so a genuine liberal arts education is still a really good thing. Become literate, numerate, and logical, and then develop technical skills on the side, such as social media management or coding. The reality is that, unlike their parents and grandparents, who may have just done one or two jobs, young people today are likely to do five or six different things in their adult careers. They need to develop skills that allow them to adapt quickly. Sure, pick one or two specialized skills as a side gig, but don’t assume that that’s what you’re going to do forever. But if you know how to read, if you know how to write, if you are numerate and punctual, you’re still going to be really competitive in the 21st century economy.

Get Jay Richards’s book, The Human Advantage: The Future of American Work in an Age of Smart Machines, here.

BBC | Labor Productivity

How Robots Are Taking over Warehouse Work

“In its warehouses, Asda uses a system from Swiss automation firm Swisslog and Norway’s AutoStore. In the US, Walmart has been automating parts of its supply chain using robotics from an American company called Symbotic.

Back in Luton, Ocado has taken its automation process to a higher level.

The robots which zoom around the grid, now bring items to robotic arms, which reach out and grab what they need for the customer’s shop.

Bags of rice, boxes of tea, packets of crumpets are all grabbed by the arms using a suction cup on the end.”

From BBC.

Axios | Labor & Employment

Average Worker Now Logs off at 4 p.m. On Fridays

“Quitting time has been shifting earlier throughout the week, and it’s especially early on Friday, according to an analysis of sign-off times from some 75,000 workers at 816 companies by the workplace analytics firm ActivTrak.

Friday sign-off times have moved up from around 5 p.m. at the start of 2021 to around 4 p.m. now. Monday-Thursday sign-offs have also shifted earlier, to around 5 p.m. on average.”

From Axios.