Monday, August 10, 2009

Technology and Taxes

Gregory Clark writes that in the future the economic problem will be
the ineluctable increase in the number of people with no marketable skills, and technology's role not as the antidote to social conflict, but as its instigator.
Unlike the period between the start of the Industrial Revolution and the mid 1950's, the gains from technological progress no longer accrue to the unskilled. So the future will be one with sharper and sharper income differences. Perhaps we can accept this regarding restaurants and homes, Clark writes, but regarding health care it is politically unacceptable. The critical question is then:
So, how do we operate a society in which a large share of the population is socially needy but economically redundant? There is only one answer. You tax the winners -- those with the still uniquely human skills, and those owning the capital and land -- to provide for the losers.
The future will see higher taxes. The question is how to set them in a politically acceptable way.

The last great hope may be to design a more efficient tax system. .. A more efficient system would tax only where there is a need for some specific public good or a transfer to the poor.

Unfortunately, such measures are only stopgaps. In the end, we may be forced to learn to live in a United States where, by stealth, "from each according to his ability, to each according to his need" becomes the guiding principle of government -- or else confront growing, unattended poverty.


Rick Woodward said...

I've always been a bit skeptical about claims regarding de-skilling, which are old and very similar to the "lump of labor" theory. After singing praises of the benefits of the division of labor in the first chapter of The Wealth of Nations, Adam Smith goes on in book one, chapter ten, part two, to compare the "common ploughman" with the the "mechanic who lives in a town" by saying that the former's "understanding ... is generally much superior to that of the other, whose whole attention from morning till night is commonly occupied in performing one or two very simple operations." In book five, chapter one, part three, article two, he writes: "The man whose whole life is spent in performing a few simple operations ... has no occasion to exert his understanding, or to exercise his invention ... He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. ... His dexterity at his own particular trade seems ... to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it." Similarly, J.B. Say, in his Treatise on Political Economy (1803), wrote that "it may be said that the division of tasks is an advantageous use of human forces; that it increases enormously the products of society; but that it takes something from the capacity of each man taken individually." So this concern has been around for a long time. But does the weight of historical evidence really suggest that all the technological progress since 1776 has created a less skilled work force? And is there any reason to believe that if this has not been the case in the past, it would suddenly have become true recently? The question "how do we operate a society in which a large share of the population is socially needy but economically redundant?" was posed by John Kenneth Galbraith over 50 years ago in The Affluent Society. And yet employment in the US has more than doubled since Galbraith's book was published. While there is certainly some truth in what Smith and Say wrote, it is no more true that automation and technology have reduced the work force to idiocy than it is true that the laboring poor today constitute the "great body of the people." Some jobs have been dumbed down, but many others have been enriched by technology. So, I think that rather than worry about a secular and universal trend toward dumbing down, it is more accurate to approach the question of de-skilling the same way Dani Rodrik insists on talking about the effects of trade: it depends who you are; some win, some lose.

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