Roberts on the Least Pleasant Jobs
Apr 21 2008

EconTalk host Russ Roberts talks about the claim that for capitalism to succeed there have to be people at the bottom to do the unpleasant tasks and that the rich thrive because of the suffering of those at the bottom. He critiques the idea that capitalism is a zero sum game where to get ahead, someone has to fall back. He also looks at the evolution of the least pleasant jobs over time and how technology interacts with rising productivity to make the least pleasant jobs more pleasant.

Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.

READER COMMENTS

eric mcfadden
Apr 21 2008 at 4:54pm

Wonderful podcast, I loved the format. One voice keeps the issue focused. Once in a while thats really enjoyable.
About the survey, you did not address my one suggestion. It can be summed up in one word. “Mungertalk” hosted by Russ Roberts of course.

Hannes Edinger
Apr 21 2008 at 8:56pm

Hi Rus!

Thanks for this great podcast. I can stop and catch my breath in my political science classes and simply refer my fellow classmates to this podcast instead of going blue in the face trying to elucidate the points made here.

I have one question though, some people in my classes argue that the limited ability for the environment to absorb the flow of industrial pollutants has resulted in a rather large stock. Is it wrong to reason that if there is a finite stock of pollutants that the planet can handle, the flow that the planet can dissipate is therefore, in essence, zero sum/per period?

I understand that as economies grow richer, they value a cleaner environment and the evidence from the USA is clear (good things happen when you are rich), but, I think that it is a reasonable assumption to make that the planet can support a finite stock of global industrial pollutants, and therefore, if the flow exceeds the absorptive capacity of the planet, we will reach that stock at some point (my classmates say we have ie: carbon) and at that point, the flow would have to be divided among producers… is there not some sort of tragedy of the commons/social trap going on in terms of global pollutants?
I guess I have completely taken efficiency gains out of this equation and these gains clearly have a solid track record, but what incentives do countries have if the benefits of cleaner tech. accrue to the whole planet while they are the sole bearers of the cost (and the opposite scenario)?

Thoughts?

Ramiro
Apr 21 2008 at 10:46pm

Russ:

I am glad you took on this age old debate. A recent article on the Economist by Paul Krugman reveals that there are rising questions if trade is a cause of income inequality. Chiefly it mentions that there is no good way to measure it.

I live in South America and people here are obsessed with resolving income inequality and “wealth distribution”; something that I find a little perturbing. I am not sure that income inequality can be a good measure of prosperity (or lack there of). After all, inequality given by the gini coefficient or some other statistical norm will take a variance from rich to poor. This is misuse of statistics, given they don’t reflect real-life economics.

I’ll end my idea with a real-life example: In a good neighborhood a litre of cooking oil runs US$1.7, in the poor neighborhoods, it runs US$4. Why the difference: robbery and recomposition. In this case, one would think that poor neighborhood inhabitants would import cooking oil from rich ones . This happens to some degree, but there is not enough imports to lower the price.

So if we take the PPP average income, the cooking oil will be an average from rich and poor neighborhood, as would salary. This distorts the effect that imported cooking oil has on the poor neighborhood, and makes their income much more valuable than it actually is.

This is good evidence to distrust government policies on “income distribution” and its empirical foundations.

T L Holaday
Apr 22 2008 at 7:35am

When the jobless rate gets too low, the Fed raises interest rates to slow the economy until the jobless rate climbs back up. Thus some Americans who want to work will be unable to find work always. It is guaranteed by the system.

We don’t raise the tax on food, clothing, and shelter until there are enough hungry naked nomads, but we do target jobs.

Ramiro
Apr 22 2008 at 8:28am

T L Holaday

I’d like to further understand your statement. Are you saying that the Fed is purposely keeping a given jobless rate? Please explain.

Steve
Apr 22 2008 at 9:11am

The new format is awesome. I would like to see more podcasts done this way as Russ you are a great speaker.

From what I have listened to today, the podcast is dead on a topic that needed to be discussed. As usual, bang on job.

Jeremy Weltman
Apr 22 2008 at 10:08am

I really enjoyed the monologue style, and found the podcast interesting – would be useful to try this regularly.

On the subject of disappearing jobs, my wife used to cook and clean for me – sadly I now have to do more of that myself! Joking aside, here in the UK (in the 1970s) we used to have a rag and bone man, a chimney sweep (they still exist, but are obviously fewer in number), a shoe shine man in town (again quite rare), bus conductors (on all buses; now only found in London) and my Grandfather mentioned that he began life in business selling matches on the street to professional workers. Meanwhile, his Grandson is working from home, sourcing economic statistics on Cameroon from the Internet, and listening to EconTalk…and is all the better for it I might add (so thank-you Bill Gates and Steve Jobs)!

Stan Kerr
Apr 22 2008 at 12:50pm

Great podcast; your classroom talks must be engaging. I personally prefer the interview format with its give and take (and your extremely diplomatic style); a monologue might easily develop into a rant. Try the same topic with an adamant (but polite) socialist opponent.

My contributions to the list of late unlamented jobs: keypunch operator and ‘routing room operator’ (the person who ripped printouts off a mainframe printer and routed them to the owner). Think of all the thousands of trashed keypunches and the poor miserable operators still crying for their old jobs!

James Owen
Apr 22 2008 at 5:13pm

Love the podcasts and have been a listener for some time now. It seems that the humble waiter has been replaced in at least one non “fast food” (in the tradition sense) restaurant. Instead the restaurant in Germany utilizes a combination of touch screens and good old gravity. http://news.bbc.co.uk/1/hi/technology/7336490.stm

T L Holaday
Apr 22 2008 at 7:32pm

Ramiro:

Evidence that at least one Federal Reserve Board Governor believes that unemployment can be too low: (source)

Nevertheless, my survey also found that estimates of the nonaccelerating-inflation rate of unemployment (NAIRU) were consistently above the prevailing 4.1 percent unemployment rate, with estimates of the NAIRU centered close to 5 percent.”

Another way to state my argument, then, is that the Federal Reserve Board considers an unemployment rate below (what it believes to be) NAIRU to be “too low,” and will judge as successful actions it takes which have the effect of raising the unemployment rate.

Since the unemployment rate is based on people who are actively seeking work, this aspect of the Federal Reserve Board’s approach means that the system is setup to assure that enough of them will fail so as to achieve the desired rate of joblessness. Regardless of how well they prepare themselves, regardless of natural talents and abilities, at least NAIRU percent of them must fail. Joblessness is part of the system.

Salaam Yitbarek
Apr 22 2008 at 8:50pm

I second Stan Kerr’s suggestion on an exchange with an adamant yet polite socialist!

A good exchange is such a rarity nowadays, with most debates and discussions remaining at a superficial and polemic level. What I would like to hear is a discussion at a substantive and technical level (though not my regression is better than yours), that gets at the root of disagreements.

Ramiro
Apr 22 2008 at 9:09pm

T L Holaday :

How do you figure the same people are out of work month to month? Could they be different? Maybe some found work, and other were laid off…

Unit
Apr 22 2008 at 11:55pm

Well maybe the Least Pleasant Jobs don’t really disappear: they just change nature. Some do certainly disappear, others appear (that weren’t there before), but it seems to me that there will always be Least Pleasant Jobs, by definition.

What might happens is a bit like in the Peak Oil situation, where some unpleasant jobs that must get done no-matter-what end up offering substantial higher wages over time (compensating differentials), i.e. less and less people are needed to do the job because of high capital investment (the one-man-trash-collecting-machine example) and these people get paid pretty high salaries. So in effect we never run out of garbage collectors….

Martin Brock
Apr 22 2008 at 11:57pm

The show is not Roberts interviewing Roberts on unpleasant jobs. It’s Roberts interviewing a Straw Man on a variety of moronic propositions in order to rebut Him. Since moronic propositions are easily rebutted, this exercise is a bore to anyone who doesn’t take moronic propositions seriously.

Yes, this format will be more popular than the EconTalk I eagerly anticipate on Monday mornings. It’s the Rush Limbaugh show without the ditto heads calling in, and Rush has millions of devoted listeners, while Russ Roberts has only tens of thousands and will never have Limbaugh’s audience if he sticks to the old format. Most people aren’t very bright. If you want the highest ratings, you must appeal to people who aren’t very bright.

The show discusses stupid conspiracy theories that debunkers of the theories discuss more than anyone else. The show asserts many equally assailable propositions without subjecting them to the scrutiny of an intelligent counterpoint. It’s not my cup of tea, but if you want to compete for ratings, you’re probably on the right track.

The Census Bureau’s current population survey finds a measure of the real, median income of males in the United States hardly changing over thirty years. Roberts hardly addresses this statistic or the countless reasonable explanations of it, including some explanations that he reduces to absurd caricatures to avoid addressing them. “The rich get everything while the poor get nothing” and a “conspiracy to keep the poor stuck at the bottom” are not the best explanations of this statistic. I knew that already. I also know that the Earth isn’t flat and goes around the Sun.

T L Holaday
Apr 23 2008 at 5:51am

Ramiro:

Your question puzzles me. Do you know what the unemployment rate measures? Do you believe it is the same people who are unemployed each measurement?

Do you see that a weekly lottery which sells twenty tickets, of which nineteen are winners, will produce one loser each week? Do you see that if it were the same person losing each week, he would be expected to cease to play? Do you see how some of each week’s winners could erroneously attribute the loser’s failure to his making a poor choice? “Perhaps you should have paid more attention in ticket-selection class, dummy.” Do you see how others of each week’s winners could erroneously attribute the loser’s failure to his lack of natural abilities? “You need a special height to be able to pull out the winners; yours is just not right; try a different lottery next week – chances are you’ll pull a winner!” Do you agree that the the loss is better attributed to the structure of the lottery than to the ticket-selection skills or statures of the players?

What do you think of the role of the mechanic assigned to observe the ticket-printing machine? If it should start printing losing tickets at the rate of one in twenty-five (4%) instead of one in twenty (5%), he adjusts it to bring it back into specification. Do you see that this mechanic is playing a significant part in keeping the proportion of losers “high enough”?

