Friday, August 10, 2012

Some What If Scenarios

A couple of interesting "what-if?" articles that are actually interrelated. The first points out that, as we've been saying, automation is now a threat to China's export-driven model as much as it is to the United States' job market:
By way of introduction, we turn to Vivek Wadhwa over at Forbes last month. The technology entrepreneur explained eloquently why China stands to lose so much more than anyone else if automation keeps advancing. Indeed, forget about real estate bubbles and mis-allocated capital, the rise of automation could be the greatest Chinese black swan of all.
The article than asks what if instead of outsourcing our light manufacturing base to China with the resulting trade deficits, we had decided to invest in automation instead:
So, had US robots undercut the Chinese in such a way... could it be that US manufacturers would have remained competitive on the domestic market, if not become the primary exporter of goods on a global level too?
Even if that was the case, the boon would arguably only have lasted a short while. Eventually the impact of automation would have misfired on itself - since it would only have cut American jobs further. Arguably the US may even have experienced a deflation akin to that experienced in Japan, as prices of goods began to catch up with underlying productions costs - which would now reflect resource costs only.
Here's the full article: 3D Printing: Rise of the machines (FTAlphaville) So once automation starts cutting into Chinese jobs, what will happen?
What we can say, however, is that China's current automation dilemma does remind us a lot of what's happened before.
And it's fair to argue that if China does decide to go down the automation route, there could be major deflationary consequences - which, for now, are still greatly under-appreciated. Of course, there's still the chance that China "does an America". That it seeks out cheaper production costs elsewhere - notably by outsourcing to poorer countries and regions, like those in Africa or in inland China.

This, however, would mean taking up the deficit nation mantle; thereby potentially doing for Africa and its own internal regions, what America did for China all those years ago.
However, there is one major risk this time around.

Low-cost production techniques could soon become so advanced and so low cost - thanks to developments like 3D printing - that even the tiniest salaries in Africa will not make it worthwhile to employ human beings at all.
And a couple of article related to that on the BBC this week:

The decline of US manufacturing jobs and living standards (BBC)

Is America's high jobless rate the new normal? (BBC)

And this article on Crooked Timber looks at one of the theoretical ways put forward to deal with sidelining an ever-larger share of the workforce: Guaranteed minimum income: how much would it cost? (Crooked Timber):
Summing up the exercise, I'd say that a universal basic income of the type I've sketched out here is economically feasible, but not, in the current environment, politically sustainable. However, while economic feasibility is largely a matter of arithmetic, and therefore resistant to change, political sustainability is more mutable, and depends critically on the distributional questions I've elided so far. A shift of 10 per cent of national income away from working households might seem inconceivable, but of course that's precisely what's happened in the US over the last twenty or thirty years, except that the beneficiaries have not been the poor but the top 1 per cent. So, if that money were clawed back by the state, it could fund a UBI at no additional cost to the 99 per cent.
And I see Robert Reich recommends three weeks mandatory paid vacation for American workers (less, in fact, than much of the world gets). Of course none of these proposals have a snowball's chance in hell in Calvinist America, no matter how bad things get. After all, they might encourage "laziness."

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