This post started out in life as an attempt at persuading those who believe that our primary problem in producing enough jobs is technological unemployment that they were mistaken. After I’d worked on it for a while, I realized that I was setting an impossible task for myself. So I decided to reverse the purpose of the post and outline what it would take to persuade me that the primary reason that more people are unemployed now than was the case in 2007 is that their jobs have become obsolete due to technology.

First, even though the nominal unemployment rate has now fallen below 7%, it is simply incontrovertible that fewer people are working than was the case in 2007. That’s true whether you conside it as a percentage of the whole or in absolute numbers and I do not believe that demographic arguments are sufficient to explain the difference. See this graph.

Therefore for the primary problem to be technological unemployment, you’d need to show some technological development since 2007 that has resulted in what we’ve seen. I do not believe there is such a development.

Note that my position is not that technological unemployment is irrelevant to our present predicament but that it is fractional.

Here’s Paul Krugman’s position on the subject:

What I’d say about America now is that we have big problems, very much including too much talent going into financial fiddling, too few people who actually make stuff — actually, I worry as much or more about machinists as I do about scientists and engineers. But that observation has virtually no bearing on high unemployment right now. So I’d hope we can walk and chew gum at the same time, appreciating the structural problems but not letting that understanding get in the way of fighting the immediate jobs crisis.

I’m largely in agreement with that but I think that Dr. Krugman is too determined to view all of our societal problems through the prism of partisan politics. I don’t think that our “structural problems” go back only to 2007 or even to 2001. I think they go back to the early to mid 1990s with the most important problem caused by China’s pegging the yuan to the dollar. That simultaneously had the effect of tremendously increasing the rewards to “financial fiddling” and reducing the marginal returns to labor, something also effected by the massive immigration from Mexico we’ve seen over the last several decades.

So, the second thing you’d need to do to persuade me our primary problem is technological unemployment would be to show that over the period of the last twenty years technology has been a larger factor in pushing employment down than Chinese mercantilism, immigration, too many dollars chasing too few secure investments, or malinvestment. That’s an empirical question that can only be demonstrated with numbers.

Finally, I could produce reams of material showing that precisely the same claims have been made in just about every major economic downturn over the period of the last century and a half. See this quote from a paper in the Journal of the American Statistical Association in 1935. They thought the problem in the 1930s was technological unemployment. I think that whatever we believe the actual reasons for the end of the Great Depression might have been it wasn’t a sudden increase in skills on the part of the American labor force.

Therefore, the third thing you’d need to do to convince me that our main problem is technological unemployment is to demonstrate that this time really is different.

Now, there’s one area in which I’m in complete agreement that technological unemployment is a major issue: retail. Over the last decade and a half there have been several revolutionary changes in retail which enable vendors to sell enormously more stuff without adding employees. That just demonstrates that fiscal stimulus targeted at increasing retail sales won’t have much effect on employment. We need to be growing, pumping, mining, and making more stuff and buying more of the stuff we grow, pump, mine, and make.

I’ve just published a foreign policy-related post at Outside the Beltway:

War As Aspirational

A reaction to an op-ed by Andrew Bacevitch. I wish there were as much aversion to going to war as there is to being vicious enough to win them.

I think that if you had told me that American forces and German regulars, alongside French irregulars including women, fought to defend a medieval castle during World War II, I might have thought you were crazy. However, that, apparently did happen in May of 1945 at Schloss Itter in North Tyrol and the whole, crazy story is here.

There’s a story coming out of New York that far overshadows the trials and tribulations of New Jersey Gov. Chris Christie although you wouldn’t know it based on the paucity of national coverage it’s received. A major Social Security Disability fraud racket has been uncovered:

Manhattan District Attorney Cyrus Vance Jr. this week charged 102 retirees, including 80 former New York police officers and firefighters, with making phony disability claims since as far back as 1988 to obtain Social Security benefits and tax-free pensions equalling up to 75% of their pay. About half of the cheats attributed their “disabilities” to 9/11, even if they never even worked at Ground Zero.

[…]

Mr. Vance says the 102 indicted retirees collected on average $210,000 in benefits. Since most are still in their 40s or early 50s, each could have extracted hundreds of thousands more had the racket continued. One alleged fraudster is only 32. Mr. Vance says as many as 1,000 people may have been involved in the scheme, and the investigation is continuing.

Assuming the 1,000 fraudster figure the total amount of the fraud could be in the billions.

What struck me about the story was how neatly it dovetailed with the point I made earlier this week about the forces that are now mobilized to absorb any available resource. Consider how this entire operation proceeded. A couple of lawyers and a union official recruited potential candidates in the fraud, setting them up with equally crooked physicians and judges. All terribly systematic. And this might be just one of hundreds of similar disability fraud rings around the country.