Pascal Bernhard
Apr 23 2008 at 8:08am

Russ,

great podcast, I can only confirm what other listeners said about you “going it alone” in your last show.
Concerning Chinese history you have been a tiny bit inaccurate though. The period when the communist party ordered all people to put up steel furnaces in their backyards was called the “Great Leap Forward” (1958-1960). Mao wanted to jump from a pre-industrial society to a modern industrial country as quick as possible. Well, as one might guess, he failed. “Let a thousand flowers bloom” refers to an earlier campaign 1957/1956 during which the authorities encouraged most of all intellectuals to express publicly a variety of views and solutions to ongoing problems, thus also allowing them to criticize the communist leadership.The slogan was: “Let a hundred flowers bloom, let the hundred schools of thought contend.” Since the criticism became too harsh for Mao’s liking, the campaign was stopped, the new freedom of expression scrapped and some intellectuals actually put in prison.

John Kellin
Apr 23 2008 at 11:26am

I second your comment, Martin Brock!

Russ takes his usual pedantic and dismissive tone about ‘conspiracies’ by the ‘rich’. He fails to note that human history is but a series of ‘conspiracies’ of a small ruling class leeching off the many. Be it kings, emperors, nobility, bourgeoisie, elites etc… it’s not because we live in this rosy era of so-called market economy and capitalism that the leeching has disappeared. It’s just taken another form, for which Russ is oblivious to and a useful apologist of.

The usual confusions resurface in Russ’s arguments where he mixes technological advancement with the benefits of capitalism. As user Unit points out, there will by definition the Least Pleasant Jobs will always exist in an economy. It doesn’t matter what the nature of these unpleasant jobs are or if some eventually get mechanised. The rich need the poor to do these ever-shifting jobs. The poor don’t need the rich to be told what to do with their time.

Fundamentally, money is a barter unit for people’s time. A certain amount of money will get you a certain amount of work hours from a worker with a given skill level to produce a given service or product. By this definition, a rich person owns a lot of other people’s time. How can this be a zero sum game when people’s lifespans are finite?

Poverty is relative and independent of our current living standard. Poverty is mostly about the wealth distribution (i.e. who owes their time to who). Judging from psychological experiments, this is important to people and is the source of major social tensions. So are the poor better off then 200 years ago? Sure, but people don’t ask themselves how they compare to their ancestors 200 years ago, but how they compare to their neighbour/the rich/etc….

Also Russ makes the assumption that people get rich because they provide something people want, like say Bill Gates. Yes that’s true for a portion of the rich, but there is also a large part that leech off the many without providing significant value while making sure the rest stay down. For example, they use to take the form of landowners in the past, whereas today they’re part of the banking cartels. The old ‘privatise the profits and socialize the losses’ gambit. Watch out for more investment bank taxpayer-funded bail-outs, guys! Market economy hey? What a joke.

Although I do enjoy and appreciate Russ’s podcasts, I’m disappointed that they seem to be descending into farcical one-sided propaganda for so-called free trade/market economy mumbojumbo. There’s a difference between what these policies preach and what actually happens in the real world. I just wish Russ would invite someone of opposing view with the calibre to adequately counter these arguments.

anne
Apr 23 2008 at 5:38pm

packed full of great stuff! there are of course other reasons that trade union membership has declined – apart from the shift from manufacturing and a big public sector to the service sector; the traditional male full time trade union member has been replaced by women and part-time workers and those groups did not seek refuge in TU membership;

William Bruntrager
Apr 23 2008 at 5:41pm

Thanks for the really great podcast. I enjoyed the format, I found it a good response to the “command and control” conspiracies that sometimes dominate discourse. Incidentally, I don’t think it would have been useful to have a person with a competing perspective on this show; I’ve heard enough from the other side.

One technical issue/suggestion: wouldn’t it have been more reasonable to put the discussion about the listener survey at the end of the podcast? It seems to me that most people won’t be interested in that segment, so it makes more sense to put it at the end.

Eric
Apr 23 2008 at 6:53pm

I enjoyed the podcast, as usual. No offense, Russ, but I tend to prefer the two-sided interview format. I listen at work and it’s easier to follow with a question/answer approach. Again, it was good but hopefully the interview format will continue to dominate the series.

Martin: John seconded your comment and proceeded to offer what would (if Russ said it) be a strawman.

Well, I thought it was funny.

John Kellin
Apr 23 2008 at 7:51pm

ZeroSum Eric: Just trying to put Russ’s strawmen into perspective.

T L Holaday
Apr 23 2008 at 8:53pm

I like that when Russ has a guest with whom he agrees, his questions end with “… because the government and politicians interfere with the markets, right?” so the guest can say “Yes!” and when Russ has a guest with whom he disagrees, he actually does some preparation.

Unit
Apr 23 2008 at 10:26pm

John Kellin,

“The rich need the poor to do these ever-shifting jobs”.

First, we are not allowed to use the verb “to need” (if you noticed this was mentioned in the McCloskey podcast). Moreover, your sentence doesn’t make sense at this point: you are in effect saying that the rich need the poor to do higher-and-higher-paying unpleasant jobs. Contradiction!

Robert
Apr 24 2008 at 12:52am

Russ,

Thank you for your dedication to this site. Listening to this last podcast, and I know that you have touched on it before, I thought of income inequality. As wealth is created, especially in the poorly dubbed “winner take all” economy where individuals can quickly amass great wealth in certain trades (high and low skill) while others (high and low skill) accumulate at a much slower rate, there will be a problem with the nominal disparity between these two wealth brackets.

I think we are seeing this beginning to happen, and I think it is a timely topic. I certainly do not believe that government should tax away this disparity, but there will be great political pressure. I would love to hear more conversations on this topic and the different avenues available to ensure that wealth creation can continue despite the future massive income disparity.

Henry Milner
Apr 24 2008 at 1:12am

Russ,

I’m trying to understand more clearly the argument that loss of jobs due to creative destruction leads to people holding better jobs. What is the mechanism for this?

It seems to me that the destruction (for lack of a more neutral term) of certain jobs ought to increase the supply of labor in other job markets, especially those markets requiring similar skills. All other things being equal, this should lead to lower wages for those who were laid off, and perhaps those in related industries. In other words, we ought to assume that each person chooses the optimal job, in the sense that the loss of that job likely won’t lead to that person getting a better job. Note that I take job quality to include both wages and the degree of unpleasantness of the job.

Now, it’s true that people often invest in new or improved skills when they lose their jobs. But again, shouldn’t we think that they would have already done this, if it were truly beneficial?

I could see one potential argument for job market improvement through creative destruction. As a result of the technological improvement, consumers are better off and have more disposable income, which increases demand for other products. But it seems difficult to say whether this will create new jobs that are at least as good as the old ones. If this is your position, could you explain it for me more fully?

I don’t claim that technology improvements might be bad for society as a whole – only that they might be “unfair” or lead to greater inequality. But I think unfairness matters, because it’s harder to unambiguously recommend policies like free trade if some will be harmed for the greater good.

John Kellin
Apr 24 2008 at 7:08am

Unit,

I better listen to McCloskey’s podcast then!

“you are in effect saying that the rich need the poor to do higher-and-higher-paying unpleasant jobs. Contradiction!”

You’re the one who added ‘higher-and-higher-paying’. In any case, they might be higher paying in absolute terms compared to past jobs, but as I state in my comment it’s the relative compensation and who owes their time to who that’s key.

Correction in my previous post: I meant “How can this be anything but a zero sum game when people’s lifespans are finite?”

Unit
Apr 24 2008 at 8:01am

John,

my garbage man brings in a lot more money than me. But I wouldn’t trade my job for his. What technology does is give workers “super-powers”. I imagine them as “transformers”: one minute they are simple Joes waking up in the morning, but as soon as they punch that time-card, voila’, they transform into highly powerful robots.

mjh
Apr 24 2008 at 10:12am

Ironically, I was listening to this while mowing my lawn.

Daniel White
Apr 24 2008 at 12:06pm

Russ,

Bless you. Your oral treatise on the true benefits of capitalism and the fallacy of the fixed pie argument was precise and, more importantly, expressed in layman’s terms.
My wife and I do not currently have children, but we are planning a family and, hopefully, someday soon, we will. I have often thought about how to raise my kids, and impart the blessings of being an American and living in a free, capitalistic society; you have made my job a lot simpler. Thank you! I will not erase that podcast from my hard drive. I will make copies of it to ensure that I always have it, and my kids will listen to it many times while they are growing up. I will also send it to all my family and friends.
I really enjoy your show and keep up the great work.

Thanks again,

Dan White

Rex Pjesky
Apr 24 2008 at 12:45pm

Martin Brock does not realize the main issue that economists have had since Adam Smith: people, even smart people, do not know or understand the basic notions of why free exchange and free markets are such blessings.

These basic lessons, along with refuting their opposites, are first among the obligations of any economist.

As an example, I cite the latest “crisis” in food distribution in the world. The Washington Post did a story this week about how most people are waking up to the fact food does not simple show up on the shelves of supermarkets.

Well, the economics profession has known the secret of how food gets to our mouths since Adam Smith, and it is time that we get more aggressive in letting that secret out to the people, becuase they have no idea. (The “solution” to the problem is government commnad and control.)

So, Russ, keep screaming the basic ideas of free exchange at the top of your lungs. There is not anything more important you can do.

Oliver Seidel
Apr 24 2008 at 1:38pm

Hello Russ,

I disagree with your praise for Gates (and likely other monopolist robber barons, which I don’t know enough about):

* I agree that the market grew massively, I claim it would have grown more without Gates
* I agree that the associated productivity gain was massive, I claim the gain would have been more without Gates
* I agree that a unified platform was of importance for the network effect, which counts for much of the gains, I claim that the formats (protocols) for email/web pages/mobilephones produced the same gains without a rent-seeking monopolist
* I claim that the quality of the product(s) was minimal, that the innovation was minimal, that the imagination of the sector was limited to the vision of one company
* I claim that it was in the interest of the monopolist to keep the derived industry stupid (encouragement of low-skilled, dependent customisation over indepth-understanding)
* I claim that the conditions were adverse for the customers: no warranty, forced upgrades with missing functionality, products that work against the customers (digital restriction management, artifical feature restriction)
* I claim that this will only get worse, as Microsoft is investing in research for the sake of patent exploitation (I seek proof in that Microsoft themselves fear their mastermind of patent business, who has moved on to set up a pure patent lawsuit company) — this will restrict the use of ideas even further, this time by preventing the efficient employment of obvious ideas

My proposed remedies:
* with increasing speed-up of innovation-cycles, regularly adapt the term of patents & copyrights downwards as appropriate
* employ a first-to-invent patent regime with the term starting at the date of invention — Russ should love the application of incentives in this one (not my idea, though)

I totally subscribe to the statements that specialisation & trade increase wealth in the mean without necessarily increasing the spread.

