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PORTSIDE  December 2012, Week 2

PORTSIDE December 2012, Week 2

Subject:

Technology and Inequality - Evolving Factors

From:

Portside Moderator <[log in to unmask]>

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Date:

Mon, 10 Dec 2012 01:09:15 -0500

Content-Type:

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Parts/Attachments

text/plain (217 lines)

(1)
Rise of the Robots
Paul Krugman
New York Times
December 8, 2012
http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots

Catherine Rampell and Nick Wingfield write about the
growing evidence for "reshoring" of manufacturing to the
United States. They cite several reasons: rising wages
in Asia; lower energy costs here; higher transportation
costs. In a followup piece, however, Rampell cites
another factor: robots.

    The most valuable part of each computer, a
    motherboard loaded with microprocessors and memory,
    is already largely made with robots, according to my
    colleague Quentin Hardy. People do things like
    fitting in batteries and snapping on screens.

    As more robots are built, largely by other robots,
    "assembly can be done here as well as anywhere
    else," said Rob Enderle, an analyst based in San
    Jose, Calif., who has been following the computer
    electronics industry for a quarter-century. "That
    will replace most of the workers, though you will
    need a few people to manage the robots."

Robots mean that labor costs don't matter much, so you
might as well locate in advanced countries with large
markets and good infrastructure (which may soon not
include us, but that's another issue). On the other
hand, it's not good news for workers!

This is an old concern in economics; it's "capital-
biased technological change", which tends to shift the
distribution of income away from workers to the owners
of capital.

Twenty years ago, when I was writing about globalization
and inequality, capital bias didn't look like a big
issue; the major changes in income distribution had been
among workers (when you include hedge fund managers and
CEOs among the workers), rather than between labor and
capital. So the academic literature focused almost
exclusively on "skill bias", supposedly explaining the
rising college premium.

But the college premium hasn't risen for a while. What
has happened, on the other hand, is a notable shift in
income away from labor:

If this is the wave of the future, it makes nonsense of
just about all the conventional wisdom on reducing
inequality. Better education won't do much to reduce
inequality if the big rewards simply go to those with
the most assets. Creating an "opportunity society", or
whatever it is the likes of Paul Ryan etc. are selling
this week, won't do much if the most important asset you
can have in life is, well, lots of assets inherited from
your parents. And so on.

I think our eyes have been averted from the
capital/labor dimension of inequality, for several
reasons. It didn't seem crucial back in the 1990s, and
not enough people (me included!) have looked up to
notice that things have changed. It has echoes of old-
fashioned Marxism - which shouldn't be a reason to
ignore facts, but too often is. And it has really
uncomfortable implications.

But I think we'd better start paying attention to those
implications.

(2)
Technology Doesn't Cause Inequality - Deliberate 
Policy Change Does

The 1% likes to blame technological innovation 
for income redistribution but calculated policy 
changes are at fault
Dean Baker	
guardian.co.uk
16 July 2012
http://www.guardian.co.uk/commentisfree/cifamerica/2012/jul/16/technology-inequality-policy-change

The people who have been the winners in the massive
upward redistribution of income over the last three
decades have a happy story that they like to tell
themselves and the rest of us: technology did it. The
reason why this is a happy story is that technology
develops to a large extent beyond our control.

None of us can decide exactly what direction innovations
in computers, automation, or medicine will take.
Scientists and engineers in these areas follow their
leads and innovate where they can. If the outcome of
these innovations is an economy that is more unequal,
that may be unfortunate, but you can't get mad at the
technology. This is why the beneficiaries of growing
inequality are always happy to tell us that the problem
is technology.

There is another story that can be told. In this story
the upward redistribution of income was a conscious
policy by those in power. This story points to a number
of different policies that had the effect of
redistributing income upward. For example, exposing
manufacturing workers to direct competition with low-
paid workers in the developing world, while protecting
highly educated professionals (e.g. doctors and
lawyers), would be expected to lower the wages of both
manufacturing workers and the large number of workers
who will compete for jobs with displaced manufacturing
workers.

Central banks that target low inflation even at the cost
of higher unemployment will also increase inequality.
When a central bank like the Fed raises interest rates
to slow the economy and reduce inflationary pressures it
is factory workers and retail clerks who lose their
jobs, not doctors and lawyers. Even an economist can
figure out that this will depress the wages of the
former to benefit the latter.

And when a government adopts a one-sided approach to
enforcing labor laws, so that courts intervene to
benefit management and weakens unions, it will reduce
workers' bargaining power. This will mean lower pay for
ordinary workers and higher corporate profits and pay
for those at the top.

These and other policy changes over the last three
decades can explain the massive upward redistribution
that we have seen over this period. In this story there
is no happy coincidence about the upward redistribution
of income. It was done by human hands with the
fingerprints of the one percent everywhere.

But people involved in policy debates often have
difficulty seeing these fingerprints. That is the
context in which we have to understand the report that
the OECD released on inequality at the end of last year.
While this volume contained much interesting data and
useful analysis, the main villain in its inequality
story was technology.

This led to the happy conclusion that those calling the
shots were not responsible. As decent caring human
beings they had ideas about how to redress the harm that
technology had caused, but this was only because they
were good people. There was no sense of undoing the
damage brought about by deliberate policy.

On closer examination it turns out that the OECD
technology story is wrong. An analysis by my colleague
at the Center for Economic and Policy Research, David
Rosnick, found that they appeared to have made a mistake
in their analysis substituting a coefficient on a
cyclical technology variable for the coefficient of the
trend technology variable. Essentially, their results
(and ours) found that spending on technology may
influence inequality over the course of a business
cycle, but that the increase in spending on technology
over the last three decades had no impact on inequality
over this period.

The OECD analysis did find that lower unionization rates
and weaker labor protections contributed to inequality,
although this rise was offset by the impact of an
increasingly educated workforce. On net, their analysis
explained none of the rise in inequality they
identified.

Our analysis found that the growth of the financial
sector could explain much of the rise of inequality over
this period. The rise in the financial sector share of
compensation was strongly associated with a rise in
inequality. This is not surprising. The huge paychecks
of the Wall Street crew have to come from somewhere and
our analysis indicates that it came from those below the
90th percentile in the income distribution. The growth
of the financial sector is in turn a story of too big to
fail insurance and having the government look the other
way in the face of financial sector corruption, as we
see most recently with the LIBOR scandal.

In short, the OECD struck out in trying to produce a
volume that supported the benign technology caused
inequality story. When done correctly their analysis
does not support this conclusion. Our modification of
their analysis fingers the financial industry as a major
villain in the inequality story.

If we are serious about reducing inequality, reining in
the financial sector must be a big part of the plan.
And, a tax on financial speculation would be a great
place to start.

___________________________________________

Portside aims to provide material of interest to people
on the left that will help them to interpret the world
and to change it.

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