Automating Ourselves To Unemployment

Students of Austrian business cycle theory are familiar with the term malinvestment. A malinvestment is any poor use of resources or capital, commonly made in response to bad policy (usually artificially low interest rates and/or unsustainable increases in the monetary supply). The dot-com bubble that popped in 2001? The housing bubble that similarly burst in 2008? Those were classic examples of malinvestment.

With this article, I'd like to introduce a related term: malincentive. While not part of the official economic lexicon, I consider 'malincentive' a useful word to describe any promise of short-term gain whose long-term costs outweigh any immediate benefits enjoyed. The temptation to urinate in one's pants on a cold winter day to get warm is a (perhaps unnecessarily) graphic example of a malincentive. Yes, a momentary relief from the cold can be achieved; but moments later, you'll have a much larger problem than you did at the outset.

Malincentives and malinvestment go hand-in-hand. In my opinion, the former causes the latter. As humans, we respond remarkably well to incentives. And dumb incentives encourage us to make dumb investments.

In this current era of central planning, malincentives abound. We raced to frack as fast as we could for the quick money, while leaving behind a wake of environmental destruction and creating a supply glut that has killed the economics of shale oil. Our stock exchanges sell unfairly-fast price feeds for great sums to elite Wall Street high-frequency-trading firms, and as a result have destroyed investor trust in our financial markets.  The Federal Reserve keeps interest rates historically low to encourage banks to lend money out, yet instead the banks simply lever up to buy Treasurys thereby pocketing vast amounts of riskless free profit. The list goes on and on.

One particular malincentive has been catching my attention recently, one that feels especially pernicious because it does not seem easily reversible, if at all: For US employers both large and small, it's becoming increasingly less appealing to employ human labor. 

The High Cost Of Labor

The cost of a human employee is much more than just the salary he or she receives. There's:

  • base salary
  • employment taxes
  • Workers Comp insurance (this can vary from 1% to 15%+  for every dollar of payroll, depending on the type of work the employee is engaged in)
  • any benefits offered
    • health insurance
    • retirement plans (401k administration and/or matching)
    • life insurance
    • long-term disability
    • vision/dental insurance
    • dependent care assistance
    • tuition reimbursement

The above combined typically result in a cost between 1.25-1.4x a worker's base salary. But this is not the 'all-in' cost.

There's also the cost of office space, equipment, management & supervision, training. Of HR services. Of paid time off. Of lost productivity if a worker turns out to be a bad hire. Simply put, people are expensive to employ.

But the situation is getting even worse. Employers of every size are experiencing a growing surge of additional costs in regards to their human workforce.

The recent push to dramatically increase the minimum wage over the next several years is currently being hotly debated. However, one thing that is not up for debate is that this rise will make the cost of labor substantially greater for businesses -- especially smaller businesses, as a greater percentage of their employees are at the minimum wage level. For instance, the hike to $15/hour now legislated for California and New York represents rises of 50% and 67% respectively from current levels. Businesses will not be able to absorb that labor cost increase without reducing headcount, raising prices and/or cheapening quality. Likely some combination of all three.

Similarly, the Affordable Healthcare Act requires businesses with 50 or more employees to offer health care coverage or face penalties:

Under the health care law, employers with 50 or more full time equivalents are considered "large businesses" and therefore required to offer employee health care coverage, or pay a penalty.

However, employers who are close to reaching 50 full time equivalents are encouraged to closely monitor their workforce, as reaching the threshold and not offering health care coverage can result in steep penalties.
 

What's the natural reaction to this if you're a small business owner? Do everything you can to keep headcount under 50 employees. Fire people if you must. Create part-time positions instead of full-time ones. Outsource. Automate.

The cost of complying with workplace safety regulations (estimated by some to cost US businesses over $65 billion per year) is jumping, too:

A 2016 “bombshell” is likely coming from the Occupational Safety and Health Administration, which is expected to increase fines more than 80%.