I am surprised by the non-mentioning of market-restricting practices on the one side and the non-identification of “conspiracies” as market-restricting practices on the other side of the discussion.

I liked the podcast, though I expect interviews to have more variety in the long run. Thanks for an interesting talk!

Oliver

Arvind
Apr 24 2008 at 4:23pm

I completely agree with Russ’s views and yes free market economics promotes growth and efficiently directs resources to where it is most needed. However you need democratic institutions to make sure all people can share in the riches brought about by capitalism.

The reason countries like China, Russia and many African nations ruled my dictators get away with it is because capitalists ‘dont care’ the
way growth is promoted (unless it hurts the company brand of course). Oil companies operating in Africa aren’t going to abandon their projects because of any human rights violations. Chinese companies (aka the Chinese government) will happily do deals with militants in Dafur as long as they can make some money out of it and this is the reason capitalism gets a bad rap. It is inherently greedy unless it is ‘regulated’ and kept in check by a good government that can enforce the law and promote basic values such as human rights and betterment for its people.

Capitalism is responsible for bringing millions out of poverty and nobody can blame capitalism (solely) for causing or promoting human suffering or deaths. Capitalism simply doesn’t care.

jp
Apr 24 2008 at 11:26pm

“Be it kings, emperors, nobility, bourgeoisie, elites etc… it’s not because we live in this rosy era of so-called market economy and capitalism that the leeching has disappeared.”

Can’t say I agree with you comparison. Kings, emperors, nobility etc ruled by coercion. Market economies are all about choice, not coercion. That’s a big difference. Bill Gates never rammed a gun down my throat and told me to buy Windows XP.

The only things I am forced to buy in today’s market economy are things mandated by the government, like certain forms of insurance. Likewise I don’t have a choice on my gas provider because the government handed the gas co the monopoly, ditto electricity.

But if you want to go back and live as a feudal serf, be my guest 😉

jp
Apr 24 2008 at 11:50pm

“Fundamentally, money is a barter unit for people’s time. A certain amount of money will get you a certain amount of work hours from a worker with a given skill level to produce a given service or product. By this definition, a rich person owns a lot of other people’s time. How can this be a zero sum game when people’s lifespans are finite?”

Sounds like you subscribe to the good old labour theory of value in which the value of something is derived from the amounts of “congealed labour-time” (Das Kapital, 1867) somehow embedded in that thing.

Marginal economics says that value is subjective and determined at the margin.

It can explain the following. Some artists put more labour time into a painting than Van Gogh ever did. So why aren’t their paintings worth as much?

jp
Apr 25 2008 at 12:20am

My main beef with the podcast is the term “least pleasant jobs”.

I see this as a purely subjective concept. For instance, some people actually enjoy picking up garbage, unplugging toilets, cleaning chimneys etc. I knew a parking lot attendant who just lounged around listening to music all day while everyone was in the office. In his mind his job was not a “least pleasant ” one. Just because it’s not for you doesn’t mean it’s not for someone else.

Take a “most pleasant job” like being a doctor. No offence to the doctors out there, but I can’t think of a worse job. Slicing people up, blood, guts, fluids. Uggg. In my mind, anything in the medical profession is “least pleasant”. I’d rather mow lawns.

I say the coolest job, and I’m sure everyone would agree, is fire spotting. You stay by yourself for months on end on the top of a mountain looking for forest fires. Definitely a most pleasant job. Right?

People’s evaluations of jobs are subjective. Arguments that use categores like “least pleasant job” miss this fact, erasing the individual out of the equation.

Ramiro
Apr 25 2008 at 12:27am

T L Holaday

To think that the Fed takes unemployment into account as a single unit of measurement of economic growth is nearsighted.

Unemployment is not a lottery system; lottery samples are independent of one another, jobless filings aren’t. The unemployment rate is not a significant monetary indicator, wage inflation is.

The fed may take into account the rate of unemployment to judge how resources are assigned in the economy, but it is not their purpose to keep people unemployed.

Lastly, it is silly to think that there is an “Economic system that guarantees unemployment”. This statement ignores a great deal of facts about why people are or want to be unemployed. There is no evidence that the fed promotes such system.

Lowcountry Joe
Apr 25 2008 at 6:38am

Is there any market-skeptic, egalitarian economists out there now who are doing podcasts? If so, who? If not, why?

I’d actually be willing to listen to an economist of those particualr stripes have to explain their postions during a conversation. Then I’d like to troll on their comment section and rip government.

Joe
Apr 25 2008 at 7:20am

Hi Russ,

Great podcast. I thought the monologue format worked very well here.

One thing you didn’t go into here is how individuals can be worse off due to creative destruction. Their children and grandchildren will almost certainly be better off, but in the short-run lots of people suffer due to trade and economic development. Say tomorrow, the job of economist is made obsolete and replaced with a machine (stupid example). Those people who are employed in economists right now are doing it because it is the best that they can do right now and the profession they seem to enjoy the most. The former economists will all have to find other employment as journalists, bankers, retailers, etc. They’ll be alright and society will be better, but probably their lives would have been better without the economics machine.

Of course, most opponents of trade do not realize that their jobs were created in the first place because of trade, and new and better jobs will be created by the expansion of the market. They don’t know or they don’t care. The children of the previous generation of innovators often curse today’s entrepreneurs and want to preserve the status quo. The same goes for lower level workers in mature industries. Saddle-makers did not like early autoworkers. Short-term losers in a capitalist economy are rationally (although selfishly) fearful of the dynamism of capitalism. So, a basic problem with capitalism is that it is constantly creating an opposition to itself. This is Schumpeter’s idea, and I agree with it. To paraphrase Milton Friedman, capitalism would be long gone if it weren’t so much and so obviously better for society than any other system – especially in the long-run.

Lauren
Apr 25 2008 at 7:45am

T L Holaday and Ramiro:

I think you are talking past each other.

You both agree on one thing that is true: The Federal Reserve doesn’t target 0 unemployment as one of its goals. But from there you diverge.

First, Holaday: You’ve raised some excellent questions that bear explanation. Why is it that the Federal Reserve [Fed] doesn’t just aim for zero unemployment? What are economists thinking when they imply that an unemployment rate of, say, 4% as opposed to 0% is somehow acceptable? What are they thinking of when they say things that suggest that an unemployment rate can be “too low”?

You are quite right that economists do not generally think of a measured unemployment rate of 0% is something to aim for.

Ramiro, you are also right that the Federal Reserve is not targeting a particular unemployment rate.

How can you both be right?

Let me start with Holaday’s question: how can any credible economist argue that an unemployment rate could be too low?

The answer lies in another question: Should no one ever be unemployed for even a little while?

There is probably a baseline or “natural” rate of measured unemployment. How long should someone who is unemployed stay that way? If you get fired, it often takes a few months of concerted effort to find a new job. In that interim, measured unemployment registers that the person is unemployed. The reasons don’t get measured, but the fact that someone is unemployed and seeking a job does get measured.

Measured unemployment is a very crude measure. It lumps together people who are struggling to survive and struggling to find new jobs with those who are perhaps not so desperate. Those who are trying and struggling are the people with whom we identify and sympathize, the people to whom our hearts go out. When we hear the unemployment rate is such-and-such, we envision it as an image of those who struggle desperately to find new jobs and don’t find them no matter how hard they try.

But some unemployment just happens, and sometimes it persists for few months for a reason.

If a student working in a first job doesn’t show up regularly or perform, shouldn’t he be fired? How about a mere mismatch–someone applies for a job and it just doesn’t work out for either party? How about a pedophile who is discovered to be working in the childcare industry? Less dramatically, how about an ordinary length of time that may be involved when someone out of the workforce for 20 years takes a first stab at getting back into it, gets a job for a week and it doesn’t work out? What is a reasonable length of time: one month, two months of trying in a rural town in the middle of the U.S.? And if someone happens to be in an industry that cannot survive, or that has relocated to some other area of the country or the world, isn’t there some reasonable time, say even a year or two, during which the person might have to retrain or relocate?

Some amount of measured unemployment is what economists call, for lack of a better word, “natural.” People change jobs. They do so for many and various reasons. Those job changes sometimes involve changes in locale and changes in education or training. It can take anywhere from a month to a few years.

100% employment is not a goal a country should strive for. Guaranteeing 100% safety and security every minute would be at the expense of signals about a world that is constantly changing and is not a plan for a dynamic future. You don’t hand your kids a job when they get fired. You let them get out there and seek.

On the other hand, unemployment rates at some level, say 20% year after year, would suggest something seriously wrong. That’s what happened in the Great Depression.

But unemployment rates steadily around 4%–maybe that’s a “natural” rate. What about if it crept up to 6%? 8%? 15%? We don’t know if there is a cut-off beyond which we are on our way to the levels of the Great Depression, so economists do watch and think about it.

And now the next issue, Ramiro’s excellent point: Employment or unemployment levels are not goals that the Federal Reserve should or can possibly effectively target. The Fed’s main and only accomplishable job is to control the money supply and inflation. Maybe short-term interest rates. But aiming for 0 unemployment, or any particular level of unemployment or employment–a goal they can’t control–would be a recipe for failure. Quite so.

