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Not only in Europe and recently in Brazil but also in the United States, political elections have become ideological clashes. The campaigns are not only about the next government but also about a choice between different political cultures. Although the great debate concerns no longer the choice between communism and capitalism, the key question remains: whether society should move to more state intervention or to a market economy. This way, the traditional question of socialism or capitalism is still on the table.
Interventionism
Populist interventionism is the most widespread economic system of our time. The countries differ in degrees in terms of whether their government is less or more active in practicing interventionism. Money is under the control of the state. The state mingles in economic transactions through taxation and regulation. While some sectors are more under state control than others, the consequence of interventionism is visible: the sectors with the persistent crises — such as internal and external security, health care, old-age provision, education, money, and finance — are those that are under the most comprehensive governmental control. A vast apparatus of subsidies sustains the defense industry, part of the automobile sector, the pharmaceuticals companies, large parts of agriculture, and educational institutions.
The interventionists unite with special interest groups, who cloak their specific concerns as a common good. Under interventionism, market competition is perverted into a struggle for subsidies and bailouts. The winners are no longer those who best contribute to the growth of the economy and serve the consumers; those who receive the largest share have the best political contacts. In the end, no one is better off. In the long run, everyone is paying the price when the economy falters, including those who got a big share from the government when the economy was still flourishing.
There is a tendency to choose interventionism and move onto the road to socialism without considering which consequences will follow from this choice. Emotions and prejudices are behind the attractiveness of socialism. The socialists dream of a society where righteousness and prosperity rule together with equality of all while they prepare the path for the opposite.
The loss of reason prepares the path for the creed of the socialist utopia. Socialization during adolescence reinforces the biological disposition for socialism because children and youngsters live under the quasi-socialist systems of the family, the school, and the university until they are grown up; they often remain under the socialist spell for the rest of their lives. The longer these pre-adult periods last, the deeper becomes the socialist mentality ingrained into the psyche and minds of the young.
To break free from the socialist faith requires an act of reason, or one will stay captive. One of the first steps to get deliverance from the socialist faith is the rational insight that it’s not redistribution that helps the poor, but economic growth and free capitalism. The path to prosperity is not redistribution but productivity.
Fallacy of Redistribution
Modern democracy suffers from the contradiction that while most citizens mistrust the politicians and the state, and want fewer taxes and less state control, each voter is eager to use their vote in such a way as to get the largest piece of the cake. Such a system is neither democratic nor capitalist; it is corrupt as it produces a political game in which every single voter tries to betray all other voters. The principle of modern democracy is that while the voters try to cheat one another in getting a free lunch, the political establishment deceives all the voters.
Ironically, it was the success of capitalism that created the socialist expectation of a world without scarcity. The capitalist experience showed that a prosperous world was no longer a utopian fantasy. The early socialists were convinced that socialism would increase the productivity of capitalism not despite but because of the equality of distribution under socialism. In the socialist paradise, one could have a greater material abundance than under capitalism along with the eradication of injustices and discriminations.
The driving motif of the early socialist movement was idealism. Today, the drive is materialistic. The state should become the great provider, be it of public transportation, an old-age pension, guaranteed minimum income, free education, or health care of the highest standards for all. The modern state socialists do not recognize that the more comprehensive the welfare state becomes, the more the beneficiaries themselves must pay for what they get.
The wealthy persons of society will care for the poor if redistribution remains small and if the circle of the needy is well-defined. This is the case with voluntary charity. Yet when the state expands into the welfare state, the beneficiaries of the social transfers must de facto assume the costs themselves for what they seem to get free from the state. The more the general population falls into the grip of the welfare state, the more diffuse the definition of need becomes and the larger the number of the contributors will grow. In the end, all pay more than they get.
If the redistribution in modern capitalism does not work, some seem to ponder, only imposing full socialism will solve the problem of injustice. These socialists believe that they are good-hearted when they advocate socialism, yet they do not know that they speak in favor of an inhumane regime whose first victims would probably be themselves.
The Ideological Battle Continues
While the socialism of the Soviet pattern is not the dominant ideology of our time, the anti-capitalist mentality is still virulent, and this ideology is all over in the media, the schools, and the universities. The great error of the modern socialists, like that of their predecessors, is to believe that poverty originates from capitalism.
History has shown that socialism exists as tyranny. With the choice of interventionism and socialism, economic stagnation comes, while the decision for a free market economy leads to economic progress. Theory and history confirm that socialism is inseparable from stagnation and oppression while capitalism is more productive the freer it is.
