The evocation of H. G. Wells’s 1895 dystopian novel, The Time Machine, in comments yesterday made me start thinking: why didn’t the predictions of life in the future turn out the way Wells and others worried that it might?

You can’t write intelligently about dystopian (from dys-, bad, plus topos, place) without mentioning Utopia (from ou-, no, or eu-, good, plus topos, place). Utopia was a novel written by Thomas More in 1516 (1516!) about an imaginary country, a marked contrast to the contentious and oppressive Europe of the time. In More’s Utopia property was held in common, men and women were treated and educated equally, and there was a high level of religious tolerance (albeit not for atheists). The term “dystopia”, generally the opposite of a good place, was apparently coined by John Stuart Mill in 1868.

The earliest dystopian novel that I’ve ever read was Anna Dodd’s 1887 novella, The Republic of the Future. Dodd’s future New York was a place of rigid, boring, enforced conformity. Although its people only worked two hours a day, their lives were tedious and empty. There was no art, literature, scientific research, or romantic love. Dodd’s story was a reaction to the idyllic portrayals of the future painted by her contemporary supporters of socialism, feminism, and technological progress.

George Griffith’s The Angel of the Revolution (1893) and its sequel, Olga Romanoff (1894), are the story of a group of terrorists employing air warfare to bring an end to a society of oppression and misery in the near future, just ten years ahead.

In H. G. Wells’s The Time Machine the humanity of the distant future has divided into two subspecies: the Eloi, descendants of the elite leisured classes, and the Morlocks, the underground-dwelling descendants of the downtrodden workers. In an ironic turnabout the Eloi have become the prey of the brutish, carnivorous Morlocks.

George Allan England’s The Air Trust (1915) is the story of a billionaire’s attempt to control the very air the people breathe.

Fritz Lang’s 1927 movie, Metropolis, based on his wife, Thea von Harbou’s 1925 novella, is a sort of prequel to the world portrayed in The Time Machine. The elite technocrats live in the world above; the pathetic downtrodden workers in the undercity below. I have very little knowledge of continental science fiction and fantasy so I can’t point to any possible central European antecedents for Metropolis.

My point here is that there’s a sort of pattern to the dystopic visions of the late 19th and early 20th centuries. A cruelly rapacious or indifferent elite on the one hand, frequently living in splendor, and a poor, downtrodden, increasingly brutish proletariat on the other, living lives of oppression and subterranean misery.

Is this the world we are living in now? Is the world moving in that direction? Or are we who actually live in the future that the late 19th and early 20th century writers speculated about taking a very different path? I think the latter but I’d like to hear other people’s opinions on the subject.

To flesh out what I was talking about yesterday a bit and to make clearer what it is that I’d actually like to see happen let’s take a quick look at the general contours of the economy as presented in the Economic Census for 2007 from the Census Department (the 2012 Economic Census isn’t available yet):

You can click on the image for a larger version. The first thing that you might notice is that the total down at the bottom of the second column doesn’t equal the GDP figure that’s usually quoted. That’s because of the way GDP is calculated: imports are subtracted. In preparing this table I haven’t attempted to break out the production less imports by sector. That’s beyond the scope of a blog post and, besides, it’s what God created economists for.

The personal consumption expenditures (PCE) that you’ve probably seen cited as being about 70% of the economy are comprised of retail sales and the last six items in the table, e.g. education, healthcare, etc.

The short version of what has changed since 2007 is that construction is down, retail is down, and healthcare and education are up.

Let’s go back to what I think should happen. I think that finance should contract, healthcare and education should become more productive (i.e. produce the same or greater services at lower cost), retail sales should stay the same or contract. Agriculture, manufacturing, mining and extraction, and energy production need to expand.

How do we accomplish those things? The structures of healthcare and education need to change. We can’t get to where we need to go with the current structures in place. We should stop subsidizing finance and retail and penalizing agriculture, manufacturing, etc. The emphasis in foreign policy should be in persuading large exporting countries to abandon their import subsidies, quotas, and so on. That would be a start.

I think that there’s plenty of potential for future job growth but not as long as continue propping up sectors where there’s really no room for expansion or expansion comes at the cost of more jobs from other sectors.

From Jon Corzine’s prepared testimony before Congress on the collapse of MF Global of which he was CEO:

I simply do not know where the money is.

Jon Corzine voted “Yea” on Sarbanes-Oxley.

My guess is that he’s going to regret that vote. And waiving his Fifth Amendment rights.