You’d no more say that you should aim in your life for never allowing your parents to travel abroad in their retirement. Maybe you worry if they travel too much now that they could get sick years hence and not have enough savings of their own. You have the ability to control your own savings and your decisions, but not theirs. Can you target their decisions and aim for, say, 0 parental travel, by saving less or more in your own accounts? Of course not. It’s not in your control. You don’t have the tools. It’s certainly not something you can control by your financial decisions. Asking the Fed to target the decisions of private firms and individuals in the economy about how many people they employ by the Fed’s doing the one thing it can do–changing financial conditions by increasing or decreasing the money supply–is just as impossible. It’s not feasibly in their control.

I don’t actually think the Federal Reserve is aiming for a particular rate of unemployment precisely for that reason. It’s become well known to be an impossible goal. That they speak of a non-zero rate of unemployment as if it is natural and unaddressable doesn’t mean they are aiming for it. The Federal Reserve cannot accomplish a target goal for unemployment even if they were aiming for it.

The Fed learned this the hard way because of years of research in the 1970s when they actually tried to target and reduce unemployment, using an idea called the Phillips Curve. It was a failed theory that suggested that the Fed could aim for a chosen level of unemployment by choosing particular monetary policies. It was kind of like your saying, “Mom! Dad! I don’t want you to worry about being happy during your retirement. I’m putting money into my accounts for you. Stop traveling so much and trying so hard to live your life! Relax. Go back to taking care of the house and shopping and cooking as usual. I’ll take care of your life for you!” And then, to your chagrin, your Mom and Dad travel even more. As a famous economist once put it: You are pushing on a string. You can’t always control with a financial tool what decisions people make about how to spend their time.

You both make great points, Holaday and Ramiro, but you are not addressing each other.

Russ Roberts
Apr 25 2008 at 4:34pm

Hannes Edinger,

I don’t think pollution works that way, at least in general. It isn’t like a toxin that accumulates in the body. Along most dimensions, the earth is getting cleaner. One exception is carbon which may turn out to be devastating but I am skeptical.

Pascal Bernhard,

Thanks for the clarification of Chinese history.

John Kellin,

Technological advancement is part of capitalism. It is not a force of nature.

As I said in the podcast, there are people who try to use the government to advance their own self-interest. I’d like to see that opportunity reduced or eliminated. And yes, people do thrive in America by exploiting other people using the government. But that is not the main source of wealth in America. It cannot explain why the standard of living of the masses has grown so dramatically over the last 50 or 100 years.

Finally, you say “It doesn’t matter what the nature of these unpleasant jobs are or if some eventually get mechanised.” Why doesn’t it matter? It matters a great deal to the people doing those jobs.

Russ Roberts
Apr 25 2008 at 5:10pm

Henry Milner,

In a world of perfect information and no other changes (which can’t be true), people who lose their jobs would have to find less satisfying jobs. In reality, because information is imperfect and other changes are happening (including the industries and jobs facing competition), many people who lose their jobs because of economic change find better jobs. But my guess is that on average, they find worse jobs, so your point is relevant.

But over time, creative destruction due to technology has a net positive effect–we see the standard of living in dynamic economies climbing steadily over time has millions of jobs are being destroyed. So there is something to the theory. The mechanism? One path is that innovation lowers costs and competition forces entrepreneurs to share the benefits with consumers. In addition, the use of technology makes workers more productive as I discussed in the podcast which increases their compensation. I talk about this more in my next book, The Price of Everything.

Russ Roberts
Apr 25 2008 at 5:23pm

Oliver Seidel,

You might be right about Gates. I don’t know. My main point was that the simple fact that Gates got his money from consumers induces some people to think that Gates (or Sam Walton or whomever) got rich by exploiting others. The transfer of money masks the exchange that took place–it’s not robbery (which is a zero- or negative-sum game). Consumers presumably got something of value. Under a different set of rules and institutions consumers could have gotten even more. But to the extent that Gates overreached, he has helped create Google and a still thriving Apple, a company whose products I have freely chosen and enjoyed since 1984.

I do think there’s a lot to be said about improving property rights and how we handle intellectual property. I hope to have more podcasts on that topic in the future. Interested listeners can find some discussion of these issues in the podcast with Paul Romer.

Russ Roberts
Apr 25 2008 at 5:43pm

I want to thank everyone who commented on this podcast.

I should mention that this podcast came about when a guest fell through. My main goal was to focus on what I believe is a fundamental misunderstanding about our economic system–that it is zero-sum.

Certainly there is a lot more to say about inequality. I’m sure we’ll do more on the topic in the future with guests whose world-view is different from mine.

Martin Brock
Apr 26 2008 at 9:54am

Private email took me down a notch for being hostile in my earlier post, so I’ll repeat here my reply to the email. I’m not calling anyone a moron. I’m calling the assertions that Russ debunks moronic. Russ obviously thinks the assertions are incorrect (to put it mildly) too, even if he’s too nice to label them “moronic”; otherwise, he wouldn’t debunk them.

I just don’t want a podcast about conspiracy theories, either pitching them to defend them or pitching them to debunk them. I want Russ Roberts having an intelligent conversation with another intelligent person, or if Russ plays both roles, I want him to play the other role intelligently. He should assume that the other side of the debate is not nonsense and defend it as a proponent of the other side would defend it. If he can’t manage that, the debate is probably a waste of time anyway. That’s just my take on the format, not a personal indictment of anyone.

I’ll confess that I posted before finishing the podcast. After the first ten minutes in which Russ described the ideas he wanted to address, I was feeling condescended to and expected a lot of conservative apologetics for the status quo. I later heard some nice analysis of the role of technology in changing the nature of less skilled labor and only a little conservative apologetics.

Here is a more specific criticism.

I object to the idea that Bill Gates got rich by providing people software. He didn’t. He got rich by founding and then leading an organization employing a lot people who provided software. Attributing the output of the Microsoft Corporation to Bill Gates is bit like attributing the output of the U.S. economy in the 90s to Bill Clinton.

That said, Gates really is (or was) a geeky software developer who personally produced software that founded Microsoft. Windows and Office and other Microsoft products we know are not this software, but Gates did produce Microsoft’s first Basic compiler in the pre-PC days, and by most accounts, he governed a company in which “coders are king”, i.e. front line producers and their product, not corporatist entitlement gaming, was the focus of the business from the top down. Gates apparently took a real interest in the nuts and bolts of software engineering at Microsoft long after he could afford to rest on his laurels. I think most geeky software developers, including me, respect him for this reason.

I once heard a legendary tale suggesting that Gates would personally find a bug in the source code of every new developer at Microsoft and send an email pointing it out. The email would certainly be an eye opening experience for the new developer. If the legend is true, and if this attitude pervaded the corporate culture at Microsoft under Gates’ governance, I respect him even more.

So I do not hate or resent “the rich”. If I resent something, it’s the collectivism inherent in a statement like “Bill Gates gave the world Microsoft Word”. If I had personally developed much of this product, I might resent the statement even more. I do not blame “the rich” for this attitude. I suppose Gates himself would be the first to deny the statement.

I agree with practically every substantive assertion Russ makes in the podcast. The economy is not a zero sum game. Common people are materially better off and enjoy better working conditions through technological progress. The rich don’t rely on the miseries of the poor or desire this misery. People can raise their incomes over the course of a lifetime. Kids should stay in school, and his mom’s apple pie is a work of art. O.K. He skipped the bit about his mom’s apple pie.

None of these assertions contradicts other assertions that Russ seems to want to address. People deciding who receive what typically decide that they’ll receive the most. Authority over these decisions has become more centralized, or concentrated into relatively fewer hands, and this increased concentration affects the distribution of consumption. Technology is improving life for most people, and we’re all consuming more as productivity increases, but most consume only a little more while a few consume a lot more.

Are these assertions true? How true are they? I don’t pretend to know. I do know that Russ doesn’t contradict them. All of these assertions could be true. That capitalism is not a zero sum game is irrelevant.

Maybe a few highly educated people are responsible for the productivity growth, and it couldn’t happen without them, and they’re the ones claiming the lion’s share of the fruits. That could be true too. Then these people are the ones gaining authority to decide who receives what. I don’t deny this possibility. I earn more than most people and more than most of my family and childhood friends. My earnings have increased consistently over my lifetime, sometimes despite extraordinary events in my life that might have affected others more adversely.

I’m writing this post from the Sheraton Roma. I’ve been here for a month. I was here for two months last year. I do not hate “the rich”. I do not believe that “the rich” hate “the poor”. I just wonder whether my greater entitlement to consume, compared with other family members and childhood friends, is really all that just. It’s not like I’m the nicest or the hardest working or even the smartest one of us.

I felt this way when I was a Federal employee too, and then I knew I was part of an authoritarian hierarchy coercively extorting the fruit of other people’s labor. It’s just literally true. It is. It really is.

Bill Gates governs great wealth, because his role in founding Microsoft and his subsequent role in the company’s fortunes entitles him to govern it. Gates does not consume all of this wealth. He organizes it. “His wealth comes at no one else’s expense” is not false as much as it involves a category error. Gates’ wealth doesn’t cost others consumption, because governing resources is not equivalent to consuming them.

If he tried to consume all the wealth he governs, Gates would affect the consumption of others far more than he does. Since he doesn’t personally consume the value, Gates’ governance of so much wealth doesn’t impede other consumption on this scale.

This distinction between governance (or investment) and consumption is largely why Gates’ wealth doesn’t come at the expense of other factors at Microsoft or other people generally, not the fact that capitalism is not zero sum. That the economy is not a zero sum game explains why coders and project managers and marketers and packagers and testers and documentation writers and countless other people at Microsoft can gain without taking anything away from farmers growing soybeans or manufacturers making soy sauce or chefs making sushi.

The decisions of people like Bill Gates affect the options of many others, and he knows it. That’s why he created his foundation rather than building himself the world’s largest castle or taking a vacation to the moon. He could have been Nero, but he wasn’t. If he had been, lots of people would be poorer in fact, because they’d be competing with his consumption. I’m here to praise Bill Gates, not to bury him, but I still think we need a progressive consumption tax, even one with marginal tax rates approaching one hundred percent, as we had in the nineteen fifties. I suppose Gates might agree with me.