A look at the experiences with Communist rule makes the diagnosis unambiguous. Yet popular discontent runs against the capitalist economic order. There is a widespread illusion that one could have both the wealth of capitalism and the supposed socialist equality and justice.
The modern state has a structure that is very different from the original ideas of classical liberalism, and in some respects it is the opposite. Instead of having less state, liberal democracy comes with more intervention; instead of more individual liberty, the current system has extended its control over the individual. The majority voting system in place leads to interventionism, and from there, socialism is only a step away. Democracy does not protect against folly or tyranny.
Conclusion
History does not have an inevitable path of development, but there are economic laws. The decision of this or that version of the economic system is free, but the consequences are not free to choose. Freedom refers to the choice of institutions, not to their consequences.
In this sense, there is a power of ideas, and at the same time, there is the impotence of ideas in the face of facts. There are situations where, as the saying goes, one cannot change things anymore. Before the wrong decision was made, the path was open as the options were laid on the table. A different choice could have evaded the problems that have surfaced now as a consequence of the wrong decision, and the course of history would have gone in another direction.
The alternatives are clear: on the one hand, free capitalism as an economic order that brings personal liberty and overall prosperity, and, on the other hand, the socialist command economy, leading to poverty and oppression. The 21st century will belong to those nations that choose the path to free capitalism.
Antony Mueller
Antony P. Mueller is a professor of economics at the Federal University UFS in Brazil where he is also a researcher at the Center of Applied Economics, and Senior Fellow of the American Institute for Economic Research. Antony Mueller earned his doctorate in economics summa cum laude from the University of Erlangen-Nuremberg, Germany. He was a Fulbright Scholar in the United States and a visiting professor at the Universidad Francisco Marroquin (UFM) in Guatemala as well as a member of the German academic exchange program DAAD. Antony Mueller has recently published the book “Beyond the State and Politics. Capitalism for the New Millennium”.
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Gas and Apparel Pull Everyday Prices Down in November
AIER’s Everyday Price Index fell 0.1 percent in November after posting a 0.4 percent increase in October. The Everyday Price index has fallen in four of the last six months. The Everyday Price Index measures price changes people see in everyday purchases such as groceries, restaurant meals, gasoline, and utilities. It excludes prices of infrequently purchased, big-ticket items (such as cars, appliances, and furniture) and prices contractually fixed for prolonged periods (such as housing).
The Everyday Price Index including apparel, a broader measure that includes clothing and shoes, decreased 0.3 percent in November after a 0.3 percent rise in October. The Everyday Price Index including Apparel has fallen in three of the past six months. Apparel prices fell 2.5 percent on a not-seasonally-adjusted basis in November and are down 1.6 percent over the past year. Apparel prices tend to be volatile, registering sporadic large gains or declines in between stretches of relatively steady prices.
The Consumer Price Index, which includes everyday purchases as well as infrequently purchased, big-ticket items and contractually fixed items, fell 0.1 percent in November, matching the decline in the Everyday Price Index. The Everyday Price Index is not seasonally adjusted, so we compare it with the unadjusted Consumer Price Index.
Over the past year, the Consumer Price Index is up 2.1 percent. Over the same period, the Everyday Price Index has risen 1.2 percent while the Everyday Price Index including apparel is up 0.9 percent. The modest increases in both indexes over the past year are largely due to weak energy and grocery store prices.
Motor-fuel prices fell 1.1 percent for the month on a not-seasonally-adjusted basis. Over the past year, motor-fuel prices are off 1.3 percent. Motor fuel prices are largely a function of crude oil prices. West Texas Intermediate crude oil prices fluctuated dramatically from mid-2017 through mid-2019, rising to a peak above $75 per barrel in October 2018 before plunging to less than $45 by December 2018. Crude prices have been relatively stable since May, bouncing around in a range of $50 to $60.
Grocery prices fell 0.3 percent in November and are up just 1.0 percent from a year ago. Over the last five years, grocery prices are essentially unchanged.
The components with the largest weights in the Everyday Price Index are food at home (weighted 20.8 percent and declining 0.3 percent in November), food away from home (17.6 percent and a 0.2 percent rise), household fuels and utilities (13.3 percent and a 0.3 percent drop), and motor fuel (11.8 percent with a 1.1 percent decrease). Together, these four categories account for 63.5 percent of the Everyday Price Index.