Thank Congress for the “catch-up” increase—OSHA’s first since 1990—that quietly got tucked into a bipartisan budget act in November. The law allows all federal agencies with civil penalties to update fines for inflation. OSHA can increase fines up to 82% and has until August 1 to do so, says Duane Musser, vice president of government relations for the National Roofing Contractors Association.

Musser considers the increase an almost a foregone conclusion. And based on testimony from OSHA assistant secretary David Michaels, that seems accurate.

(Source)

To these, add compliance costs for the Americans With Disabilities Act -- which do little to prevent predatory lawsuits designed to shakedown small businesses.

All in all, regulations have been calculated to place a burden in the $trillions per year on American individuals and businesses:

The Regulation Tax Keeps Growing

Blame Washington, not China, for the decline of American manufacturing

Updated Sept. 27, 2010 12:01 a.m. ET

This distribution of regulatory costs places small firms at a substantial competitive disadvantage. The cost disadvantage confronting small business is driven by environmental regulations, tax compliance, and occupational safety and homeland security rules.

In sum, individuals and businesses bear the burden of the $1.75 trillion cost of regulations, and small businesses bear a disproportionately large share of the compliance costs. Businesses must close, reallocate activity, absorb, or pass on the expense of complying with regulatory requirements.

Then, there's the hassle factor. Employees require oversight. Management. Development. They get sick. They take leave. They quit. Some do their jobs well; some don't. Things can get messy, and not infrequently, litigious.

The Drive To Automate

Given all the above, is it any wonder that businesses are desperately looking for ways to replace human labor with automation? Forget about profitability, it's becoming about survival. 

As a result, capital investment in automation (robotics, artificial intelligence, etc) is exploding:

Automation does come with higher upfront capital expenditures, but with the vast savings resulting from removing the fully-loaded costs of human employees, the profit incentive to swap bodies for bots is tremendous. And as robotic and AI technology quickly gets better and cheaper, the siren song only sounds sweeter over time.

The categories of jobs that can be displaced by automation is impressive and expanding. Many industries once considered 'safe' now find themselves in the cross-hairs of progress. We have technology now capable of resolving real-world customer service calls, or landing rovers on Mars -- or a freaking comet, for that matter. The 2013 Oxford University study The Future Of Employment calculated that a full 47% of total US employment is at risk of being replaced by 'computerization'.

How safe is your job from being displaced by an automatic solution that performs it better, faster, cheaper -- without complaints, meals, vacations, sick days, bathroom breaks, benefits, regulatory obligations, and the rest?

Fuel On The Fire

Here at PeakProsperity.com, we write often about a coming 2008-style correction (or worse) as the multiple asset bubbles blown by the world's central planners go bust. Assuming for a moment that we're correct in that forecast, we'd see millions of jobs shed again as companies fight to stay above water.

What kind of investments will companies make in that kind of environment, when dollars are particularly dear? Answer: the kind that improve a business' cost structure -- that give it more runway, more time, to claw back to health. Automation will be at the top of this list. It's very easy to calculate the expected return of technical capex (i.e., making it easier for the C-suite to approve), benefits can usually be seen quite quickly, and the up-front investment cost can often be amortized on an accelerated basis (reducing the optical impact on the P&L).

As we've written, we think the worm has already turned, and that we are heading back into recession. There has been a stealth series of mass layoffs since the beginning of the year from major players in Tech, Energy and Finance - with Intel recently joining the list last week, announcing it's shedding 12,000 jobs.

The thing to realize -- in fact, the key point of this entire article -- is that jobs lost to automation don't come back. Human labor displacement is a one-way trip. Once an industry has invested in mechanical infrastructure and moved up the efficiency curve, it doesn't ever abandon that investment.

The High Cost Of Human Displacement

There is an intelligent debate to be had on the benefits of automation. Many have argued that the march of technology has always left future generations with more wealth and more meaningful work to do, as the laborious drudgery is increasingly mechanized.

Others warn that "technological unemployment" (a term coined by the economist Keynes) is not costless, and creates suffering among the lower-skilled workforce who lose their means of income. Keynes called technological unemployment a "disease" resulting from "our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”

What is much less debatable is that displacing a large percentage of human labor without a plan in place to put that displaced labor to productive use is a sure-fire recipe for long-term crisis.