Jesse
Apr 26 2008 at 9:57am

This podcast episode fascinated and confused me. So much so that I cant sleep. Here is what I don’t get –

I am a 23 year old Australian. I have no higher education, no trade, no productivity enhancing skills as such. I’ve been a phone store attendant, a removalist, a cleaner, a call center worker. But whatever I do, no matter how unskilled or menial the job, I am paid far more than a doctor or engineer would earn in say Indonesia.

Am I leeching off my countries skilled workforce, who have set our relatively high level of productivity?

You give the example of the potato chip maker who is now far more productive. But he is not responsible for that productivity. why is he receiving greater pay? Why is my unskilled labor in Australia worth more than highly skilled labor in a developing country? Is it just ‘cost of living’ expenses?

Sorry, I usually spend my time loading boxes onto trucks, so I am unable to convey my thoughts in economic terms, but I would like to understand this.

Martin Brock
Apr 26 2008 at 8:48pm

Jesse,

I doubt that you earn less than a doctor in Indonesia. It’s possible, but I doubt it.

A market determines your compensation. You don’t determine how “skilled” or “menial” your labor is. The market does.

It’s not true that a potato chip maker in a highly automated process is not responsible for his productivity. Another problem I had with Roberts’ commentary was his tendency to say things like “this worker only watches the machine”. The idea that operators of high-tech machinery typically are less skilled than laborers replaced by machinery is a mistake. These operators typically are more skilled.

I’m one of the glorified engineers/designers myself, and I often tell management that we over-design software, often by trying to automate operations that are better left to operators with an understanding of tasks the software is performing and available tools for performing them.

Human beings are very well equipped to deal with contingencies. An operator doesn’t simply watch and wait until something goes wrong and then call a more skilled maintenance person. The operator ideally performs routine maintenance himself and may be as skilled, if not more so, than someone like me. If the operator needs to call a maintenance person occasionally, this person is differently skilled, not necessarily more skilled.

We sometimes don’t appreciate the operators’ skills because they’re often learned on the job and don’t involve a formal credential; however, that workers learn these skills on the job doesn’t make the skills “menial” or “not theirs”. Human beings are uniquely endowed to learn and adapt, and the learning process occurs continuously, not only or even primarily in a classroom.

If capitalists could buy robots to replace people in this way, they would, but they can’t. That’s why human beings with specialized skills leveraging more general skills and natural endowments are critical to complex processes, regardless of automation, and more critical because of automation.

Human action is the most valuable resource. I cite Ludwig von Mises and Julian Simon, not Karl Marx, for this lesson, but it’s mostly a conclusion I reach through my own experience and intuition, not from any formal, economic theory.

Martin Brock
Apr 26 2008 at 9:45pm

Here’s another point that needs making. Labor in China is not cheaper because it’s less skilled. It’s cheaper for a variety of reasons but not primarily because it’s less skilled. That’s my theory anyway. I worry about the U.S. trade deficit with China precisely because China’s manufacturing workers, by actually working in manufacturing and not simply dreaming up new processes isolated from manufacturing, could be leaping ahead of us.

The great leap forward may not be precisely what Mao imagined, but it could be happening. Essentially, entitling Chinese factors to less consumption (compelling lower wages) in order to make more resources available for investment, without impeding a market organization of the resources, is how you’d do that, if you could pull it off. You’d need to be sure that entitlement to consume taken from one group of factors isn’t simply redistributed to another group. The lower consumption must actually enable useful investment, not only someone else’s consumption.

U.S. factors routinely sell the fruits of U.S. investment in technology to China. If we also undervalue the skills accumulated by Chinese labor, we’ll eventually find that China doesn’t need to buy designs from us, and we’ll find that all the skilled labor we’ve systematically undervalued for decades is more difficult to grow than we imagine.

That’s malinvestment. I learned that from von Mises too. China now leads the world in patent applications. If we’re also selling them exclusive rights to whole categories of production, I’m even more worried. The problem is that the next generation of technology typically is an incremental step from the last generation, and if we don’t actually employ the technology, we don’t really have a clue how to take this incremental step, but we can fool ourselves into believing that we do for a while.

We can’t live long in a world in which we design products and manufacturing processes for the Chinese. This world can exist for a generation or two at most. If a generation of Americans sells the production business to others for temporary entitlement to a bit of the fruits, the design business will follow as night follows day. We’ll never simply be bankers to the world either. Our currency won’t long be the world’s currency if we don’t genuinely produce things that others want. If that capital account surplus is only the purchase of Treasury notes, it can evaporate very quickly.

The Chinese want to buy houses on our sparsely populated land, and I think we should sell them the houses, but we must let allow them to move here. That’s potentially a double win for us. If we have malinvested, we need to drain their brains now. They’ll need food from us too.

Martin Brock
Apr 27 2008 at 5:32am

Jessie, above, I intended to write, “I doubt that you earn more than a doctor in Indonesia.”

David Gagnon
Apr 27 2008 at 3:34pm

One of the best podcast ever !

Thanks !

Martin Brock
Apr 28 2008 at 3:55am

Here’s a video podcast making a point about China similar to my point above. I don’t agree with the speaker’s conclusions (advocating tariffs), but much of his analysis seems reasonable to me.

http://fora.tv/2008/03/12/Eamonn_Fingleton_and_Tariffs_on_Chinese_Goods

Schepp
Apr 28 2008 at 7:50am

Russ,

I prefer the guest format. The dilogue keeps both you and your guest in check, becuase that is what you do well( and the guest that you select do well also). No doubt that your discussion was insightful. With all the comments you received I can see I am likely in the minority, but hope you keep your podcast as interactive as possible.

Russ Roberts
Apr 28 2008 at 8:20am

Jesse,

You raise an excellent question. It might be worth a podcast of its own down the road. There is no doubt that we are all the beneficiaries of those who have come before us and those who work alongside us. One way to say it is that it matters where you are born and when you are born.

Martin Brock is right–it depends on the market. And that is the answer tha Robert Lucas gave in an earlier podcast which I recommend. But why is the market for your skills in Australia so much better than the market for the doctor’s skills in Indonesia (or Cuba). One answer is that the market is more dynamic (free) in Australia than in those other countries. A related point is that there is more capital for workers to work with in Australia. But thy is that? Probably because investors in Australia are more confident that they will be able to reap the return on the risk they take.

Those are, I think, just part of the answer. Again, I’ll try and talk more about it another time.

Russ Roberts
Apr 28 2008 at 8:23am

Schepp,

Don’t worry. The monologue will always be an occasional option and not the norm. I like the guest format myself. The monologue is something to fall back on when a guest falls through or we have technical problems.

Alvin Hutchinson
Apr 28 2008 at 10:42am

There is one thing that I need to be enlightened about regarding this topic: I believe that one is rich because another is poor.

Just like one person is tall because most of the others we’ve seen are shorter than him or her or one person is beautiful because most others we’ve come across are not so, one man is rich only relative to others in poverty.

If the U.S. government printed currency and distributed $100K to every man, woman and child in the U.S., none of us would be any richer or poorer than we were before. Right? Those who had more money than I had prior to this distribution would still be richer and those who had less would still be poorer.

I understand what Russ was saying about all of us being better off today than in decades past in so far as almost all of us can afford a telephone, color television, multiple pairs of shoes, etc. that were not available in the distant past. But as for the common measurement of wealth (liquid assets) one man is rich only because another is poor. I can’t see it any other way.

If a horse comes in first in a race then by necessity, another must come in second, and third and ultimately . . . last.

Russ Roberts
Apr 28 2008 at 11:22am

Alvin Hutchison,

What you say is true but you’re missing the point about changes over time. The richest person today is many times richer than the richest person 100 years ago. And in many ways the average person in America today is many times richer than the richest person 100 years ago. It’s not just a matter of relative wealth today defining who is rich and who is poor. There is an absolute standard.

If the US government printed currency and gave it to everyone, no one would be richer. But not because your relative ranking would be unchanged. It would be true because printing money doesn’t change your standard of living.

People today are richer than people of 100 years ago in a real way–we have a much greater access to wonderful things.

Martin Brock
Apr 28 2008 at 12:30pm

If the U.S. government printed currency and distributed $100K to every man, woman and child in the U.S., none of us would be any richer or poorer than we were before. Right?

If I have $50k now and you have a dollar, I’m much richer than you. After printing this money, I have $150k and you have $100k. In one sense, our relative wealth is the same. I still have $50k more than you. In another, important sense, our wealth is much more nearly equal after the printing. After the printing, I have 50% more money. Before the printing, I have 5,000,000% more. I think we’d both agree that we’re more nearly the same, in terms of monetary riches, after the printing, because accumulating that first $50k is often tougher and takes longer than accumulating the second and third.

John Henry
Apr 28 2008 at 3:04pm

Good format. I was wondering, at first, about a monologue rather than the customary dialog. Many people could not pull this off for more than 15-20 minutes. You can go the full 9 rounds.

Feel free to do it again.

One of the things I liked was your theme of potato chips to computer chips. Have you read George Gilder’s 1984 (or so) book on entrepreneurs? He has a lengthy section on a kid from Idaho who had a potato farm. He came up with ways to supply potatos to the military in WWII, figured out how to make french fries for McDonalds in the 50’s and generally became potato king of the world.

He then, realizing that Idaho needed higher tech jobs, used his potato wealth to found Micron Electronics to make computer chips.

Literally potato chips to computer chips. The kid was JR Simplot.

And a suggestion: Do you know Craig Newmark? He is an econ prof at UNC and has an interesting blog at http://newmarksdoor.typepad.com/mainblog/
I think he might make an interesting interviewee. His wife as well. She teaches high school and blogs at
http://betsyspage.blogspot.com/

Keep up the great work.

John Henry

Schepp
Apr 28 2008 at 9:40pm

Russ,

Thank you for the reply. I guess, I did not read all the straw man commnets before I posted. There are few things more convincing about your discussions than when you truly engage with folks with different basic points of view. Your acknowledgement when you agree and disagree is why you are no straw man. The monologue has invited one sided rebuttles.

Without experimentation there is no progress and many did gain much by your work this week. Thank you Russ and I will be listening on Monday.

