It's Wednesday, and today I discuss a recently published analysis that has found that Australian…
On August 19, 1964, the then US President Lyndon B. Johnson established the – National Commission on Technology, Automation, and Economic Progress. He established the Commission in response to growing concern during the deep 1960-61 recession that the unemployment had been created by the pace of technological change. Ring a bell! He wanted to an inquiry to explore this issue and come up with recommendations on how to deal with the possibility that automation was wiping out jobs and the future would be bleak. Before the Commission had reported, the Federal government had reversed its fiscal austerity and the resulting stimulus had driven the unemployment back down to relatively low levels. The Commission noted that unemployment was largely the result of inadequate total spending and that the Government had the tools at its disposal to eliminate it. They considered that there would be workers (low-skill etc) who would suffer more displacement from technology than those with more skill etc, but that ultimately even those workers would be able to get jobs if the public deficit was large enough. In this regard, they eschewed pointless training programs that did not provide immediate access to jobs. Instead, they recommended (among other things) the introduction of a Job Guarantee (Public Service Employment) financed by the Federal government but administered at all levels of government. It would pay the Federal minimum wage and be available on demand. This is the preferred Modern Monetary Theory (MMT) approach and rejects solutions that rely on the provision of a basic income guarantee to resolve the problems created by unemployment.
The following graph sets the scene and shows the official US unemployment rate from January 1948 to December 1967.
When Johnson took over as President after Kennedy’s assassination on November 22, 1963, the unemployment rate was at the elevated level of 5.7 per cent as the US economy was still struggling to shake off the major recession that began in April 1960 and lasted for 10 months (the trough being recorded in February 1961).
Interestingly, the recession was provoked by the central bank hiking interest rates in 1959, but the real damage came when the Federal government shifted from a 2.6 per cent of GDP deficit in 1959 to a 0.1 per cent of GDP surplus in 1960.
That surplus was recorded after the Government cut spending (in real terms) by 1.5 per cent cutting spending from 18.2 per cent of GDP to 17.2 per cent of GDP in on fiscal year. Any reasonable person would have known that would have created a recession and it did.
In 1962 the deficit was 0.6 per cent of GDP and rose to 1.2 per cent of GDP in 1963, which stimulated growth. By 1962, Federal expenditure was back to 18.2 per cent of GDP, and, surprise, surprise, tax revenue rose on the back of higher economic activity.
As the US Congressional Research Service (CRS) reported to the US Congress on January 10, 2002 – The Current Economic Recession: How Long, How Deep, and How Different From the Past?:
A tightening of monetary policy in 1959 and the first half of 1960 was followed by an easing of policy in the second half of 1960. There was no fiscal stimulus undertaken. In fact, fiscal policy was tightened at the time, negating the system’s automatic stabilizers and exacerbating the recession.
Once the fiscal position was reversed, the US economy entered its second longest period of growth (92 months) in its history.
During the 1960-61 recession, it was claimed – as a diversion from the obvious fiscal austerity – that the rising unemployment was the result of new technologies.
On February 24, 1961, as the unemployment rate hovered around 6.9 per cent (and would rise the peak of 7.1 per cent in May of that year), the conservative Time Magazine published an article – Business: THE AUTOMATION JOBLESS – which carried the sub-heading “Not Fired, Just Not Hired”.
It as a scaremongering exercise which suggested that “automation” was driving “the rise in unemployment”.
It said that:
… many a labor expert tends to put much of the blame on automation … automation is reaching into so many fields so fast that it has become “the nation’s second most important problem.”
The claims were twofold:
1. “The number of jobs lost to more efficient machines”.
2. “automation may prevent the economy from creating enough new jobs.”
Ring a bell (hint: ‘the robots are coming’).
This was 1961 remember.
The article made the obvious point that with productivity growth, “the trend has been to bigger production with a smaller work force”. And it listed the sectors where automation had increased output and reduced the number of workers provided.
It also claimed that service sector jobs would be eliminated by automation:
Many of the losses in factory jobs have been countered by an increase in the service industries or in office jobs. But automation is beginning to move in and eliminate office jobs too.
It hypothesised that while “In the past, new industries hired far more people than those they put out of business … this is not true of many of today’s new industries.”
It suggested that:
Other experts talk of massive Government-and industry-supported retraining programs as a cureall. But Max Horton, Michigan’s director of employment security, is skeptical of this oft-repeated panacea: “I suppose that is as good as any way for getting rid of the unemployed-just keep them in retraining … But most important, is there a job waiting for them when they have been retrained?”
Oh, how times have changed.