Our current trajectory has us hollowing out our workforce at an alarming rate. Unskilled labor needs a place of entry in order to build skills and work experience. Yet we are closing that door. Where are the young workers to get their start in a world where the largest employers simply don't need them?

We are already seeing signs that this hollowing out is well underway:

1 in 5 American households has NOBODY with a job living in it.

The labor force participation rate has been in steady decline since the Tech revolution started in the late 1990s:

The youngest workers, Millennials, are earning 20% less than the previous generation, and are drowning under $billions and $billions of education debt.

So many families are having difficulty getting by that nearly half of US households receive part or all of their income from the government:

The percentage of Americans now receiving a federally-funded “means-tested program” now stands at 35.4%. When you add pensions, unemployment, Social Security, and Medicare to the mix, the percentage of Americans relying on government for part or all of their subsistence is 49.5% of the American population.

(Source)

The statistics above show that we are badly failing at putting our current excess human capital to productive use. Even with today's 5% unemployment rate (yeah, right), we already have a national employment crisis.

What will things look like in 5 years, when millions of today's jobs have been vaporized by the automation wave?

Plan For The Inevitable

Automation is going to happen. And personally, given the extreme set of malincentives we currently subject businesses to, I expect the pace to only quicken from here.

So what to do?

From a societal standpoint, I think Nobel Economics Prize recipient Michael Spence has it right (full disclosure: Spence was the dean of my business school during my years there). He warns that the challenge of technological unemployment "will require shifts in mindsets, policies, investments (especially in human capital), and quite possibly models of employment and distribution."

It certainly will. The big question is: Will we, as a society, identify and adopt these mindsets/policies/investments/models in time? Sadly, my money is on that we won't. We haven't made much progress in doing so to-date, and the hour is getting quite late to act before crisis arrives.

Which is why, here at Peak Prosperity, we advise taking individual action to avoid being run over by the automation juggernaut:

  • Skill up. Actively develop higher-order expertise, which will be the last frontier for AI to replace. Find a mentor to apprentice to, if you're able.
  • Be entrepreneurial. The best way to avoid being let go by a company is to own it. Let the age of automation work for your benefit, not against it.
  • Be a mentor. More than ever, the younger generation needs pathways to learn. Provide one.
  • Find meaning in your work, as well as other areas of life. Automation may reduce your income, or eliminate it altogether. Don't let that crush your purpose in life. The Eight Forms of Capital framework we provide in our book Prosper! provides guidance on how to live richly even if your income becomes compromised.
  • Support others. A lot of folks you know will likely be laid off as automation advances. Be there for them. Offer support. A lot of people are going to feel lost. Let them know the loss of a job does not equate to the loss of their worth as a person. They still have a valuable role to play -- it may just take a while to find it as we all figure out the new role for humans in this dawning Age of Machines.

~ Adam Taggart

This is a companion discussion topic for the original entry at https://peakprosperity.com/automating-ourselves-to-unemployment/

Adam,
Good writing.  Charles Hugh Smith has addressed some of these same issues in recent publications.  I'd like to hear the two of you compare notes and discuss this in more depth.  Between automation and a declining consumer base (see link below) the current debt based money system in doomed.  Creating and beginning to use a parallel economic system is essential for making a world worth living in.  That will be impossible with our current banking system and it's invested bureaucracy.

 ( http://econimica.blogspot.com/2016/04/overpopulations-depopulations.html )

I fully understand the impetus for automation but what I am left wondering is in our efficient allocation of capital that dis-employs more and more of our population year after year, who is going to be left to buy the products and services from the automaton-driven companies? Is the rise of the machines self-defeating?

Yes, if we don't have a plan in place, in advance, to deal with technological unemployment (which, currently, we don't).

That's the central thesis of the above article: our existing policies create a fatal malincentive for our society to pursue its own undoing.