Overall, net changes in the Everyday Price Index remain modest. Energy prices are the most volatile component and have been, on balance, a negative contributor in recent months. Grocery prices (food at home) have also been rising at a slow pace and stand in sharp contrast to restaurant prices (food away from home) which have been rising more quickly and persistently. Apparel prices also remain volatile but in general have been a negative contributor. Other smaller components have had significant but largely offsetting trends. Notably, gardening and lawncare services prices are up 8.4 percent from a year ago, while tobacco products have risen 5.5 percent, postage and delivery services are up 5.4 percent, recreational reading materials are up 4.9 percent, and pet and pet products are up 3.3 percent. Partially offsetting these were audio discs and tapes, down 2.6 percent and video discs, down 2.5 percent. Several other smaller components have increases close to zero.
Robert Hughes
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Manual Labor Will Be Revived
In a previous column, I looked at the way automation and AI are likely to transform the world of work and employment. There is a lot of discussion about this, most of which focuses on the likely impact in terms of the kinds of paid work that will disappear. What there is much less of is discussion of the new kinds of paid work that will come into being.
If the result of automation is to create jobs more than to destroy them, then what kinds of work are likely to expand in the future? This is related to but distinct from the first question. In one way, this is a very hard question to answer. Many of the new kinds of employment that will appear are literally unimaginable — if we could imagine them, they would already exist.
Back in the 1980s, nobody could have told people worrying about the decline of jobs in the steel industry that there would be work designing apps for mobile phones, for example. So we can be confident that new kinds of work will appear but have no idea about what it will be — it’s for entrepreneurs to invent and discover that.
However, we can do some thinking about it because while the details may not be clear, there are cases where we can have a strong notion as to what will appear. In the 1900s, for example, there were a large number of jobs associated with horses, at that time still the main power for transport. Almost all of them were gone by 1930, but people could guess that a lot of new work would be created servicing and supporting (as well as producing) the motor vehicles that were replacing horses. Thinking like this about the present situation should lead us to a number of conclusions and to one in particular that many will find both surprising and heartening.
At-Risk Jobs
If you read the various studies that have been done over the last five years, there is widespread agreement about the kinds of jobs that are “at risk.” A recent study by the Brookings Institution estimated that 25 percent of current US jobs are at greater than 50 percent risk of automation. Some are not surprising. Any job that is both boring and repetitive is likely to be at risk. You might suppose that this would mean low-paid manual occupations would be at high risk, and indeed many are — shelf stacking, waitressing, and data entry are all at high risk.
On the other hand, many better-paying jobs are at considerable risk of disappearing. A range of jobs in the transport industry, from truck and taxi drivers to train and bus drivers, are likely to go in the medium term because of the rise of autonomous vehicles (most new metros around the world already have driverless trains). A wide range of clerical and administrative tasks are also likely to be handed over to algorithms, from financial services to company administration and financial advice.
The last example brings up another point. A recent study by the OECD argued that jobs involving face-to-face contact were more likely to survive — which suggests a rosier future for financial advisors. However, experience suggests this is actually not true. When the ATM was introduced, some argued that it would not catch on because customers preferred the human interaction with a teller. Experience suggests that actually the opposite was the case. The same is likely to be true in a range of occupations and not just financial advice and wealth management.
The common factor is that these are activities that can be readily reduced to a tick list of standard questions and hence an algorithm. Routine medical care and diagnosis is one; another is most standard legal work. This suggests that the risk of automation is actually high for many professional occupations such as medical general practice and routine attorney work. In the future, we will probably consult an algorithm rather than a human doctor or lawyer or accountant. However, surgery and nursing are still almost certain to be done by flesh and blood humans.
That particular example can lead us to the surprising and heartening conclusion mentioned earlier. Much of the commentary argues that we are moving into a world where the labor market will be dominated by two kinds of employment. There will be creative jobs that are open to highly educated people and which pay very well, and there will be unskilled and low-productivity jobs (hence low paying), but there will not be a range of middle-skill jobs that pay a decent or even high wage. The view is captured in the title of Tyler Cowen’s work Average Is Over. This has a number of alarming implications, most notably that access to high-paying work is going to become even more dependent than it already is on higher-education qualifications. We should be more sanguine, however.