Lasse Jaeger
Apr 29 2008 at 5:59pm

Russ,

Thank you for a great podcast. It’s a very interesting topic and one thing came to mind when listening…

You mentioned a conflict of interest between the rich and the poor and whether or not the rich have an incentive to keep that distinction as it is. I completely agree with your point of view. However, it seems to me that you skipped a central point of the argument as presented by critics of capitalism. That point is ownership. You argued that the dynamic advantages of a capitalstic labour market is recognized by the rich. In principel every child of a low-skilled immigrant can rise to achieve succes and a million dollar wage. But that is not the same as being “rich”. That kind of wealth requires ownership of a large corporation or likewise. One can be very comfortable with a job as CEO of a large corporation but that person is still just a worker albeit very well paid. What is your position on the importance of ownership in relation to the dynamic distribution of wealth?

Mari
Apr 29 2008 at 11:41pm

Are there still sharecroppers? My grandparents were NC sharecroppers. Grandpa died in the 60s and grandma remarried a farmer, and when he died the land was rented out to another farmer. My mom. aunts and uncles escaped the farm and 4 out of the 5 adult children live comfortable middle and upper middle class lives.
Someone also mentioned the ‘least pleasant jobs’ thing is quite subjective. I have a friend who is a waiter/bartender. He makes good money in tips, especially when working the bar. He likes chatting it up with people and the hard to track cash tips. And my roommate was a waiter. It was a good position to have that granted him the flexibility he needed as he had a consulting business (not related to the food service industry) on the side.
Another thing, poor workers not only service the middle class and rich but also other poor and working class people too. The poor get their hair cut, have their garbage picked up by city workers, go to the grocery store, and get their lawns mowed. Not by a lawn care service but by a guy with a lawnmower going around asking/pestering folks if they need their lawn mowed.
Lastly, I prefer the dialog podcasts. Though I liked this one, I really like it when the back and forth between host and guest.

Martin Brock
Apr 30 2008 at 12:25am

In principle every child of a low-skilled immigrant can rise to achieve success and a million dollar wage.

If every child rose to a million dollar income, a million dollar income wouldn’t be so enviable.

You mean to say that any child can rise to a million dollar income, not that every child can rise so. The distinction is very significant. After some revolution or some periodic election, we might hold a lottery to award a crown, and this crown might entitle the holder to every acre of land in the U.S. Anyone might win this election, but everyone obviously can’t win it. That anyone can win doesn’t make the lottery attractive to me at all.

Before someone accuses me of identifying the U.S. economy with this lottery, I’ll deny the accusation, just to save us all some time. “Everyone can become Bill Gates” fundamentally isn’t true, and “anyone can become Bill Gates” isn’t very meaningful either.

Should someone become Bill Gates? Yes, I believe someone should. I don’t therefore believe that every choice Bill Gates is entitled to make in the U.S. at this time is written on stone tablets handed down by God and is beyond civil dispute. Bill Gates is not simply an individual freeman. He is a governor of many resources, and as such, his decisions have far reaching effects on many other people. As I advocate limited government, so I can advocate limitations on Gates’ governance as well as Bill Clinton’s governance.

Lasse Jaeger
Apr 30 2008 at 6:49am

@ Martin Brock:
You are obviously right. Please excuse my poor english.

Russ Roberts
Apr 30 2008 at 7:46am

Lasse (and Martin),

It’s not your poor English, it’s the different ways to interpret the word “rich.”

If you mean “one of the wealthiest people in the economy,” then yes, there can only be a few of those by definition.

But if you mean “a comfortable and easy life” then everyone can become rich and in many ways, a large part of the American population (and that of other developed countries) is rich.

John D. Rockefeller was one of the richest men at the end of the 19th century. My paternal grandfather was born in Rockefeller’s heyday,in 1898. My grandfather’s grandchildren’s standard of living (and that of most Americans) is in many ways better than Rockefeller’s. We have much better medical care, we have access to information and music and the arts that he couldn’t have had. He had more servants but my Honda Accord is better than anything that took him around town. I have access to food from all over the world that he couldn’t have had. The main thing he had that I don’t have is the ability to look down on my neighbors. That’s wealth?

Martin Brock
Apr 30 2008 at 11:51pm

Rockefeller was rich in the 19th century, because he exercised great authority over resources. If Castro lives in Spartan conditions, he is still “rich” in my way of thinking.

At some point, consumption is not the best indicator of wealth. Bill Gates could hardly consume $50 billion if he tried. If he could consume it completely, he wouldn’t, because he then wouldn’t be rich anymore. Some rock star with much less wealth probably consumes far more. One hallmark of the very rich probably is that they value being rich more than they value consuming a lot, i.e. they value acquisition or saving or investment over consumption. For the richest, riches are not a means. They are the end. A man doesn’t fight to be king of the hill because he loves the hill so much. He loves the idea of being king. Any hill will do really.

I don’t say that the rich want to “look down” on others, but they do want to exercise authority over others, essentially to have servants (or subjects or employees). Yes, that’s being rich, definitively, in my way of thinking. If a wealthy benefactor sponsors my highly luxurious consumption but may withdraw it at will, everyone understands that my benefactor is the rich one. If I have no independent means, I am still poor, even if the benefactor never withdraws the support.

Michael Behrman
May 1 2008 at 10:24am

Russ,

I agree with most of what you said. I certainly agree that we are getting richer as a country and a world. I care a lot more about the later. Free trade is good. Better technology is good. Both create jobs in the long run and make the economy more efficient.

That said, I do think that you understate the effect on certain individuals who have lost jobs due to these forces. I know the evidence shows that relatively few jobs are lost to trade. Perhaps more are lost to technological changes. Certainly in both cases new jobs, and more jobs, are created in the long run. But that is the _long run_. In the short run it seems like this is not the case, and it is the short run that is more important to most people who are caught up in events. So it seems to me that it is warranted to look at ways to minimize the short run fluctuations, which we do to a certain extent. Why not concentrate a bit more on these methods and how to improve them in your discussions?

I think that in general the audience of these podcasts agree with what you are saying. It seems like this is exactly the audience that needs to hear in detail about the problems economic growth can create and how to fix those problems. Most of us know about the benefits.

Chris
May 3 2008 at 6:43pm

It made me mad that you listed serving tables as “at the bottom”. Most servers make excellent money, and since they almost never claim it all, get a lot of it tax free. I would guestimate by my experience that in the Midwest at a PerkinsApplebee’s class or higher, a server can make easily 35 thousand or more a year working 40 hours a week. This is for one worker in a low cost area. Servers are not at the bottom.

Brandon Keepers
May 7 2008 at 12:17am

I didn’t get a chance to participate in the survey, so here it goes: I’m a white, male, twenty-something college drop-out that owns a web development company and usually listens to your podcast while exercising or doing yard work. I enjoy most of your podcasts (yes, especially the ones with Munger) and would love to hear a few conversations with people that have fundamentally different viewpoints (socialists, communists, etc.).

I really enjoyed this podcast. I don’t really disagree with anything specific, however, it didn’t really address my questions around the issue.

While creative destruction eliminates the least pleasant job—and presumably allows the people in that job to do something more productive and pleasant—doesn’t it also increase the standard of living for everyone else?

For example, the effect of eliminating the need for garbage collectors should either cause the cost of garbage collection to consumers to go down (unlikely) or the profits for the owner go up. Either way, the net gain of the garbage collector relative to the rest of the market is zero. So, while it’s not zero-sum, it is zero-net.

Also, as a listener mentions in the comments, there will always be a “least pleasant job.” In other words, won’t some jobs always inherently be valued more than others? By that definition, capitalism does require “someone at the bottom to do the menial task”, whatever the most menial task is at the time.

The fundamental question I have is: Does capitalism allow the people at the bottom to crawl out of poverty, or does the relative disparity in wealth necessitate that the unskilled laborers be poor?

Russ Roberts
May 7 2008 at 9:32am

Brandon,

Creative destruction does increase the standard of living of others–you’re exactly right.

While there always is a “least pleasant job” what I was trying to convey in the podcast is that the way most people think about the hierarchy of jobs is misleading: the people at the bottom aren’t stuck there; over time, the least pleasant jobs get more pleasant; and the well-being of the comfortable does not require people to suffer.

Seth Roberts
May 16 2008 at 1:23pm

Great podcast!

I disagree about one thing. About garbage collecting and the effect of technological improvement, you say, “The technology substitutes for the person. Which sounds bad. Because it means fewer garbage jobs. But that’s good. Because that means more jobs doing something else.” It doesn’t mean “more jobs doing something else” unless elsewhere the economy is creating more jobs — which is a separate matter. Jane Jacobs writes about this in Chapter 6 (Technology and Clearances”) of Cities and the Wealth of Nations. She describes several instances where new technology led to mass unemployment because the displaced workers couldn’t find new jobs. One of her examples involves the American South. Increases in agricultural productivity in the middle of the 1900s didn’t automatically mean more jobs anywhere else. The displaced workers went to stagnant cities where there were not enough jobs for them. “The costs of idleness and unproductivity of displaced people, along with the accompanying poverty, demoralization, violence, drug addiction and crime, are incalculable but they are enormous.”

Russ Roberts
May 16 2008 at 2:56pm

Seth Roberts,

The reason it usually means more jobs somewhere else is because if it is cheaper to use a machine than a human, then there is a savings that creates the possibility of something new coming along. When people can spend less on their garbage pickup, they have more money left over to buy something else. Either more of existing things or new things. That’s the essence of creative destruction, wealth creation, and a higher standard of living for someone other than the person who created the cheaper way to collect garbage.

Some economies and labor markets are more dynamic than others. So the transition may not be so easy and can be very painful. One lesson is that if we want to grow, we want to make it easy for people to start new businesses and change jobs. Some of what makes that easier is cultural.