Just need a bit more oil is all…

https://www.youtube.com/watch?v=uOL2W9JQmo8

 

I am putting this brief comment in this thread as it is the reverse of the trend Adam is writing on:  Production of a machine, a backhoe, by a person in their own garage shop.  This person now understands the technology from top to bottom, and can maintain / repair it himself.  This is the antithesis of the factory automated production line.
I am hoping that Blackeagle will come out of the shadows and show us details of how he did this, too!

This sounds like a recipe for devolving into handing out a 'basic income'. Businesses get taxed most of their new gains but have cost certainty, governments get more tax dollars and social programs, and people get to sit home and collect paychecks. What could possibly go wrong…
Personally, I think we should put most of the robots and businesses out of business at that point by all switching to our home 3D printing systems for spitting out anything our heart's desire at the cost of raw materials. Again, what could possibly go wrong…

Don't you love social experiments when absolutely no thought has been put into the process?

Companies are people too, you know.
Companies will make products for other companies. Humans will no longer be in the loop. They will be irrelevant.

Humans will have to hold a gun to the heads of companies for cash and buying power. Theft?  How can it be theft to take from a machine? Oh.  I forgot. Companies people too.

That can be fixed.

Good article and follow ups, but surely the Achilles heel of automation is energy? On which automation critically relies?
My rule of thumb is that one barrel of oil contains the equivalent of around 20,000 hours of human labour (assuming an 8 hour working day, 5 day working week, and 46 week working year). Very rough calculations, but its the order of magnitude that matters.

On this basis, energy is - as we all here know - massively under-priced. Given that around 80% of the energy that we consume is fossil fuel sourced, and depleting rapidly, the price of energy must surely, sooner or later, begin to increase to reflect first the increasing scarcity and then second its value, as the scarcity reveals the value.

This won't necessarily undermine all energy intensive automated activities, especially those where automation leads to much more efficient use of the automated energy system. For example, automated helmsmen of ocean going vessels, which save energy. But it will surely undermine some of the automated activities?

 

Since I wrote an entire book about automation and jobs, "A Radically Beneficial World," (amazon link below), I have a lot to say about the topic.Some important points to add to Adam's discussion:

  1. As Immanuel Wallerstein has explained, labor costs are rising for deeply structural reasons that have nothing to do with automation per se: urbanization, externalized costs coming home to roost, etc.

  2. Once the tools of automation (software and robotics) are commoditized, i.e. are interchangeable and cheap, profits vanish. This means there won't be enough profits (and taxes on wages) to support the mainstream "solution" of Basic Universal Income for every household.  The Federal government already soaks up $4 trillion, and state/local another $1.5 trillion. I estimate guaranteed income schemes will add up to $3 trillion in additional spending–but let's be conservative and say "only" $1.5 trillion. Where is this money going to come from if profits decline 50% and taxes on wages plummet along with paid labor?

  3. This means Universal Basic Income is completely unrealistic. The system no longer functions once profits and paid human labor decline for systemic reasons. The conventional "solution" is to borrow $3 trillion a year to fund a $6 trillion welfare state. That is not a workable long-term solution. Conclusion: We need an entirely new system for paid labor.

  4. Automation will only displace profitable work. Though it's ignored by our current economic system, most necessary human labor is unprofitable and will never be profitable.

  5. We need a new system. Reforming the existing model will not fix the underlying problems.  I propose an alternative system called CLIME (community labor Integrated money economy) in my book. Unlike many other proposals out there, it integrates money, community and paid labor.

  6. If we don't change the way we create and distribute money, we change nothing.

  7. Conventional economics is clueless and has no solutions for structurally higher labor costs and declining profits. Michael Spence has said as much in his articles in Foreign Affairs magazine.

  8. The grim reality is the number of people with the traits, habits and skill-sets to create value in a rapidly automating economy are around 5% of the workforce, 10% at the outside. This is one reason why the top 5% of the workforce has pulled away from the bottom 95%. yes, as I endlessly explain, the top .5% has gained wealth from financialization and financial bubbles inflated by central banks. But conventional human labor (even the labor of those with college degrees) is no longer scarce and so it has no scarcity value.  Creating value requires creating something that's scarce and in demand.

