"Permanent job loss" fallacy. There is no permanent job loss!

[HomoSalmon]

This is one of the best thread I read here in ET. I'm mostly agree with you, trade4succes, but:

Quote from trade4succes:

(why would there be reverse technological innovation?) (also can be due to natural resources becoming harder to extract or scarcer, this is a legitimate concern in my opinion).

Speaking on macro-level, you can have a reverse technological innovation when more un-productive jobs are created (reverse innovation in organization).
The funny picture posted by Mithos explain it very well. Just think on most bureaucratic "innovations" and jobs.

Moreover, if you discend from macro to micro, you can have a system where a large part of workers receive less than they produce (because their production is taken by someone else that produce less than he earns).

In such system, you can have reverse technological innovation due to imperfect allocation of resources (example: masterpieces value grows due their unreproducibility and more concentrated wealth fighting for them, think of a Rembrant or a house ocean front). This was well explained by Henry George for land long ago (http://www.econlib.org/library/YPDBooks/George/grgPP.html).

That imperfect allocation of resources has a consequence for employment: when disequality between people is not due from their different productivity (who work more or better earns his higher gains) a marginal effect appear: fighting for unreproducible goods, wealthiest do not create new jobs, and simply "waste" part of their wealth in savings (future use? No, because any work not done today is lost, because that time allocation is lost, if unemployed!). Of course, this occour only when savings are more than innovators can use for improve process, products, science, organizations, and so on. For all savings used for someone else consumption, too (move consumption in time, but net effect long run is zero).
Moreover, this vicious cycle can occour, indeed, with growing probability as unjustfiable (and undue) inequality grows.

This reasoning makes me conclude that the regulation of the market has one and only target: keep full employment all time and push innovations as most it can.
My two cents.

(edit) PS: (flame bait) Another interesting example of reverse innovation is our media system. We're paying a growing amount of people to indoctrinate us and to convince us to buy something of minor quality for more of its real value (advertising move resource allocation from less able in marketing to more able in marketing, often with a negative net effect, I could made examples of high quality products (and companies) phased-out because their technical superiority -customer wise- was evident only in the long run, and short run cash-flow decided their fate against cheaper and more aggressive competitors). This is another example of reverse innovation: when you buy a cheaper product thinking of saving, and the trade-off (less quality in lifetime) is discovered only after time, giving you a life-time value reduced more than you initially saved.

 

[HomoSalmon]

Quote from Eight:

The biggest myth is that when productivity increases due to technical advances that the displaced workers retrain and get equivalent or better jobs... productivity has been rising fast all over the globe and all over the globe the manufacturing sector has been employing less workers per corporate earned monies. America's manufacturing sector has been shrinking but the number of workers in that shrinking sector has been falling much faster even. We think that there is a boom and bust cycle wherein manufacturing capacity becomes underutilized and they prop up the economy not by raising wages but by offering credit, and that may be going on all the time but this thing where productivity rises, corporate profits rise and the workers fall further and further behind is new, and over time it spells doom for all the non-wealthy...

Correct. Inequality unsupported by producitivity difference (more profits due lower wages in your scenario, without any real innovation) is a cancer for all the system. Just because that lower wages means less buying power (and thus less employment).

I'm convinced that as optimal energy exchange between electronic systems (as antenna and line, for example) occour when both sides has the same impedance, in a economic system the maximum efficiency is shown when all people involved receive all and only the value of their productivity (it means a system with very narrow gaussian per capita income distribution).

 

[HomoSalmon]

Quote from TraderZones:

The simple fact is, that imports and exports are entirely unrelated in an open society.

They cannot be for long time.
Just think on a what a country exchange for its imports. Import and exports are two arms of a scales.

How can you convince someone to give to you more than you give to him (in the long run)?

 

[Cutten]

Quote from TheStudent:

Not to detract from the main argument, but to point out that in certain cases, replacement jobs can be produce less value.

eg, the rubber workers in Manaus, Brazil circa 1915 probably weren't too happy when they start to get hollowed out by rubber workers in Malaysia.

In their case, the decline was permanent and the local labour and capital resources didn't get redeployed into a more profitable venture.