I want to commend your attention to what I found to be an excellent op-ed by Edward Glaeser at Bloomberg (hat tip: Barry Ritholtz) on why we shouldn’t expect retail sales to fill in the gaping hole in employment:

But it isn’t hard to spot the larger trend in retail trade job creation. The attached figure shows the time path of job- creation rates for the economy as a whole and for retail trade in particular. The data comes from the Census Bureau’s Business Dynamics Database, which defines the job-creation rate as the employment growth at the establishment level divided by the average of old and new employment.

The lower line shows the job-creation rate for the economy as a whole, which dropped from about 20 percent in the late 1970s to 12 percent today. On average, the job-creation rate has declined by 1.4 percent per decade, which should scare anyone worried about our continuing ability to generate employment. The U.S. hasn’t been producing fewer jobs than it used to, at least until the recent recession, but the number of jobs created hasn’t increased with the overall size of the economy.

The top line shows the far steeper decline for retail trade. The 1970s and 1980s were a great growth period for this sector, as the U.S. moved from manufacturing to a service economy. When the economy roared back after the 1982 recession, the job-creation rate in retail trade boomed at more than 20 percent per year for each year from 1984 to 1988. The job- creation rate in retail has never again broken 20 percent, and the downward trend runs at 2.6 percentage points per decade.

I wouldn’t want to blame Amazon or Costco for this trend, and I am a big fan of both retailers. There is a lot to like about low prices and shopping over the Internet. But it shouldn’t surprise us that tremendous improvements in retail efficiency have been associated with diminished job growth in the e-tail sector.

However, let’s go down the roster. Retail isn’t likely to create millions of jobs for the reasons that Dr. Glaeser points out. The collapse of the housing bubble means that residential construction isn’t going to pick up the slack: existing inventories are just too great and the additional demand for houses on the part of speculators is probably gone for the foreseeable future. Non-residential construction is just about in the same fix. It’s had a bubble of its own.

Healthcare and education are dependent on government spending, productivity is declining in both, and both create fewer jobs per dollar spent than other sectors. That these sectors control the “commanding heights of the economy”, a phrase attributed to Lenin and adopted by British Fabian Socialists, is not good news for increasing employment or economic growth.

Manufacturing, farming, and mining have all accomplished increased production through substantially greater efficiencies. It will take sizeable increases in demand for their outputs for these sectors to start hiring. However, they along with energy production, are very likely to be our best hope.

The alternative is persistent unemployment which I don’t believe is good for the economy, for the mental and physical health of those who are unemployed, or for social cohesion.

“You do not examine legislation in light of the benefits it will convey if properly administered, but in light of the wrongs it would do and the harms it would cause if improperly administered.”—Lyndon Johnson

And we can have great confidence that it will be improperly administered.

I strongly suspect that once the Baby Boomers have passed from the scene Johnson will receive a long-overdue and much more favorable reassessment.

Hat tip: Steven Landsburg

Yves Smith, far from a Republican shill or ideological conservative, critiques President Obama’s invocation of Theodore Roosevelt:

Wow, I have to hand it to Obama’s spinmeisters. They’ve managed to find a way to resurrect his old hopium branding by calling it something completely different that still has many of the old associations.

And we have a twofer in Obama’s launch of his new branding as True Son of Teddy Roosevelt. Never mind that Teddy, unlike Obama, was accomplished in many walks of life and had meaningful political accomplishments (such as reforming the corrupt New York City police department) before becoming President at the tender age of 42. The second element of this finesse is that Obama is using the Rooseveltian imagery to claim he will pass legislation to get tough on Big Finance miscreants. That posture, is of course meant to underscore the idea that you just can’t get the perps with the present, weak set of laws.

If that’s the strategy, the president had best hope that nobody examines TR’s life, beliefs, and political history too closely. Or Obama’s record, for that matter.

via comic book, in this case an explication and defense of the ACA, AKA healthcare reform.

I think that this is the wave of the future. In an increasingly visually-oriented culture it is inevitable that what works will be adopted. Expect more comic books, Youtube videos, and tweets, fewer white papers and platforms.

The flip side: these communications will be easier to parody than white papers and platforms.

Hat tip: Tyler Cowen

“The macroeconomy is a garden, not an army.”

