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Well-meant minimum wage increases will accelerate automation

Larry Kummer, Editor

Summary: The class war heats up as cities and states raise their minimum wages and long-ignored labor laws are revived (e.g., over-time). While effective in the short-term, is this an effective response to the new industrial revolution — or a counter-productive response that will accelerate job losses from automation?

The campaign to increase the cost of workers continues to sweep the nation. Big cities such as like New York, Los Angeles, San Francisco, and Seattle. Now “New York Just Created a Revolutionary New Family-Leave Policy” by Rebecca Traister, New York Magazine, 1 April 2016 — And scheduled increases taking the State’s minimum wage to $15.

This makes no sense except as a short-term palliative. Economics 101: raising the cost of labor through minimum wage and family leave regulations will only accelerate the pace and scale of automation. Hundreds of articles make this obvious point.

How should we respond to the new industrial revolution?

There are roughly four often discussed responses to the rise of new tech.

Until the past year, faith has been the usual response of economists to concerns about automation. The West survived the previous industrial revolutions (albeit with periods of widespread suffering and social turmoil). This is often phased as trust in the “invisible hand” (a mad exaggeration of Adam Smith’s limited concept in Book IV, Chapter II of The Wealth of Nations (1776). The 1% want you to trust in this Force.

Education is worthwhile for many reasons, but ineffective as a response to this problem. This wave of automation will affect both low and high skill jobs. There is no evidence it will create large numbers of jobs that people with upgraded skills can fill. For more about this see Education, the glittering but fake solution.

Guaranteed minimum income programs (rebranded welfare) have their proponents, but provide at best an gloomy future for the likely ever-growing number of unemployed and underemployed Americans (the US population has increased 7.7% since the great recession began in 2007, while the number of full time jobs is up only 1.2%). They create an underclass of relatively low-income Americans, while the rich grow richer from the productivity of new technology. Nor should we ignore the spiritual drag of subsisting on charity of the rich.

My guess is that the only effective response will require structural change in Western society. Exactly as did the previous industrial revolutions, to which the West successfully adapted by development of more representative governments and organized labor (compare post-WWII Britain with its 18th century laissez-faire economics and social order maintained by the “Bloody Code“).

We can only guess at what form this will take in the 21st century. Government-regulated employee unions with seats on corporate Boards of Directors (as they have in Germany)? Legally required profit-sharing or partial public ownership of businesses? Or distribution of profits by taxation? These are 20th century solutions. Perhaps these will evolve into new forms or be replaced by measures not yet in the public consciousness.

Conclusions

My prediction is that no matter how clear the forecasts of coming turmoil, we will do little or nothing until the pain forces action. Unfortunately minds get clouded in the heat of near-revolutionary stress, and people too-often choose unwise leaders — demagogues rather than Solon the Lawgiver.

America’s success resulted largely from our choice of leaders in such moments: Washington, Lincoln, and FDR. Let’s hope we do it again.

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