Don't forget the big picture i.e. the world now got rubber cheaper than before. That's a net gain. Producing rubber for 1 cent a tonne is better than for $1 trillion a tonne. The trillion a tonne workers get put out of work, but then find employment at the next most attractive job available to them. The 1 cent a tonne workers get an improvement from the new business. Those are peripheral to the fact that the world saves 999.99 billion per tonne on rubber. The world economy thus gets a huge benefit, which will raise living standards across industries and workers. Overall, once the adjustment has taken place, the world is much better off.

I agree that situations which destroy capital e.g. massive natural disasters, wars on a country's territory, imposition of major restrictions on trade/capital/labor will destroy value. But the situation we're talking about is the common one in a relatively free economy, where a more efficient producer out-competes a less efficient one. The result is a net gain not a net loss. If it were otherwise, relatively free economies would suffer diminishing living standards and permanent rises in unemployment over the decades, whereas in fact this does not happen.

 

[Cutten]

Quote from HomoSalmon:

They cannot be for long time.
Just think on a what a country exchange for its imports. Import and exports are two arms of a scales.

How can you convince someone to give to you more than you give to him (in the long run)?

Don't forget capital flows. The scales actually look like this:

Left side: exports plus capital inflows
Right side: imports plus capital outflows

These balance, not imports vs exports alone. Thus if you have a large capital surplus indefinitely, you can run a large trade deficit indefinitely. For example, the USA from 1974 to the present day. The corollary is that if no one wants to invest in your economy because it sucks ass and you therefore have large scale capital flight, you will run a large trade surplus.

A trade surplus can thus be caused either by a very strong export sector, OR a very shitty investment environment (or both). A trade deficit can be the result of crappy exporters and strong domestic demand for foreign goods, or it can be caused by being a very desireable investment environment (or both). It is therefore not bad per se to have either a big trade deficit or a big trade surplus, it depends on the reasons why.

 

[Cutten]

Quote from jprad:

Actually, they did.

They did? I must have missed the one that showed unemployment permanently rising towards 100%, and living standards declining consistently every 100 years since the dawn of time. Along with the one that showed a conclusive link between late-stage cancer and higher economic productivity. Could you refer me to it please?

 

[Cutten]

Quote from TraderZones:


When a dollar is in the US, then there is a high multiplier effect. When it is out of the US, then it has none of that impact.

Oh really? You think productive economic activity doesn't happen outside the US then? You might want to look at the size of the Eurodollar market, or economic activity in Ecuador (a dollarized economy).

A dollar stuffed under the mattress abroad has no multiplier effect. But then neither does one stuffed under the mattress at home. A dollar invested into productive activity has a multiplier effect regardless of its geographical location.

 

[TraderZones]

Quote from Cutten:

Oh really? You think productive economic activity doesn't happen outside the US then? You might want to look at the size of the Eurodollar market, or economic activity in Ecuador (a dollarized economy).

A dollar stuffed under the mattress abroad has no multiplier effect. But then neither does one stuffed under the mattress at home. A dollar invested into productive activity has a multiplier effect regardless of its geographical location.

Your response is not appropriate to this post. You need to look further up to see its reason.

 

[TheStudent]

Quote from Cutten:

Don't forget the big picture i.e. the world now got rubber cheaper than before. That's a net gain. Producing rubber for 1 cent a tonne is better than for $1 trillion a tonne. The trillion a tonne workers get put out of work, but then find employment at the next most attractive job available to them. The 1 cent a tonne workers get an improvement from the new business. Those are peripheral to the fact that the world saves 999.99 billion per tonne on rubber. The world economy thus gets a huge benefit, which will raise living standards across industries and workers. Overall, once the adjustment has taken place, the world is much better off.

I don't disagree with what you have said. As a free market capitalist & member of the human race I believe we as a species are better off for having cheap rubber, fridges, etc.

But if it was now the year 1915, and you were the mayor of Manaus, it would probably have been in your people's best interest for you to pass 2 laws.

The first would be to cut off the hands of anyone who steals rubber seeds. (The British smuggled the seeds out and after some time figured out how to replant them).

The second would be to tax rubber and use the proceeds to fund education.

The world would have to put up with more expensive rubber for a decade or two longer, during which time your people would have continued to profit at the expense of the other members of the human race (like how certain unproductive Arabs are doing so just because they sit on a pile of oil). Hopefully the education and saved capital might help the next generation of Manauans to a better future.

Sometimes there is an argument for a society to erect protectionism ... when your society is heading into a gutter and you need to buy some time to work out a solution.

Of course the human race doesn't benefit from that decision.