What Are We Fighting For?
8/13/2014
It's unusual for any discussion of the economy to continue for long without someone bringing up wages or unemployment rates. We care about jobs. It's evident from our political discourse that we also care about protecting the middle class and sending our youth to college. But how important are these and other issues we feel strongly about? In a recent piece in Politico Magazine, American entrepreneur Nick Hanauer attempts to make the case for the middle class:
If workers have more money, businesses have more customers. Which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around.
— Nick Hanauer "The Pitchforks Are Coming... For Us Plutocrats"
Politico Magazine Jun. 2014
On the surface, this makes a lot of sense. Clearly, the economy will function only if people have money and businesses have customers. But Hanauer makes some assumptions that are rarely challenged and maybe should be. For example, there's no rule that says those customers also have to be workers. Nor is there any rule that says successful business leads to more jobs. In fact, many successful businesses — such as Amazon, the company that earned Hanauer his fortune — are continually seeking to increase efficiency by reducing their labor usage.
At least in terms of jobs, is a thriving middle class really the source of American prosperty? How should we define the middle class? Is it worth worth fighting for? What else is worth fighting for? How can we tell whether we're focusing our efforts on the right causes? How well are we prioritizing our available resources?
Software developers ask these types of questions every day. And in making decisions about where to focus our attention, we follow what's called the 80-20 rule. Roughly 20% of the code does 80% of the work, so to meaningfully improve our software's performance, we concentrate our efforts on that critical 20%. Determining which 20% is worth caring about entails understanding what the software is supposed to do and how it's possible to make that happen.
Applying such a model helps when striving to improve any complex system. The economy is no exception. Seemingly minor changes can have a considerable impact while ostensible overhauls may barely make a dent. We'd like to avoid trying to solve problems that don't make sense to solve. For us to be able to make smart decisions about the economy, we must therefore develop a clear picture of what we want from it. Furthermore, we must recognize ways we can effect real economic change while respecting forces that are beyond our control.
What do we want from our economy? We want it to foster prosperity. We want it to facilitate progress and to provide for the well being of the citizens. And we want it to operate as efficiently as possible.
Poverty is a serious problem that runs counter to each of these goals. We typically associate poverty with wage inequality, income inequality, or general wealth inequality. Inequality draws attention to poverty and suffering by highlighting the differences between the rich and the poor. But the easiest way to end inequality is to bring everyone down to the same level, and that's surely not what we want. What we want is to improve people's quality of life. Why not fight poverty directly by elevating those at the bottom? Is it a problem that some individuals happen to be wealthier than others or by how much?
We tout the so-called middle class as a cornerstone of our economy. Its members enjoy a certain level of economic privilege and security. The middle class also acts as a link between the lower and upper classes. We fear that the poor will become stranded if left without a middle class to bridge the widening wealth gap. But the term "middle class" also implies the very existence of those lower and upper classes. Do we really want explicit class partitions or would we be better off with our society more integrated and our wealth more fluid? Instead of fighting for a middle class, why not focus our efforts on bringing traditionally middle-class benefits to every citizen?
Access to higher education is one such benefit. We all understand that education enriches students' minds and unlocks their potential to live meaningful lives. Education is a launching pad for personal growth and exploration. Education is worth fighting for. But is college worth fighting for? As I discussed in February, modern technology enables more flexible, more personalized, and cheaper forms of education. Is it a problem that these alternatives don't award a degree?
One oft-cited advantage of the college degree is that it helps graduates find well-paying work. But for most jobs, workers don't need a high level education to be able to perform well. So why do we consider general education to be a form of job training? Are we using the degree as anything more than a superficial criterion for culling the number of viable workers? If we should achieve our goal of getting everyone a college degree, what arbitrary employment criteria will we impose next?
Politicians frequently advocate job creation as a potential solution to the apparent problem of having fewer jobs than workers. But jobs are disappearing thanks to increased technological and economic efficiency. Either technology will naturally create new jobs to replace the ones it eliminates, or, as I outlined in my previous post, we need a way to provide people incomes independently from the job market. In either case, it's counterproductive to try to create new jobs or protect existing ones. Either there's no job loss or we'll need to find another way to support ourselves.
Instead of creating jobs, why not provide potential workers with another recourse? The economy wants to be efficient and we should want that too. If economic efficiency reduces our need for labor, that's a good thing. The less we need to work, the better. So, when I found out about the Employment Policies Institute's recent Bad Idea California billboard campaign against raising that state's minimum wage, I just had to laugh:
With a new $15 minimum wage, employees will be replaced by less costly automated alternatives.
— Bad Idea California Billboard in San Francisco
Technology will replace workers whether we raise the minimum wage or not. The debate about minimum wage distracts us from finding a way to get people the money they need. It's a problem we can't solve by regulating wages. So why are both sides fighting so vehemently from this angle? Has their "earn your way" indoctrination blinded them to alternatives?
More than just economically, our world is changing in ways we are powerless to stop, but we can decide how we want to handle those changes. Humanity has a remarkable capacity for adaptation. Let's find the best ways to leverage the vast resources we have available to us. Let's ask the right questions so we can find the right answers. Let's prioritize what we fight for.