IS AMERICA DESTINED TO STAGNATE AND COLLAPSE LIKE THE SOVIET UNION?
Do all jobs have the same value? More people working should lead to higher real incomes, except when the jobs are destroying wealth. Wages have been rising, but prices are rising even faster. So the average working person is getting poorer in real terms. This past week, the administration crowed about the number of new jobs because it was higher than the “experts” had estimated, even though the unemployment rate rose a small amount.
When the Soviet Union existed, the communists-socialists would brag about having full employment, in that all were guaranteed jobs. The problem was that many of the jobs created no real wealth and in fact were a drag on the economy, and as a result, real incomes were falling, leading to the economic collapse. (Old Soviet joke: “We pretend to work, and they pretend to pay us.”)
Many people are enormously productive in that they create real wealth, which benefits everyone. Those who design, build, distribute and market smartphones and tablets produce products that replace far less efficient and much more costly products of the past (e.g., the cellphone camera). Those who design and produce modern farm machinery enable a single American farmer on average to feed 155 people (contrasted with 18.5 people in 1940 and 3.5 people in 1820). Everyone working in that chain produces huge value.
Almost all areas of manufacturing are showing major productivity gains, and this is likely to accelerate as robots become more advanced and AI slashes the cost of information. Eventually, the world will move to almost all-electric vehicles (just not as fast as some claim, because batteries still need much improvement, as does the entire electrical grid). Electric vehicles are much less complex than gasoline-powered cars and will require far fewer workers to make them — which has caused a certain panic in the labor unions, partially resulting in the current strikes over job protection.
The combination of artificial intelligence and advanced devices and materials is already having a huge positive impact on medicine. Imaging machines are revolutionizing dentistry, joint replacement and heart surgery by enabling doctors to do most procedures with much greater precision and speed, saving lives and time, and reducing pain.
Given these spectacular advances, why isn’t this showing up in higher average incomes? The workers that provide the biggest benefit to others in terms of income and prospects for a better life are elementary school teachers who teach children to read and write and basic arithmetic. Methods of teaching have advanced little over the decades even though basic education has enormous benefit. There has been little productivity gain, as bureaucracy has overwhelmed constructive innovation.
Universities and colleges used to be wealth producers, taking unwashed students and giving them basic knowledge and tools to be more productive citizens. But professors’ productivity has plummeted, as teaching loads greatly shrunk and less time is spent on useful subjects and more time is spent on diversity, inclusion and equity. The schools have loaded their payrolls with people who are supposed to make sure that there is the “proper” percentage of Black men versus Asian women in the course on quantum mechanics and to monitor the faculty to make sure that none of them utters an unapproved opinion or fact. Of course, diversity is not a value when ability really counts, like on the school football team. Do you think that Japanese universities waste even a minute of valuable teaching and learning time on the alleged benefits of diversity?
The result is that the cost of education has soared. Some students in top schools find they are better off not attending, despite having been admitted. When the benefits of higher education no longer exceed the costs, the excess costs are borne by the taxpayers and the students and their families, which reduces everyone’s standard of living.
It has long been known that the typical government job (with many exceptions) costs more than similar private sector jobs because of lack of proper incentives and management, and thus does not meet the test of the highest and best use of taxpayer dollars. As government grows as a share of gross domestic product, as it has, more workers depend on government for their jobs. Productivity-increasing tools and practices in government tend to lag far behind those in the private sector. Budgets are loaded with vanity projects of government bureaucrats and elected officials. When the government wastes money on counterproductive regulations or things that are unnecessary or overpriced, it reduces the real incomes of all. These unnecessary costs show up in higher taxes and inflation.
The U.S. and most other developed countries have reached the point where fewer and fewer highly productive workers are supporting more and more workers whose costs are greater than the benefits of their activities. It is possible to have a definitionally full-employment economy (where many dropped out of the labor force and are no longer counted) where people become poorer and poorer as a result of the negative wealth producers overwhelming the positive wealth producers. Is America destined to stagnate and collapse like the Soviet Union?
• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.
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