There is much more in my book. If you're interested in this topic, you might find it interesting. You can read the first part for free here: http://www.oftwominds.com/ARBW.html

http://www.amazon.com/gp/product/B0178MQI1M/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B0178MQI1M&linkCode=as2&tag=charleshughsm-20&linkId=CGXPIKGVST4OBTXU

Excellent article this really makes the current story of the conversion of life into money at a near intolerable and extreme level. If we are all one, then the emotional discourse that is present within us has got to be extremely uncomfortable (is this what Chris is and others are feeling?). I would argue that we are getting to the level that we are damaging our DNA structures pychologically thru this emotional discourse, as well thru ecological destruction. A place where tipping points appear all across the spectrum, like a swarm of angry flys, at first you can ignore them and swat them away. The current tipping point, our wiliness to participate in, which I would call it life yet it more accurately resembles money derived experiences is causing many problems. The space between stories is a sacred and amazing place, enjoy while you can there is much pain yet also so much fun to be had here. 
 

Adam - Very good article - things don't look good!
Just one point - although the article you link to is entitled "The Rising Cost of OSHA Compliance", it refers only to the rising cost of NONcompliance, i.e. heavier fines.   The maximum fine for being responsible for a worker's DEATH  is going up from $70K to $127.4K.  (It is rare that OSHA ends up taking the maximum fine.)  Not a lot compared to a wrongful death settlement.

The author of that article seems to assume that OSHA fines are a normal cost of doing business in the roofing industry, just something to be written off (along with the injured or dead workers).  Unfortunately, I read about all too many employers who seem to feel this way.  Folks should just remember that OSHA regulations are written in workers' blood.

Disclosure - I am in the OS&H profession helping my employer comply with these regulations. 

 

Even though I agree with the general idea Adam Taggart developed in this text, I think some of the predictions are way exaggerated, specifically the figures in this graph: http://www.officerreports.com/blog/wp-content/uploads/2014/09/at-risk-jobs.jpg
Do you really think that almost all of retail employees will be replaced by robots?

Or that accountants and auditors (accounting clerks maybe, but not at middle or high level functions) will be all replaced by machines?

Or real estate agents… really!?!

Do you want a robot serving your dinner at a fancy restaurant, or helping you to choose you clothes… or giving you a tour of that house you are thinking of buying?

Humans are still the ones buying these things, and human contact and interaction is a big part of the experience and the selection process.

This discussion really brings into focus the issue of the value of a human being in an age of profound overpopulation.
Particularly when a human being:

  1. has little capacity to work hard due to reduced muscular strength, and,
  2. does not have any valued skills.
What is the value of a homeless street urchin abandoned to fend for himself in the slums of Rio De Janeiro?

What is the value of the life of a soldier in a society with severe overpopulation?

In a medieval castle siege, I understand that a siege would be successful if the attacking army had sufficient manpower to burn.  Attackers might be killed at a ratio of 10:1 or 20:1.  But if a great surplus of population made the lives of soldiers worth little, the cost of a siege might be acceptable, or even desirable, to some.

One

Biologicol Robotics

One very adaptable form of robotics not discussed by Adam are biologically based robots.  They have the capacity to self-heal, to some extent, and to self-reproduce.  Simply put them in a box with enough food, water and sunlight and their numbers will sustain through self regeneration.  DNA based blueprints and sub-cellular ribosomal protein assembly work stations seems to be the key to the success of this robot class.

I am of course talking about human slaves.  Not humans "like us."  But that other-kind-of-human (of much lower quality) who are meant to be ruled by us.

 

 

 

 

Though it was not mentioned specifically in the article, the biggest malincentive IMHO is the ridiculously underpriced cost of money ('capital') that is being used to buy automation.  Were it possible to have capital cost reflect the market demand for money then I would expect much of this automation would not be so attractive to business.  This is wishful thinking in our centrally controlled banking system.  But as Nassim Taleb points out in his concept of the Black Swan, if risk costs do not  coincide with actual risks, then the chances for a huge Black Swan event can grow exponentially.  Before we are done in this cycle, robots will be ordering parts to repair themselves.  The idea of manufacturing (literally 'hand made') will be as relevant as buggy whips.