Here was an explicit recognition that engaging in supply-side policies was futile if the demand-side (“a job waiting for them”) was the problem.
We now churn unemployed workers, as part of the new industry of mass unemployment created under neoliberalism, through useless and soul-destroying training and compliance programs without any real hope that they will come out the other side with a job.
When they do not find work (due to a shortage of overall employment opportunities), the unemployed are further admonished and forced into further ‘programs’.
Johnson thus came to office as the recovery was underway but with the on-going automation debate influencing policy discussions (Kennedy had announced widespread re-training policies in his – Special message to Congress on urgent national needs, 25 May 1961.
Johnson determined on August 19, 1964 that:
The disturbing trend of the 1950’s has been reversed. Unemployment is no longer growing 10 percent a year as it did from 1952 to 1960. Instead, unemployment is shrinking at an average annual rate of 6.2 percent since 1961. Unemployment is below the 5 percent level because, in the last 4 years, our economy has created more than 4 million new jobs.
[Reference: Johnson, L.B. (1964) Remarks Upon Signing Bill Creating the National Commission on Technology, Automation, and Economic Progress, August 19, 1964 – Archive Link.]
Note he didn’t talk about unemployment falling because of supply-side measures such as cutting welfare and income support, forcing unemployed workers to run on training treadmill going nowhere and all the other stuff that we hear about endlessly in the current period.
This was before Monetarism took hold and, thus, before the neoliberal death grip became dominant.
Policy makers knew that if you wanted to reduce unemployment you had to create jobs and that required an increase in aggregate spending from whatever source.
What was on Johnson’s mind at the time (among other things) was that structural shifts were occuring in the US economy, which he considered may isolate some workers from the benefits of progress.
He explicitly noted, in creating the National Commission on Technology, Automation, and Economic Progress that:
Technology is creating both new opportunities and new obligations for us-opportunity for greater productivity and progress 0 obligation to be sure that no workingman, no family must pay an unjust price for progress.
Automation is not our enemy. Our enemies are ignorance, indifference, and inertia. Automation can be the ally of our prosperity if we will just look ahead, if we will understand what is to come, and if we will set our course wisely after proper planning for the future.
Note the reference to ensuring inclusion for all (gender specifics – to wit, “workingman” – being an artifact of the times).
That progress via productivity growth was on-going but the task of government was to ensure that everybody had a share in that.
Compare that to the neoliberal era.
This graph shows how stark the shift to the neoliberal has been. It shows average real hourly wages in the US (BLS series CES0600000008 deflated by CPIAUCSL) and Labour productivity (output per hour) (BLS series PRS84006093) from the March-quarter 1947 to the June-quarter 2017, with both series indexed to 100 in the March-quarter 1970.
The base year is around the time that Monetarism started to gain prominence in the US and elsewhere and also coincided with the publication of the so-called ‘new labor economics’ literature (Phelps, Lucas etc) that spearheaded the neoliberal putsch.
As you can see, it also coincided with the break in the relationship between real wages and labour productivity as legislative and other changes made it harder for workers to share in the growth of labour productivity.
Prior to the 1970s, real wages and labour productivity typically moved together. As the attacks on the capacity of workers to secure wage increases intensified, a gap between the two opened and widened.
The wage share in national income, which can be calculated from this data, was more or less constant for a long time in many countries during the Post Second World War period and this constancy was so marked that Nicholas Kaldor (the Cambridge economist) termed it one of the great “stylised” facts.
It meant that real wages grew in line with productivity growth which was the source of increasing living standards for workers and allowed them to maintain growth in consumption expenditure commensurate with the growing output of the economy.
The productivity growth also provided the ‘room’ in the distribution system for workers to enjoy a greater command over real production and thus higher living standards without threatening inflation.
To understand the relationship between real wages, productivity growth and the wage share, please read my blog – Declining wage shares undermine growth – for more discussion.
In this blog from February 16, 2009 – The origins of the economic crisis – I argued that this break, which was replicated around the world as neoliberal policies gained ascendancy, was one of the early warnings of the GFC.
LBJ was clearly operating in the period before this divergence started and knew that real wages growth would track productivity growth and that workers would thus share in the output efficiency gains made possible by new technology.
On automation, LBJ wrote that:
Automation is not our enemy. Our enemies are ignorance, indifference, and inertia. Automation can be the ally of our prosperity if we will just look ahead, if we will understand what is to come, and if we will set our course wisely after proper planning for the future …
The techniques of automation are already permitting us to do many things that we simply could not do otherwise …
If we understand it, if we plan for it, if we apply it well, automation will not be a job destroyer or a family displaced. Instead, it can remove dullness from the work of man and provide him with more than man has ever had before.
