Producers vs. Non- producers

There are many trends in the economy of the United States and the rest of the developed economies that are very disturbing. Yesterday we talked about the increasing number of people on food stamps and that governments are encouraging more people to participate in the food stamp program. Since the financial collapse in 2008, there have been countless articles written on the increasing income gap; i.e., the rich getting richer and the poor getting poorer. During the last presidential campaign season we were reminded countless times that the highest 10% wage earners pay 60% or more of the federal income tax. While we are constantly reminded by the President and his administration and by the MSM that there have been 37 straight months of job growth in the private sector, we know that the number of unemployed plus the number of those that have dropped out of the workforce plus the number of people underemployed keeps increasing. But, while we watch all of these negative trends, we also observe that the stock market is back in record high territory again and corporate CEO are getting big bonuses and so are the investment bankers.

What bothers this self-appointed watcher of the asylum is that these trends are likely to continue. That is: fewer and fewer producers will be supporting more and more non-producing consumers.

Let’s take a look at the thoughts of J. T. Young’s article at Real Clear Politics.

Much has been made of a dichotomy between “makers and takers.” However this is too basic and does not capture the true economic complexity. The real relationship is not an either-or one, it is one of consumers and producers.

We are all consumers – we must do so to survive. However as basic as consumption is, it is secondary to production. Without production, there is no consumption.

The problem is, that despite production’s essential role in this most basic economic equation, while all are consumers, all are not producers. Of course, not all can be. Yet for all to not be, it means producers must willingly produce surpluses. And the higher the ratio of consumers to producers, the greater the producers’ surplus production must be. Again, there is no other way.

And here is what worries Mr. Young:

America’s employment statistics raise serious questions as to how long producers will be motivated to produce if they too can see circumstances where they too could consume without producing.

One of the important factors, if not the most important factor, that allows fewer producers to produce what all consumers need is technology. The advances in areas like nano-technology and robotics is mind-boggling. And, there is 3-D Printing Technology that is still in its infancy, but is likely to revolutionize how many of the products we use are made and made with fewer workers. Mish’s Global Economic Trend Analysis has a post today that addresses recent trends robotic outsourcing.

{In China} Noodle peelers should probably start looking for other things to do around the kitchen – there’s just no competing with these robots.

{…}

In Japan robots are already being used to make sushi, and a robot in San Francisco can serve up 340 hamburgers an hour. But while robotic cooks provide restaurants a novelty for customers and savings for owners, other robots are invading China’s workplace on a much grander scale. Most notably is Foxconn who, last November, began replacing 1 million jobs performed by humans with robotic automation. The metamorphosis is advancing quickly. In late February the company announced it put a freeze on hiring new entry-level workers. This was due in part to a high worker retention rate following pay increases, but it’s also a conscious decision to accelerate the automation of their factories.

In looking for someone to blame, Mish points out some interesting facts:

1. The Fed (central banks in general) have made the cost of capital so cheap that it encourages employers to replace workers with cheaper alternatives.
2. The Fed (central banks in general) can enhance trends, but cannot change them. Thus, I am not stating the Fed is the cause of “Robotic Outsourcing”. Rather, I am stating that cheap money has accelerated that trend.
3. Minimum wage laws, protectionism, unions in general, and inane government policies also encourage “Robotic Outsourcing”.
4. Long-term, everyone benefits from productivity improvements and associated cheaper prices.
5. Unfortunately, Keynesian clowns as well as the clowns at the Fed (central banks in general) see cheaper prices as the enemy.
6. In their effort to prevent falling prices, the Fed has lowered the cost of money so much that it is a no-brainer to replace human workers with technology at an increasing pace.

And he summarizes with this:

With the Fed hell-bent on causing price inflation, Obama on causing wage inflation, and unions on keeping an unsustainable trend in wages and benefits, look for an accelerated trend towards elimination of human jobs.

So, what do you think, dear friends? Will the future convert this asylum into a paradise where machines produce all of the milk and honey mankind could possibly want without their having to work at all? Or, will there come a point in time in three or four decades when there 100 million or more on food stamps and the workforce participation rate is 50% or less and the when the top 10% are paying for 95% of the cost of the federal government and the producers ask themselves why should they continue to care for the non-producers?

I’m having dark thoughts.

Well, that’s what I’m thinking. What are your thoughts?