A Heartening Conclusion
Economic theory, confirmed by empirical research, tells us that people will in general only adopt a new technology when the expected gain from doing so is greater than the cost (technically, when the marginal gain exceeds the marginal cost). This means there are many things that are technologically feasible that do not happen because they do not pass the test of their benefit being greater than their cost.
One example is supersonic passenger flight. This is certainly technically feasible — we know this because two such aircraft were in commercial service for some time. However, there are none now and no prospects for any. The reason, as Boeing discovered while trying to develop a supersonic transport, is that the benefit (getting from London to New York in three hours rather than seven, for example) is not valuable enough to consumers to exceed the costs of such an aircraft, which are due to the technology available and the unavoidable challenges of traveling at such a speed in the Earth’s atmosphere in a way that will meet standards of comfort and safety for passengers. (Military personnel have a different set of criteria, which is why supersonic combat aircraft are commonplace; plus, the buyers of such aircraft, namely governments, are not as price sensitive as airlines.)
One classic example of this is the artificial reproduction of manual dexterity or, to put it another way, of the combination of the human hand with the human brain and the complex feedback and control system (touch and sight) that connects the two. Despite much effort and research, this has proven incredibly difficult to reproduce artificially. Consequently, for most tasks involving manual dexterity and manipulation, it is still cheaper to use a human rather than a robot, and this seems likely to be the case for a long time. This explains why nursing and surgery are both at very low risk of being automated by everyone’s estimation, despite the fact that most surgical procedures and nursing tasks are standard and routine in many ways.
Manual Trades and Personal Services
So, there is a wide range of tasks and work that will not be automated because of this. However, the response might be that the kinds of jobs this applies to are precisely the low-productivity and low-skill jobs mentioned earlier, such as cleaning. Certainly, this is true, but it is not the whole truth. There is also a wide range of work involving manual dexterity that is skilled and highly paid, and the likely impact of AI will actually be to make that kind of work more productive and hence higher paid. Meanwhile, other foreseeable changes will increase the demand for these kinds of work and hence the number of employment opportunities, even allowing for the increase in productivity of individual workers.
This kind of work is that of skilled manual trades such as plumbing, painting and decorating, electricians, and construction work of all kinds. Another is personal-service work such as personal trainers or coaches. Teaching and researching are other examples (at the moment, these are thought of as jobs that require a degree, but that is more about rationing access than reality). Manual trades, for example, are very difficult because of the need for close-up manipulation — a robot that could do an electrician’s or plumber’s job would be seriously expensive.
At this point, another feature of innovation comes into play. What much innovation does is not so much replace human labor as enhance it and make it more productive. AI and associated control systems are a classic example of this. You will still need the manual dexterity of the surgeon or plumber, but the AI and associated technology will increase the range of things that they can do and make them much more effective. In other words, it will increase the value of the service they provide as well as the quantity per unit of time worked — which is the real definition of increased productivity. This translates into higher incomes for people delivering this kind of service.
Moreover, the demand for this kind of labor and service (as well as the others mentioned) is almost certain to increase. For one thing, the people earning very high incomes doing creative knowledge work will want to employ those providing these services in very large numbers (not least because the principle of comparative advantage means it makes sense for them to do this so they can concentrate on their own work). Another feature of AI is that it will make it much cheaper to personalize skilled work and services and so make it more valuable to the end consumer.
What we are likely to see, in fact, as well as the disappearance of a range of familiar jobs, is a revival in the value (and maybe the status?) of manual trades and personal services of all kinds. These will also become higher paying than many are at present (some, of course, already pay well). To give just one example, nursing and personal care are going to have their productivity significantly increased, while the demand for such services is going to rise organically because of the rise in the average age.
This will also mean an increase in the kind of work that requires a trade education and a relative decline in the need and demand for academic higher education. That sector will have to find another market to replace or supplement people looking for certification to have a shot at knowledge or creative work — the business of providing education and tutoring as a leisure and consumption good is one possibility.
In fact, one outcome of AI and automation may well be a revival of manual labor and of the traditional working class — maybe becoming more like an artisan class again. It is actually the credentialed and salaried white collar middle class that is more at risk in the years to come.
The overall effect will be massively positive, as economics leads us to expect. Thus a recent study by Price Waterhouse predicts that automation and AI will contribute an additional $15.7 trillion to the global economy by 2030, with a boost to local GDP of up to 26 percent by the same date. We should be sanguine about the impact of this latest wave of innovation, not just in terms of its overall impact on the wealth of the world but also in terms of its likely sociological impact.
Stephen Davies
