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Inequality on the horizon of need

Brad DeLong, professor of economics | May 31, 2013

By any economic measure, we are living in disappointing times. In the United States, 7.2% of the normal productive labor currently stands idle, while the employment gap in Europe is rising and due to exceed that of the US by the end of the year. So it is important to step back and remind ourselves that the “lost decade” that we are currently suffering is not our long-run economic destiny.

As Paul Krugman recently reminded us, John Maynard Keynes perhaps put it best:

This is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life – high, I mean, compared with, say, 20 years ago – and will soon learn to afford a standard higher still. We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time.

But what is our long-run economic destiny? Keynes looked forward to a time, perhaps 2050, when everyone (in England, at least) would be able to have the lifestyle of a Keynes. And, because he imagined that no sane person could want more of the necessities, conveniences, and luxuries of life than a Keynes had, the economic problem would be solved.

We are wiser – and perhaps sadder – than Keynes. We know that we want hip replacements and heart transplants and fertility treatment and cheap air travel and central heating and broadband Internet and exclusive beachfront access. Already nearly everybody in the North Atlantic region has enough food to avoid hunger, enough clothing to stay warm, enough shelter to remain dry. And yet we want more, feel resentful when we do not get it, and are self-aware enough to know that luxuries turn into conveniences, and then into necessities – and that we are very good at inventing new luxuries after which to strive.

So the economic problem will certainly be with us for a long time yet. But at least we can count on being able to generate a relatively egalitarian middle-class society as we collectively slouch toward our consumerist utopia, right?

It was Karl Smith of the University of North Carolina who explained to me that this was likely to be wrong. The long post-Industrial Revolution boom, which carried unskilled workers’ wages to previously unheard-of heights – keeping them within shouting (or at least dreaming) distance of the lifestyles of the rich and famous – is not necessarily a good guide to what will come next.

To create wealth, you need ideas about how to shape matter and energy, additional energy itself to carry out the shaping, and instrumentalities to control the shaping as it is accomplished. The Industrial Revolution brought ideas and energy to the table, but human brains remained the only effective instrumentalities of control. As ideas and energy became cheap, the human brains that were their complements became valuable.

But, as we move into a future of artificial intelligence that observers like Kevin Drum expect (or even of the artificial moronicity that is already clearly at hand), and into a future of biotechnology that grows itself as biological systems do, won’t human brains cease to be the only valuable instrumentalities of control?

It is not necessarily the case that “unskilled” workers’ standards of living will fall in absolute terms: the same factors that make human brains less valuable may well be working equally effectively to reduce the costs of life’s necessities, conveniences, and luxuries. But wealth is likely to flow to the owners of productive – or perhaps fashionable – ideas, and to owners of things that can be imitated only with great difficulty and high cost, even with dirt-cheap instrumentalities of control, dirt-cheap energy, and plentiful ideas.

The lesson is clear: the market is not guaranteed by nature to produce a long-run future characterized by a reasonable degree of wealth inequality and relative poverty. Unless and until we recognize this fully, we will remain at the mercy of Keynes’s poorly understood “delicate machine.”

Cross-posted from Brad DeLong’s blog Grasping Reality with Both Invisible Hands.

Comments to “Inequality on the horizon of need

  1. Greetings. Great article, but I have one objection regarding its introductory statement; I have just plotted historical data (1920- ) of two fundamental economic measures:

    – GDP adjusted for inflation
    – Unemployment

    and I just can’t grasp why it is that we are living in economically **disappointing** times. I will agree that unemploymet is on the high side comparing with the US’ past but certainly not peaking or that far away from its moving average. And 7% as a figure is not unknown to western developped economies. I understand getting used to prosperous times and certainly striving for the best is the way to go but realistically we just can’t always be at the 3-4% mark. I do get the same feeling of disapointment from many renowned authors nowadays and I am wondering why they all adopt such a pessimistic point of view.

    Personally I don’t ever recall people in the press or among private discussions (probably influenced by the press) being satisfied with the economy, not even in the mid-90’s or in the mid-00’s where the western world was hitting record numbers.

  2. We “…are self-aware enough to know that luxuries turn into conveniences, and then into necessities – and that we are very good at inventing new luxuries after which to strive.” But we, in the industrialized world, are not aware of the environmental costs and too irrational to cease this behavior.

    There are simply insufficient resources of energy and natural resources including repositories for waste to support 7 billion people as if they lived in an industrialized country.

    Energy at the Crossroads; global perspectives and uncertainties
    By Vaclav Smil

    Too Smart for Our Own Good; the ecological predicament of humankind
    By Craig Dilworth

  3. If the government provides a level of income that is higher than minimum wage, some less motivated people will chose to not work and except welfare rather than work in the hope of living the American dream of a better life for themselves and their families.

    The cost of welfare is a life time of poverty for those who drink from its trough. Steve Peterson

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