From John Cochrane at the symposium I mentioned yesterday. At the link note, particularly, the disconnect pointed out between the problems we actually have and the solutions that are being proposed (and implemented!):

(i) “Jobs” bill. Do we really have 9% unemployment because we stopped building roads and schools?
(ii) Raising the capital gains tax rate. Do we have high unemployment because the marginal tax rates on capital gains are too low?
(iii) Re QE3 or QE5, “I’ve lost track.” Do we really have 3% mortgages because we don’t have enough credit. [Hmmm. Here I’m wondering if he has taken account of the difference between nominal and real interest rates.]

On (I) IMO the administration thinks that jobs are much more substitutable than they actually are and is asking the multiplier to carry far too much freight.

Social Security is a combination of two programs: a tax, AKA FICA or “the payroll tax”, that nobody likes and benefits, Social Security retirement benefits, of which practically no one approves (either because they’re too large, too small, or that they exist at all) which in combination form a program that a majority of Americans like. Right now Congress is agonizing over whether to extend the payroll tax cut it enacted purportedly as fiscal stimulus. I think it’s rather likely to do so, for a complex combination of political calculus, party politics, and ideological preference. I further think that, having once cut the payroll tax, Congress will find raising it again enormously difficult to restore it as slow or no economic growth winds into the indefinite future. The stump speeches practically write themselves. Don’t raise taxes during a recession! They want to kill Social Security! They want to tax the poor and give the proceeds to the rich! And so on.

I’ve already expressed my views here at some length. Social Security is a welfare program. It is necessarily paid by people who work as will any alternative system: however constructed people who have jobs will pay the freight. It’s where the money is. And some program of supplementary income for seniors will be necessary into the indefinite future for a substantial laundry list of reasons. We may as well continue to call the program “Social Security” because that’s what we’re used to.

Contrary to what you might suppose the cut in the payroll tax hasn’t depleted the Social Security Trust Fund: the Treasury dutifully transfers the money that FICA would have brought in into the system’s accounts. However, I think that cutting payroll taxes has depleted the meager intellectual underpinnings of Social Security as anything other than a welfare program and I find it remarkable that a Democratic president should be so enthusiastic about doing that. I suppose the thinking is that as long as workers are being taxed at any level they will be able to rationalize Social Security as “just getting back the money they put in”.

Bruce Krasting, who’s been on top of the Social Security story for some time, sounds a warning note on the program:

The 2011 numbers for SSA indicate that we are at least five years ahead of existing thinking on the SSA deficits. When this realization sinks in, it will break the hearts of the SS defenders. If we are, as I contend, five to six years ahead of “schedule” with cash deficits at SSA, there is no alternative besides cutting scheduled benefits. Raising taxes to fill a hole this big is not an option. Nor is it an option to maintain the status quo and allow for a very rapid rundown of the SS Trust Fund.

Whether you think that means that the U. S. government will need to go, hat in hand, to the Chinese for additional loans, the U. S. government needs to print more money, or it (or the Fed) needs to wave more money into existence, that will mean higher inflation and/or slower economic growth than we otherwise would have had, further decreasing the likelihood that the millions of people left jobless in the aftermath of the collapse of the housing bubble will find work.

The Congress’s inability and the “supercommittee’s” inability to find anything remotely resembling enough to bring our fiscal house into order should be proof enough that the difference won’t be made up by cutting other spending or raising taxes.

Update

Diane Lim Rogers (AKA EconomistMom) on the debate over extending the payroll tax cut:

In the debate over the payroll tax cut, we are hearing arguments from both sides that muddle the distinctions between short-term, demand-side stimulus and longer-term, supply-side growth. Many Republicans argue that the payroll tax cut is not an effective way to expand the economy, but they are probably measuring it against their favored supply-side yardstick. The Congressional Budget Office (CBO) shows that a payroll tax cut is one of the most effective tax cuts in stimulating demand for goods and services in a recessionary economy — not as effective as direct spending on unemployment benefits but still far more effective than high-end income tax rate reductions.

Both Democrats and Republicans seem torn about paying for the payroll tax cut, for probably different, yet both valid, reasons. Democrats don’t want to offset the cost with immediate spending cuts that could largely negate the short-term stimulative effect of the tax cut. If spending cuts are fairly immediate and significantly affect lower-income households, they would likely offset the stimulative effect of the tax cut. Republicans don’t want to offset the cost with other tax increases because they worry that supply-side incentives would worsen. These concerns are legitimate when the offsetting tax increases stretch into the longer term (after the economy gets back to full employment) and to the extent that the tax offsets adversely affect the returns to working or saving.