Slaves are slaves, whether they be human slaves. energy slaves or animal slaves. The relationship between them has always filtered down to abusive treatment of the subject at hand. How many automobiles last 60 years; my well has been pumping water for 40 years with the same hardware and, hopefully, will last another 40 as long as they still make parts for it. I treat it,well(?) and it reciprocates. Relationships and community are the first thing we will lose if we embrace automation in an energy intensive manner.https://www.youtube.com/watch?v=VZh51bDuCmE

Carlos,
I understand your incredulity. Seems impossible to me too but then again so would a lot of things we have today if you had asked me about them 10-15 years ago, ZIRP, NIRP, Homeland security, TSA, asset forfeiture, and the list goes on.

The list of jobs to be lost doesn't even include all of the truckers, taxi drivers and other drivers who will be done in by self-driving vehicles, or the delivery people getting undercut by drones etc.

Now real estate agents, that truly is ridiculous. Who would want to work with a robot on something as important as that? I would never… Wait, how much did you say that I will save on the commission?

The road to our collective unemployment will be paved one cost savings decision at a time.

Do you think there won´t be a fee involved? It´s just not going to the real estate agent, but to the real estate owner… or to the robot that owns the real estate agency. Take that reasoning to the extreme… we will all be working to "feed" the machines instead of the opposite. If robots can do everything, what´s the point of humans being around? Don´t see how that will work out. At some point the trend will be fought and reversed or we will go the way of the dinosaurs.

I'm sure there will be a fee, they will just charge less, maybe just the half that goes to the agency. Of course, once they run the actual agents out of the business the fees will start creeping back up again.
Anyone else remember when ATMs started? They used to say that you could get your money at anytime and there would be no fees. How's that working out now? I don't use the things though my wife does.

I agree with you that this is an insane process. I think that is the point that CHS and Adam are making. Without any real planning this mess is a guaranteed disaster. The individual decisions for each business make sense financially but the collective process is a social disaster that will not even work financially in the end.

Makes you wonder who wins in this scenario. It is not any of us.

I largely agree. Ultimately, here is the problem as I see it:
 