So rather than spinning the ‘robots are coming to take your jobs’ and therefore we must have a basic income policy, LBJ governed in a time when planning ahead was not a dirty word and everything was not left in the hands of the amorphous market.
The National Commission on Technology, Automation, and Economic Progress presented their final report to the President and the US Congress in February 1966 – so it met in “monthly 2-day sessions” from January 1965.
You can access Volume 1 of the Report Technology and the American Economy – HERE.
By the time the Commission delivered its Report, the US unemployment rate had fallen to 3.8 per cent on the back of the fiscal stimulus making a mockery of the ‘national emergency’ discussions that arose in relation to automation during the 1960-61 recession.
It was evident that automation was not the problem that had created the unemployment at the beginning of the decade.
The Report correctly noted that (p.xii) that:
The relatively high postwar labor productivity, much of it due to technological change, combined with the current and future high rate of labor force growth increases dramatically the number of jobs which must be created continually to achieve and maintain full employment.
This is in contradistinction with the current period where labour productivity growth does not appear to be fast enough to justify the hypothesis that there is widespread robot innovation replacing jobs.
Further, labour force growth around the world (advanced nations) is much slower than it was in the early 1960s.
Taken together, it is much easier to maintain full employment now than it was then.
The Report also noted that (p.xiii):
Technology is not a vessel people are to be poured and to which they must be molded. It is something to be adapted to the needs of man and to the furtherance of human ends, including the enrichment personality and environment.
Once again, stressing that these issues/challenges are choices that we make and there are always alternative paths to take. The best path is the one that advances the well-being of society rather than feathers the nest of the capitalist class.
This was a different time indeed.
The Report recognised that technology meant that “Human resources will be released and available for new activities beyond those that are required for mere subsistence. The great need is to discover the nature of this new kind of work, to plan it, and to do it.”
No basic income sell out envisaged here!
Chapter Two considered “Technological Change and Unemployment”.
In addressing the “possibility of persistent technological unemployment”, the Report said that (p.9):
We believe that the general level of unemployment must be distinguished from the displacement of particular workers at particular time and places, if the relation between technological change and unemployment is to be clearly understood. The persistence of a high general level of unemployment in the years following the Korean war was not the result of accelerated technological progress. Its cause was interaction between rising productivity, labor force growth, and an inadequate response of aggregate demand. This is firmly supported by the response of the economy to the expansionary fiscal policy of the last 5 years. Technological change on the other hand, has been a major factor in the displacement and temporary unemployment of particular workers. Thus technological change (along with other forms of economic change) is an important determinant of the precise places, industries, and people affected by unemployment. But the general level of demand for goods and services is by far the most important factor determining how many are affected, how long they stay unemployed, and how hard it is for new entrants to the labor market to find jobs. The basic fact is that technology eliminates jobs, not work. It is the continuous obligation of economic policy to match increases in productive potential with increases in purchasing power and demand. Otherwise the potential created by technical progress runs to waste in idle capacity, unemployment, and deprivation.
Which sums up the Modern Monetary Theory (MMT) approach to this question and to the ‘robots are coming’ ruses.
The currency-issuing government has the responsibility of maintaining aggregate spending at a level sufficient to generate sufficient jobs overall.
This level changes as the pace of labour force growth and productivity changes. But the fact remains – the government can always purchase anything that is for sale in the currency it issues, including all idle labour.
There is never a reason for persistent mass unemployment. Mass unemployment is a political choice not a financial necessity.
Please read my blog – The full employment fiscal deficit condition – for more discussion on this point.
Technological change will alter the type of jobs and the sectors and regions in which they are created by the non-government sector (in particular).
The clear relation between spending, income and job creation is emphasised.
Proponents of basic income guarantees conflate the concept of jobs with work. They claim that robots etc will eliminate work, when in fact, as the Report noted “technology eliminates jobs, not work”.
As the nature and type of jobs change, as they have done since we have been keeping records, the need for productive work remains.
That insight is important in understanding why MMTers advocate the Job Guarantee, which rewards work rather than a basic income guarantee (BIG).
The Report provided a detailed sector-by-sector analysis of the impact of technological change on productivity and employment shifts. It concluded that despite on-going technological change, “Most industries … have registered substantial increases in employment” as a result of bouyant aggregate demand conditions.
Technology shifted where the jobs were and was a “major source of occupational displacement” (p.20) but overall spending was strong enough to more than offset those effects.