My offhand guess is that those receiving payments from the Social Security Disability Fund are mostly in one of three categories:

• Individuals who are genuinely disabled and unable to work.
• Individuals who are able and engaged in fraud.
• Individuals who meet the definition of disability but who would work if they could find jobs.

The people in that last category are simply desperate. I suspect we’ll see a lot more of them if we allow the unemployment payments for the long term unemployed to remain lapsed.

However, it’s those in the second category, however small in number they might be, who will receive the attention and tar the entire program with their crimes. A real tragedy.

You might want to take a look at this meta-analysis of a much-cited study from Kaiser on the likelihood of a “death spiral” in the healthcare exchanges. This is as good a summary of the post as any:

The more I engage in this analysis, the more I realize how difficult it is. There are data issues and, more fundamentally, behavioral issues that we do not yet have a good handle on. Neither my model nor Kaiser’s model can really explain, for example, why, as has recently been noted, enrollment rates are so much higher in states that support the ACA by having their own Exchange and with Medicaid expansion than in states that more greatly oppose the ACA. As I have suggested before, there is a social aspect and political aspect to the ACA that is difficult for simple models to capture. Moreover, as I noted above, this is an area where getting a number “close to right” may not be good enough. Premium increases of, say, 9% might not trigger a death spiral; premium increases of 10% might be enough. And neither my nor anyone else’s social science, I dare say, is precise enough to distinguish between 9% and 10% with much confidence.

So, longer though it makes sentences, and less dramatic as it makes analyses and headlines, the humbling truth is that we can and probably should engage in informed rough estimates as to the future course of the Affordable Care Act, but it is hard to do much more as to many of its features. I wish everyone engaged in this discussion would periodically concede that point.

Basically, the exchanges may prove sustainable. Or they may not. And there is simply no way to determine which outcome will transpire until it’s already happened.

For my money that’s what make the PPACA a bad law. Not only can’t you determine what’s in it until it’s been enacted, you can’t have any confidence in what its impact will be until the hammer has already fallen.

George Will has the right idea but I think he’s using the wrong word:

Today, Little Sisters of the Poor Home for the Aged v. Sebelius may be the second-most serendipitously named court case in U.S. history, second to Loving v. Virginia (wherein Richard Loving, who was white, and his wife Mildred, who was black, in 1967 overturned Virginia’s law against interracial marriages). The Little Sisters are challenging the Obamacare mandate that makes them complicit in providing, through their health insurance, contraception, something that offends their faith.

This mandate illustrates Gesture Liberalism: It is unimportant to the structure of Obamacare. It has nothing to do with real insurance, which protects against unexpected developments — car insurance does not pay for oil changes. The mandate covers a minor expense: Target sells a month of birth control pills for $9 . The mandate is, however, a gesture affirming liberalism’s belief that any institution of civil society can be properly broken to the saddle of the state.

I think the word he’s actually looking for, rather than “gesture”, is “signal”. Increasing the minimum wage won’t do a lot if anything about income inequality or to ameliorate the circumstances of the poor since the number of workers that would receive a pay increase is actually quite small and many of them aren’t poor. As a means towards either end an increase in the minimum wage is inadequately targeted. However, support for an increase in the minimum wage is a signal of your concern for the poor.

Similarly, under the best of circumstances the Chevy Volt of itself won’t do much about anthropogenic climate change. For one thing GM can’t seem to produce enough of them to do so and even if it did the end-to-end production cycle is environmentally suspect. However, support for the production of the Volt signals your concern about the environment.

Support for the PPACA signals your support for the poor and sick. Threatening the Assad regime with attack over its alleged use of chemical weapons signals your support for the innocents being killed or left homeless in Syria. Backing the ARRA signals your support for those left jobless by the recession.

Sending signals is ever so much easier than actual reform.

In his farewell address Dwight Eisenhower called the country’s attention to what was then a new and serious threat to it:

Now this conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved. So is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Over the intervening years that threat has not abated. If anything, it is worse. Sadly, Ike only saw the tip of the iceberg. Later years saw the extension of the military-industrial complex, greatly abetted by the work of a later president, Lyndon Johnson, into healthcare, finance, education, and many other sectors of our society.

Today on top of the military-industrial complex there is a medical-industrial complex, a regulatory-financial complex, and an educational-organized labor complex. There’s a political-journalistic complex that ensures that the correct messages are promulgated and a federal bureaucracy with a primary objective of seeing to it that problems give the appearance of being addressed without actually solving any.

