Asymmetrical Information - Megan McArdle

06.14.13

When Work Disappears

What do we do with people whose livelihoods are destroyed?

Paul Krugman has a column today on a topic you don't normally get much of from economists:  sympathy for the Luddites.  Back in 2001, when I sat in on my last formal economics class, this was about as daring a proposition as "Sympathy for the Devil" was as an album title.  

A dozen years on, I don't think it's quite so edgy.  I'd guess that Paul Krugman of 2000 would probably have given short shrift to the idea that we should listen to Luddite complaints.  So would Megan McArdle of 2000.  Both the later versions, much to my surprise, seem to have changed their minds.  

What's happened in the intervening ten years?  Some of my more dour readers suggest it's the fact that I've moved to Washington.  But I moved to Washington from Manhattan, hardly a bastion of free market sentiment.  And besides, I haven't stopped thinking that markets are the best way to handle voluntary cooperation.  

But I have started worrying about what's taking place at the bottom of the economy.  In much of the industrial world, it seems to be increasingly difficult for people to earn a decent living without a fairly elite set of skills--or an elite set of credentials that mimic skills, like a BA in English Literature from an Ivy League institution. The ability to earn a decent living, either yourself or as part of a family, is one of the basic criteria for a decent life.  (And yes, before you ask: I think trust funds can be just as toxic as lifetime welfare benefits.)

It's impossible to look at what's happening to the bottom half of American society and not worry.  Some of the breakdown is cultural--a fraying of the basic ties that keep people connected and cared for.  Some of it is economic, the disappearance of steady employment that allows people to do the bourgeois work of planning for the future.  And in some ways, those trends are reinforcing each other.  A community cannot insist that its members work hard and plan for the future if there are no jobs available; the resulting erosion of work and education ethics makes unemployment worse.  

The problem is that all the proposed solutions ring hollow.  Until roughly the last five years, it was possible to believe that education would be the solution: send more kids to school, retrain people for new jobs.  But college graduates aren't finding it so easy to obtain solid employment either.  It's true that having a college diploma is still much better than not having a college diploma, but that doesn't mean that by sending more kids to school, we're actually making the workforce more productive, much less mitigating the problem of economic change; we may just be forcing people to jump over a higher bar to gain access to a shrinking number of jobs.  Paul Krugman points out that these days, highly educated workers still have to fear having their job disrupted.  

And retraining only works to a point.  For my forthcoming book, I interviewed a Danish photographer facing a career crisis.  Could he take advantage of Denmark's generous retraining programs, I asked?  He was glum.  Your forties are a bit late to be tackling a whole new career; the payoff to investing years in education is simply inherently lower than it is in your twenties.  Besides, he had a new baby.  What would he and his wife live on while he spent a few years in training?  

Paul Krugman's solution, a stronger safety net, is equally unsatisfying.  I'm not arguing for or against a safety net here; I'm just pointing out that it won't do as an actual substitute for the majority of the population having jobs.

For starters, it is politically difficult to imagine a really large class of people who simply permanently live off the state.  The safety net is rooted in human instincts about reciprocal exchange.  Of course, it isn't all that reciprocal--the majority of people who are net taxpayers are extremely unlikely to collect much in the way of food stamps, TANF, or even unemployment insurance.  Nonetheless, the moral arguments are founded in the premise that these benefits are for emergencies, and anyone can have an emergency.  They will lose political support if you have one group of people paying taxes, and a different group of people who can expect to live their entire life on the dole.  

Such an arrangement would also be socially toxic.  Being out of work is astonishingly bad for your state of mind, your social relations, and even basic skills like math and reading.  Various theorists have imagined unleashing a wave of creativity as people invest their time in non-market production, but it seems to me that these people are inferring far too much from their circle of acquaintance.  Given that these people are mostly public intellectuals of some sort, that circle is filled with strongly self-motivated people with ferocious work ethics and fierce competitive instincts.  This does not describe most of the population, who after all have more leisure time than they used to, but fewer hobbies or socially oriented activities.  Most of the extra time will be filled by watching television or fiddling around on the internet.  

On any given day, this is undoubtedly preferable to a union job at a midcentury factory.  But over a lifetime, it won't work.  It won't work for the people on the dole, and it won't work for society.  Perhaps a stronger safety net is better than nothing.  But it is not enough.