Aaron
Jun 1 2008 at 10:07pm

“Poverty is relative and independent of our current living standard. Poverty is mostly about the wealth distribution (i.e. who owes their time to who). Judging from psychological experiments, this is important to people and is the source of major social tensions. So are the poor better off then 200 years ago? Sure, but people don’t ask themselves how they compare to their ancestors 200 years ago, but how they compare to their neighbour/the rich/etc…. ”

So in other words, there is absolutely nothing we could ever do short of complete redistribution of wealth that would solve the issue of poverty. Thanks.

confirmed fan
Jun 12 2008 at 9:52pm

I enjoyed this podcast — clear, well-reasoned, stimulating. One thing I keep wondering: Is the purse a pizza? The public purse, that is. I get the feeling pork IS a zero-sum game. Or should be. I’m still thinking about this. Thanks again.

Richard Fenton
Jul 5 2008 at 8:34am

Dear All,

I have been listening to Econtalk for ~ 2 years now – it is excellent, keep it up!

That this podcast has produced the most written responses over this 2 year period is not surprising as it touches on some very raw nerves.

Before I become critical of some specifics, let me set my stall out: in the choice between a centralised command and control economy fully planned by a ‘head’ and a capitalist ’emergent’ economy, I choose the later (as has China, Russia and the rest of the world now).

That’s not really the question anymore – done deal. But that does not mean that capitalism is PERFECT. All systems can be improved.

I would like to support the comments of Martin Brock and John Kellin which relate some negative thoughts about how companies operate in our capitalist society.

I’d like to expand on Martin Brock excellent analogy of:

“I object to the idea that Bill Gates got rich by providing people software. He didn’t. He got rich by founding and then leading an organization employing a lot people who provided software. Attributing the output of the Microsoft Corporation to Bill Gates is bit like attributing the output of the U.S. economy in the 90s to Bill Clinton.”

There’s a subtle point he makes here. As a society we have recognised (through the setting up of institutions over CENTURIES, enshrined through law, legistation and national cultures) that certain behaviours are now unacceptable. So it used to be that the Kings and Lords of England literally lorded it over their ‘subjects’. [Cutting a very long story short] we have recognised that there is a better way to run a country [one where property rights, health care, other techologies are now nurtured for all and developed over time].

Interestingly, the cultures, rules, laws surrounding what happens inside those companies which compete to create are THUS FAR not as fully developed. So, taking Martin’s point, clearly it is ridiculous that Bill Clinton should be rewarded with the entire US output. However, it is less clear that this is ridiculous when we ‘accept’ [through the laws of society, and not by me, Martin and John] that Bill Gates should be worth as much as he is.

Indeed the skew that Bill Gates has in setting his own rewards through Microsoft exactly reflects the olden day Kings and Lords. He pays / rewards himself (largely) what he wants to.

OK.

So we have a capitalist system that simply put accepts this imperfection. What’s infesting is that it ‘works’ [ie capitalism >> any other social / political / economic system]. In essence we allow all these small units of people (companies) to compete with each other to win the spoils (and the important point) and provide useful services to everyone else.

So the macro picture (of the whole economy) works really well. But the individual companies are no different from the old feudal system of ‘winner takes all’.

This is where the debate becomes really difficult because that’s not all that happens in the world around us. It is not always that company directors hire and fire and treat workers as expendable resources (although this is the norm!).

In the UK the Sunday Times produces a Rich List and a Best Companies to Work For list. Some of the ‘best companies’ seem to be highly communal (and profitable – not communist!). In some of these companies the CEO is voted for annually by all the employees (not something I believe Bill Gates ever introduced during his reign!).

I hate bashing Gates, partly because he now seems intent on giving all his wealth away and he is on tape as saying “nobody really needs more that about $10m”, which I’d agree with. And this is why I mention the Rich List, 1000’s of people in the UK with far more money than they could ever spend on either necessities or ‘common luxuries’. Essentially, this money (or spending power) is wasted on them. They employ people in activities making them stuff that brings them relatively little pleasure as compared to the pleasure that would be created if the money were (yes, somehow) spread amongst the wider populace. It just makes no sense that 1% of people controls 25% of the wealth (and therefore) 25% of production.

But this wealth they accumulate DOES have a real world effect on people. The millionaire (I deliberately don’t say billionaire because there are ~ 10m $ millionaires in the world and I want to explain the scale of this phenomenon) in the local mansion looks at his portfolio of wealth and assets. Now, some is in equity, some is in bonds, some is in property and some in cash. In the UK in recent years the number of these wealthy people speculating in property prices has ballooned, such that property has now risen by 400% in 10 years.

This means many (younger especially) people cannot now afford a house. Those that do, have interest repayments that are 400% higher than they were 10 years ago (now the largest part of consumer spending). And this of course equates to the time needed working to earn the money to pay the mortgage.

Precious thing, time. It’s the only thing we’ll all be short of (eventually!).

And this is the real problem, how we spend our time. I think Russ’s comments (for once!) are plain wrong when he describes (April 30th post):

John D. Rockefeller was one of the richest men at the end of the 19th century. My paternal grandfather was born in Rockefeller’s heyday,in 1898. My grandfather’s grandchildren’s standard of living (and that of most Americans) is in many ways better than Rockefeller’s. We have much better medical care, we have access to information and music and the arts that he couldn’t have had. He had more servants but my Honda Accord is better than anything that took him around town. I have access to food from all over the world that he couldn’t have had. The main thing he had that I don’t have is the ability to look down on my neighbors. That’s wealth?

Most people spend most of their time worrying, struggling, fighting lying and cheating to get money, to make ends me day to day. They hate sitting in traffic jams in their Honda Accords (and even Ferraris!). Most people (while they have ‘access’ to food from around the world) eat poorly in the western world (being often malnourished, obese and microwave dependent). And to be a little unfair to Russ I secretly imagine that he really does look down on some of his neighbours by virtue of his obvious intellectual ability! (sorry Russ I think you really are excellent at what you do and these podcasts are just the best listening [away from music] on the planet). 

I would contend that the biggest difference between Rockefeller and the average American / westerner is a long list of subtleties:

Worrying about the mortgage
Worrying about the pension
Worrying if little Johnny will get shot or knifed at school
Having to cook and wash up after the meal
Change nappies
Having to clean the car, put the washing out to dry and fold it up and put it away
Getting frustrated by the traffic or banging the PC when it doesn’t work (and if I don’t get this sent by 5pm tonight I’ll loose that critical contract)
Waking up in the middle of the night because the baby is crying
Having to do the gardening and the food shopping
Having to vacuum clean the house
And above all not having to do a job which entails people just fighting continuously from ‘9 to 5’ (what a way to make a living . . .) and feeling just dead beat and confused by 6 or 7pm when it comes to the end of the day (and all of the above can start as the concerns!)
Not surprisingly the default (choice?) of most westerners is to take ‘the blue pill’ (of “The Matrix”) and watch TV as an intellectual valium.

Indeed what is wealth?

To return to the analogy of the 1999 movie “The Matrix”, I believe that wealth is taking ‘the red pill’: “you stay in wonderland and I show you how deep the rabbit hole goes. Remember all I am offering is the truth, nothing more”.

Rockefeller had TIME to think about the truth. He could take walks, swim in the sea, play with friends, reminisce . . . do as he pleased. He had time to live, love, be loved. In short he had choices. I’m sure he didn’t miss the internet when he read wise books, or bemoan great ships as he sailed the world in luxury (I wish I could fly?!). Medicine would have been his one great loss (but we must ALL die some day).

Time to think, to see the world as he wished. It’s a far cry from the continuous gnawing of “maximise shareholder value” that get’s shovelled down my throat! Perhaps Rockefeller never did like looking down on people, he just wanted to be free of the controls of others?

(I use ‘Rockefeller’ as a general term for ‘wealthy’)

The truth is that our laws will continue to alter, most people will continue to struggle for money, while a few will be unable to spend their vast wealth. Perhaps the good practices of some of the more “democratic” companies to which I alluded above will spread, perhaps they are an anomaly. Who knows – nobody at present.

Our world is not perfect. Capitalism is not perfect. To paraphrase Churchill’s famous quote about democracy, perhaps “capitalism is the worst of all possible economic systems, except for all the rest”. A lurch towards communism (the great experiment that failed) is now no longer even a question.

The question is how to improve capitalism. It has taken centuries for us to achieve the standard of living built for us today (which we have MOSTLY inherited from our forefathers). A thing as big as the world economy improves slowly.

Essentially what’s required is more accountability (with regards to those who set the economic rewards of their own companies). Mechanisms within companies to demonstrate the value added by those ‘at the top’ so that their rewards aren’t simply ‘what I can take’. This is where it goes wrong and indeed was the mentality of those who shouted “off with their heads” in days of yore. “You’re fired” as Alan Sugar would shout in the UK version of “The Apprentice”.

I don’t have 1000 simple answers. But the history of the world does. And so will our future. The wisdom of the unborn crowds, people standing up one at a time to etch their small mark in life’s tapestry will slowly bring these answers. Great minds of the future will find these answers. Globalisation has for the first time made these questions part of a dialogue that is now common around the world.

For now all we can do is ask the right questions. It always comes down to accountability – how do we design a system (or allow / encourage a system to design itself) that improves accountability of each person to others. Capitalism through the market mechanism achieves this better than any other system – accountability, checks and balances as to the value of things by all in society is how this is achieved.

But our current discussion is based on this concept of ‘the market’, which as a global entity is still developing. This allows “rents” to be charged by those who currently run companies (or rule them, to use the olden day analogy) to find loopholes in current legislation and skew their power – they are the tallest tree in the forest, but unlike the tree they know it and they use the fact strategically.

Put in simple terms, most companies don’t always feel like communities. Nor does the invisible hand truly stretch into them to ensure that the cost and benefits of all levels of labour from the top to the bottom of the company are matched fairly (ie some managers are rent seeking and skew their roles to push down others without ‘doing’ much that is useful). They don’t always pull their weight.

This is a problem. Bill Gates is not ‘millions of times more valuable’ that the average man, but imperfections in how we reward company leaders allows this USELESS reallocation of wealth. (Useless because they cannot really spend it enjoyably)

“Nobody needs more that $10m” – maybe some day we’ll figure out a way to ensure that it doesn’t happen. For now we can’t. Perhaps someday people will feel valued in a better way than in the number of zeros after their name. The answer is not in Presidents, Prime Ministers (great men are in short supply at the end of history, we must all light our own small fires in the darkness – C Handy) it is the many, it is in our deep culture. Improvements lie in continuous debate and small steps (not blind leaps of faith in the dark to a potentially scurrilous leader).