Chapter 3 was entitled Creating and Environment for Adjustment to Change: Employment and Income and discussed ways in which (p.33):
… all levels of government … [could] … facilitate occupational adjustment and geographical mobility … and to … share the costs and help prevent and alleviate the adverse impact of change on displaced workers.
They emphasise that the “accompanying burdens and benefit should be distributed fairly” (p.33).
The range of recommendations included:
2. For those less able to compete in the labor market, productive employment opportunities adapted to their abilities should be publicly provided.
3. Under the best of circumstances, there will be some who cannot or should not participate in the job economy. For them, we believe there should be an adequate system of income maintenance, guaranteeing a floor of income at an acceptable level.
In other words, a Job Guarantee system for workers who are unable to find a job but are willing and able to work. And ongoing income support for those who are unable to work.
This is the MMT position expressed in 1966.
The Report said that:
… the most important condition for a successful adjustment to technological change is an adequate level of total income and employment. We recognise this is not the end of economic policy, but we are confident it is the beginning … 1964 has clearly demonstrated that Federal fiscal and monetary policy can bridge the gap between the current level of private spending and the level of total demand needed to reduce unemployment. During the life of the Commission the very groups disproportionately burdened by unemployment – the young and inexperienced, the undereducated, the unskilled, Negroes, production workers – have profited more than proportionally from the healthy growth of total employment.
And, “the toleration of unnecessary unemployment is a very costly way to police inflation”.
Again, this is the MMT position – using unemployed buffer stocks is a vastly inferior way to maintain price stability when compared to the use of employment buffer stocks.
The former method of maintaining price level stability is the current dominant orthodoxy. It has delivered massive costs and few benefits.
In addition to aggregate demand management, the Report said that the US federal government should limit:
… unemployment to the minimum amount necessary for the smooth functioning of the … labor market.
They were “not impressed with a 4-percent unemployment rate, or a 3-percent, or any other unemployment rate, as an ultimate goal of economic policy (p.35).
They wanted governments to push to the irreducible minimum unemployment rate consistent with people moving between jobs only.
In this regard they recognised (p.36):
… The anomaly of excessive unemployment in the society confronted with a huge backlog of public service needs in its parks, its streets, its slums, its countryside, its school and colleges, its libraries, its hospitals, its rest homes, its public buildings, and throughout the public and nonprofit sectors of the economy. They recognize that employing the unemployed is, in an important sense, almost costless … much of the work that needs doing calls for only limited skills and minor amounts of training …
And this was the justification for recommending “public service employment”, for which the “major resources must come from the Federal Government but the jobs need not”.
They railed against fiscal austerity saying that:
Were it not for the endemic financial stringency at those levels of government, the employment might already have been provided.
They then described in some detail how these jobs could be designed, the need to “treat the new employees as regular employees”, the need to pay the “Federal minimum wage” and the possibility of including training ladders as part of the public sector jobs.
The principle conclusions and recommendations of the Report are provided in Chapter Ten.
By way of summary, the Report notes that (109-111):
1. “The excessive unemployment following the Korean War … was the result of an economic growth rate too slow to offset the combined impact of productivity increase … and a growing labor force” – that is, deficient aggregate spending.
2. “There will be a continuing need for aggressive fiscal and monetary policies to stimulate growth.”
3. “Education … determines the employability and productivity of the individual, the adaptability of the labor force, the growth and vitality of the economy, and the quality of society. But we need not await the slow process of education to solve the problem of unemployment”.
4. “The more adequate fiscal policies of the past two years have proven their ability to lower unemployment despite continued technological change in labor force growth.”
5. “The needs of our society provide ample opportunities to fulfil the promise of the Employment Act of 1946: ‘a job for all those able, willing, and seeking to work’. We recommend a program of public service employment, providing, in effect, that government be an employer of last resort, providing work for the ‘hard-core unemployed’ in useful community enterprises” – in other words, a Job Guarantee.
6. “We recommend the now federally financed but State-administered employment services be made wholly Federal”.
They went on to discuss education strategies and other types of assistance.
But their key recommendation was that a Job Guarantee could always improve the circumstances of workers unable to get work while longer term policies that expanded skills via education and training had time to work.
This is a very interesting Report.
The obvious retort from those who continue to think there will not be enough jobs is that the Report was written in the 1960s and the type and pace of technological change now is vastly different.
I beg to disagree and I will write more about that another day.
And, a Job Guarantee can always provide productive jobs to the most disadvantaged worker who has been displaced.
And, finally, on automation and robots, I thought this article in The Atlantic was interesting (January 30, 2017) – The Booming Demand for Commercial Drone Pilots.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.