  1. Technology has greatly increased the productivity of an hour of labour.
  2. Historically in decades and centuries past, inefficient human labour found enough job opportunities to sustain an economy in steady state or slow growth. Today, to reach full employment, the more efficient labour of today would inevitably and necessarily create rapid economic growth. But...
  3. We all here understand why economic growth is now nearly finished due to resource limits.
  4. Historically, there has been no method of transferring wealth to the middle class, other than welfare which just keeps the lower class alive and from rioting. Historically, it has been the middle class who has "created" the wealth so why would there be a need to transfer wealth to the middle class? "Just get them working and producing again!" has been the main focus of economic policy, both on the left and the right as different ideologies argue about what makes labour "productive" and best gets them back to work to foster more growth (Marx vs von Mises and everyone in between).
  5. This situation is exacerbated by free trade with places like China and Bangladesh which effectively brings much of the western workforce down towards the level of the third world. The justification for global free trade goes all the way back to Adam Smith who argued that the more that goods trade and change hands before final consumption, the more value is ultimately incorporated into them. Therefore, free trade is good. This was a good observation at the time but is invalid. Nowadays, free trade is just an excuse for corporations to be more globally competitive using cheaper labour and weaker environmental laws overseas, and to get access to larger markets. With 350 million people there is no reason why North America could not be fully self sufficient and block all trade with the rest of the world. Why do we need to be economically tied to another 6 billion people? Are we really benefiting from economies of scale at this point or is there some other more nefarious reason for free trade? I'm not seriously suggesting isolating N America, just pointing out that overall in the long run we would be more prosperous if we did this since we have fewer people than Asia, and generally more remaining natural resources per person. 
  6. The middle class is constantly parasitized of its "created" wealth by the financial elites through their financial shenanigans (negative real interest rates on savings for the masses, but huge levered derivative profits for the elites at the top engaging in insider trading using their own personal money printing presses.) With these real profits the elites buy up all the productive assets, leaving the middle class as mortgage-slave debt serfs with little net worth or real ownership of anything to fall back on. This situation generally worked historically when the economy was capable of growing and additional wealth could always be "created" from the natural world by the middle class to offset this theft. The theft actually incentivized the middle class to work harder and further grow the economy. But when the economy can no longer grow, no new "wealth" can be "created", so the ongoing theft from the middle class just sends it into the lower class and welfare. 
  7. We now need another way to keep the rest of the middle class out of poverty. 
  • It has been proven throughout history that giving away free money to a large portion of the population by the other half doesn't work. It creates horrible disincentives and misallocations. 
  • One way to return to full employment would be to forcibly de-technologize, like getting rid of traffic lights and putting a person back out into every intersection to direct traffic like they did a hundred years ago. Theoretically this would work but practically it wouldn't because the private sector is competitive and you can't force entire industries to equally reduce their technology. 
  • The only other realistic way of spreading the wealth out better is to reduce the work week. And the only way to prevent a shorter work week from further impoverishing the middle class is to institute some form of a wealth tax that targets the elites who have stolen so much of the middle class' wealth. There is no way around this. Many capitalists are repelled by the idea of a wealth tax but it is human nature to resist change that is for the better.
  • We also need to move away from the profit model for allocating capital for much of the economy. Profit is a yearly percentage increase in "wealth". Capitalist theory asserts that overall economic growth and wealth is created by a largely unrestricted private sector efficiently allocating resources such that revenues exceed costs which generates profits that collectively increase wealth for everyone in the economy. Capital is the financial kick-starter that is believed to keep this whole process rolling because it funds the initial business activity which then creates more profits that can be invested as capital somewhere else to create even more profits and wealth, and so the virtuous cycle of capitalism and growth continues. I largely disagree with this model. Furthermore, in an economy that can no longer grow it is not possible for the majority of capital to realize a real profit beyond inflation -- otherwise the economy would be growing. So where is capital to go then? I say into other allocations. In Austrian economics it is widely believed that government spending is a drain on the economy because it is funded by taxing the truly "productive" portion of the economy -- the private middle class -- and therefore should be kept to a minimum. But this is only a result of how today's monetary system is structured. 
  • We need to start assessing whether capital allocation is "productive" not based on whether it produces a profit but in other softer ways like how it contributes to long term social health, a sustainable environment, democratic control of the economy, etc. -- things that generate no traditional profit. Not that traditional profit would vanish, far from it. But it would only be one of the ways capital is allocated. This could also alleviate the unemployment problem -- the government could increase the number of people working out in the field to clean up the environment, or better maintain public infrastructure. This generates no profit but is just as "productive" as any other traditional activity. The fact that the government is currently broke and can't afford it is irrelevant because...
  • For this to work financially we need a completely new monetary system. The current system is a sham and any analysis of what we can and cannot afford using dollars is meaningless.
 
Do I see any chance of these changes happening? Extremely unlikely since it would require the elites to voluntarily give up control and give back their vast wealth hoards, as well as overhaul the financial system to where they can no longer realize further ill-gotten gains. Zero chance of that happening.
 
It would also require a fundamental shift in understanding by the average person of where wealth comes from, and that profit is not something we should be striving to achieve in today's world of flattening growth. Almost everyone thinks that economic growth is a good thing that we should strive for. Will this attitude change? Not likely, especially when the elites control the message of the media.
 
Furthermore, the majority believes that it is only wacko conspiracy theorists who believe in the existence of a parasitic elite class who is stealing their wealth. Hardly anyone understands how the financial system is rigged to impoverish them. The average person blames other countries for our own problems. They are not willing to accept that these "terrorist" activities are perpetrated by our own governments and elites.
 
Therefore, we should prepare for a worsening economic and social future that will eventually end in catastrophic collapse, all of course to be officially blamed on foreign terrorists.