How we live has ALWAYS been broken when we compare it to perfection. SLOWLY we are fixing it. The first step in finding the right answer is always asking the right question. “How do we increase accountability and responsibility” is a really good place to start, always.

“The Richest of the Rich” is an interesting book about wealth in the UK over the last 1000 years. It is fascinating to see how wealth used to be created (largely through fighting and winning in wars – not really productive!) as compared to today which is more based on services. This is good. But I contend that those who now run and lead businesses are highly war mongering in their own small worlds and do all that that they can to enrich themselves. Many dictate to trapped (OK only slightly trapped!) slave employees. Richard Schmidt Jan 26th “Munger on the Firm” podcast writes well about what happens in firms when senior management cannot be held to account by their juniors and other senior managers are unable to ascertain the truth about how their business is rally running.

So the aims are the same, but the playing field is now different. Perhaps it will take another 1000 years before all of those who lead firms are as accountable to their employees are we (well, most of us!) are to them as employees – the employment contract is skewed towards the writer. This causes inefficiencies. Perhaps some day it won’t.

In the interim, somebody will find themselves at the bottom, and those at the top will be glad if they stay there. Because as Taleb has pointed out to us, randomness is often the reason our leaders find themselves where they are and sometimes they fight like billyoak not to be challenged or questioned – sometimes they don’t want to be accountable to anyone. Sometimes these people see it as their right just to take. It happens, and it’s wrong. Fairness is a complex subject.

Ed
Jul 16 2008 at 9:43pm

Russ,

Good podcast. I liked how you discussed (in a monologue format) and dissected anti-free market arguments, many of which I normally hear from people who don’t understand how the free market works.

Ed

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AUDIO TRANSCRIPT

 

Time
Podcast Episode Highlights
0:36Intro. Survey summary: over 500 filled out the survey. ITunes; listening: car, home. Favorites: Munger. About one third from outside U.S. Diverse backgrounds. 90,000 downloads per month.
6:48Inequality, mobility in economic system. "Capitalism requires someone at the bottom to do the menial task"--system requires poor people to do the unpleasant jobs. Implication is that if the poor got rich and didn't want to do those jobs any more, capitalism would collapse. Widely held view. Is the claim reasonable on economic grounds? Do poor people sustain the prosperity of the rich? Is an underclass necessary? Is the system designed to keep poor people poor? What would happen if the poor got richer--would that be good or bad for the rich? Similar questions with the wealth of nations: do wealthy nations oppress the poor ones? In colonial times the rich nations took the poor nations' resources; today they take the poor nations' labor. According to this view we need to keep these nations poor because otherwise our system of living will take a hit. Domestic variation on this theme: Wal-mart pays low wages. Another variation: top few percent of income distribution keep all the productivity for themselves and don't share it with others. Implicit in all these claims is the idea that the economic pie is zero-sum: your slice comes at the expense of my slice. To get ahead, you have to push people down. Sam Walton, Bill Gates: their wealth obviously comes from other people. Implication is that if they hadn't existed, everyone else would have more money. Other implicit claim: someone is in charge--the rich, the top 1%, the richest nations, the World Bank--they decide. But rewards are fundamentally emergent, result of individual choices, not top-down.
13:04Editorial writer once explained to Roberts that the top 1% are keeping all the gains for themselves. Roberts asked: How have they managed to do that? Response: Well, we just haven't figured that out yet. They've weakened the power of labor unions is one argument. But unions have been weakening in the U.S. not since the 1970s--which some have argued was the high-water mark of the U.S. economy (misreading of data)--or they point to Reagan and the air traffic controllers' strike. Problem with both arguments is that labor unions' high water mark was the 1950s, falling steadily since then. More likely that ability of unions to unionize the service jobs that have grown is small. Productivity changes. Is that good or bad? People who think that the economy is being controlled have to have an argument about how that's happening. Unions; minimum wage--only a small group of people, less than 3%, earn minimum wage, never important part of the economy.
19:08Zero-sum game argument. First, top 1% are not the same people: LeBron James, Sergei Brin have vaulted into the top 1% because they provided something people liked. Top 1% have larger share of the pie because of their providing more. Education is a route to prosperity; no one stops people from innovating, coming up with ideas like Google. P.J. O'Rourke: Wealth is not a pizza. One person's success makes other people richer, not just in a monetary sense but in full sense of the word. Complaints that Gates and Walton have to be charitable, have to give something back implies they took their wealth. But they got wealthy by providing. People gave money to them but got something in return. Wealth is not fixed pie; one person's share does not mean others get less. You'd be happier in 2008 with a smaller share of the total pie relative to 1908 because the pie is so much bigger. Getting a large share doesn't mean you've pushed others down.
23:21Claim: Our well-being depends on the suffering of others who are at the bottom, who are willing to do horrible things that I'm not willing to do--cutting our lawn, painting our houses--and similarly as a nation. In this view the goal of life is to get one of the good jobs, basketball player, corporate lawyer. In this view, jobs are like boxes, bar-codes for salaries by job. In conspiratorial view, we have to make sure there are people who will be desperate enough to take these jobs. Marxist variation. America wants to have the good-paying jobs, designing the software, not just retailing it. Late 1980s Frontline documentary: Japan was getting the jobs designing Nintendo and the U.S. was getting stuck with the customer service part, the low-paying jobs; conspiratorial view, Japan was conspiring to do this. Ironically, ten years later, people were worried that the U.S. was losing all the customer service jobs to India; outsourcing. Ross Perot: It's better to make computer chips than potato chips. Alternative view: The jobs that are available depend on the people who are interested in them and their skill levels. Your salary depends not on the box you are in but in the skills you bring to the job. Which jobs are done depend on the skills of the people in them. If Haiti decided the road to wealth was to start a pharmaceutical industry, they probably wouldn't be successful. Similarly, Russ can't just decide to be a highly-paid basketball player because at his height and jumping skills he wouldn't succeed. China under Mao, everyone was going to have a steel foundry in his backyard, but if you are bad at making steel it would be inefficient; made China very poor.
31:06Jobs at a point in time: garbage collection. Lots of ways to collect garbage. Can walk along and pick it up; can have a truck; or current world in U.S. can have a really fancy truck--collector is mostly a truck driver, driving a truck with an arm that picks up the garbage can and empties it mechanically. In poorer societies there are many more people in the business of collecting garbage; more pleasant in the U.S. than elsewhere. Technology substitutes for the person. Sounds bad but it's good! Profitable to use the machine. Not inherently good for America to have lots of people picking up garbage. Perot image of computer chips vs. potato chips is of people in white suits in computer chip industry vs. image of people peeling potatoes and slicing them and putting them hot oil, emptied and put into a bag. Low skill, low technology, mostly labor, menial work. Turns out that's not how bagged potato chips get made in America: A truck full of potatoes dumps them into an enormous machine which peels them and slices them and fries them and flavors them very precisely and bags them and crates them. Almost no workers other than running the computerized machine and making sure it is working. Much more pleasant and remarkably inexpensive. Hidden jobs--designers and builders of the machine. Over time, the types of jobs that get done in a successful economy changes. Some jobs no longer exist--ice man, toting ice. The ice man's standard of living is better when that awful job is eliminated. Transition can be abrupt, challenging, difficult; but we don't need people to do that, shovel manure, etc. In 1900 40% of the American workforce was in agriculture; now 2%. Incredibly better technology. All those people were freed up to do other stuff that makes people's lives better--including theirs, farm work is dangerous and hard. Wasn't dictated top down. Didn't need low-skilled people, we don't need to keep those people down at the bottom of the ladder. We want technology to come along and eliminate those jobs. Paradox. Sounds harsh, but that's how our standard of living evolves. Year in year out, the average worker's life gets better.
43:24Schumpeter podcast, creative destruction. New things come along that are better, freeing up resources to do other things. In a dynamic economy like the U.S. the costs of that are relatively small, happens quickly, labor force is dynamic. People find new skills. In other economies it may not work as well. Being a waiter, relatively low-skilled--used to be a job someone would aspire to in the U.S. In most restaurants in the U.S. waiting is done by college kids, fast food none at all. Dish washers in the 1920s made a living, but it wasn't pleasant. Nothing inherently demeaning about manual labor; but it's hard. Most dishwashing in America is now done by machines. People figure out cheaper and cheaper ways to mechanize the process; at the same time dish washers are paid more, making it more rational to replace a person with a machine. No one says we have to keep people at the bottom so that we can have our dishes washed. Marxist view: if poor people escape from poverty we won't have anyone to do that. Answer: those jobs have disappeared because people got richer and because technology came along to relieve people of that hard labor. Russ's grandfather, Memphis, Great Depression, small house and yard, had a lawnmower; a push mower, not the kind available today, cast iron, very heavy, hard to push. Hired someone to cut his lawn, from the penal farm, prison with work release program, Albert, very humid conditions. Driving by you might say it's a good thing there are poor people here to do it for him or he'd have to do it himself--journalist's perspective. Really not true. Cutting a lawn in 2008 is really different than then, better technology. Lawnmower itself is motorized, even stand-up motorized mowers that someone in the business can invest in, making it a bargain. Immigrants often do this work. Their kids will often do a lot better. Have to look over time. Least pleasant jobs get eliminated or get more pleasant over time.
56:44We don't have an incentive for people to stay poor. Not zero-sum. Their gains as they move up do not come at our expense. China--fear that they will catch up so we will fall behind. Untrue. China has improved its standard of living is by selling us stuff they can make more cheaply than we can, which is good for both of us. China's success increases our success. Improves our lives. Inequality doesn't sustain the system. Masks what is going on. The poor help the rich by working for them, but the rich help the poor by hiring them. Way to get ahead in a market economy is to provide something of value. No conspiracy to keep the poor stuck at the bottom. No one is in charge or manipulating the system, though there is lobbying and political pressure. Individual choices, mobility, opportunity, education. Thanks to Eli Dourado and Rosie Fike for help with this podcast.