These various complexes work synergistically to absorb any and all resources thrown at them. Do you wonder why we’re spending so much more in real, per capita terms on our military, financial, healthcare, and educational systems than we did fifty years ago with such mediocre results? That’s it.

And that’s why my policy preferences lean towards changing incentives. We can’t just spend our way out of our problems.

Larry Sabato handicaps the 2014 midterm elections:

At this early stage, the combination of these three factors [ed. i.e. the president’s declining approval rating, the economy, and the electoral playing field] suggests a good election year for the GOP. The president is a Democrat and his approval is weak. The economy may be improving, based on GDP growth (4.1 percent in the third quarter), but voters still don’t believe their personal economy, at least, has picked up much. Instead, the major national issue of the moment is Obamacare, which at this point is a loser for Democrats. The structure of the election in the House and Senate also bends in the GOP direction.

I continue to think that the greatest likelihood is that the Republicans will hold the House and gain no more than five seats in the Senate, narrowly failing to take control of that house.

Never underestimate the power of the “bully pulpit”, as President Theodore Roosevelt is said to have characterized the power of the presidency to focus public attention. Especially when it enables the media to turn to a subject they’d prefer talking about in preference to the president’s ongoing woes in actually doing anything, faithfully executing the law, etc. Presumably prompted by President Obama’s recent speech on income inequality in the United States we’re seeing quite a bit written on the subject. Politico notes that Democratic pols are seizing on the issue as a drowning man would to a bit of flotsam:

Democrats aren’t wasting any time tackling an issue they are convinced will help them this election year: income inequality.

One of the Senate’s first votes upon returning to Washington from its holiday break Monday will be on a bill reviving emergency unemployment benefits that lapsed at the end of 2013.

The vote marks the first concrete step by Democrats toward a populist economic platform ahead of the November elections. The inequality campaign will intensify later in the year with a push in the Senate to raise the federal minimum wage that will be synced with President Barack Obama’s State of the Union speech, which is expected to dig heavily into the issue of economic disparity.

There’s quite a bit of hyperventilating going on about this article in Rolling Stone in which Jesse Myerson exhorts millennials to support the following changes:

1. Guaranteed Work for Everybody
2. Social Security for All
3. Take Back The Land
4. Make Everything Owned by Everybody
5. A Public Bank in Every State

See also the rebuttal here.

Most recently the Washington Post suggests that income inequality could be the defining issue in the 2014 midterm elections.

If it is, it will be a masterful job of misdirection for any number of reasons, most importantly because none of the policies most frequently mentioned in connection with remedying income inequality—an increase in the minimum wage and infrastucture spending programs—are a spit in the ocean towards actual remediation. What follows is a somewhat scattershot set of explanations as to why that might be.

First, let’s engage in a little visual exercise. Arrange twenty-five pennies in six stacks. One penny in the first stack, two in the second, three in the third, four in the fourth, five in the fifth, ten in the sixth. The first five stacks represent the five income quintiles and their incomes while the sixth presents the income realized by the top .1% of income earners.

The process of making those stacks more equal in height—equalizing income—is obvious. You take pennies from the sixth column and put them in the first four columns. We don’t do that. Consider our principle means-tested anti-poverty programs. By far the largest is Medicaid and by far the fastest-growing is Pell Grants. Those programs could increase ten-fold and of itself it would do practically nothing to change income inequality. How can that counter-intuitive outcome be true?

Because neither of those programs actually transfers money to the poor. Medicaid transfers money from the federal and state governments to healthcare providers. Pell Grants transfer money from the federal government to banks and institutions of higher learning.

Second, if your plan is to make incomes more equal by taxing away the incomes of the rich, how do you plan to accomplish that? There is no strong correlation between tax rates and effective tax rates. Even back during the Kennedy Administration when the top marginal tax rate was upwards of 90% taxes paid as a proportion of GDP weren’t a great deal different than they are now—a few percentage points, not enough to make much difference. Using the tax system as an instrument of income inequality presupposes a drastic change in political will and, importantly, in how taxes are imposed and enforced. I just don’t see it.

Third, a very high proportion of the poor or near-poor are immigrants or the children of immigrants. If you support mass immigration, you de facto support increased income inequality.

As I’ve said before when I was in college most U. S. wealth was held by middle income people and most U. S. income was earned by middle income people. That’s no longer the case and I’m profoundly uncomfortable with things as they are now. This just isn’t the country I expected back then and I do not find the development politically or socially benign.

However, I think the pat answers being offered by our political leadership are at the least ineffective in remedying the situation and at the worst cynical and nihilistic.