Faking it

Thanks to the election of President Trump and his uncompromising attitude to the establishment media, much hot air is being expended on the subject of ‘fake news’. Those being so exercised seem unable to stop and wonder when such news has NOT been, shall we say, ‘nuanced’. In Napoleon’s day, a well-worn figure of speech was ‘to lie like a bulletin’ while there was always much rather at hollow hilarity in the West over the fact that one of the Soviet Union’s main organs of the press was call ‘Pravda’ or, in English, ‘The Truth’.

What we should, of course, be getting worked up about is ‘fake economics’, for this is a much more pervasive evil, as well as a much more persistent one.

One such idea, currently doing the rounds is that automation is about to throw everyone out of work and so we should tax the ‘robots’ and distribute the proceeds as a ‘universal income’ to the poor souls who can no longer find work in industrial drudgery.

Ironically, Bill Gates is the latest to add his voice to this half-reasoned, Broken Window call – a man whose entrepreneurial genius has spared us non-specialists more labour and meanwhile reduced the employment opportunities of more accountants, typists, publishers, graphic designers, and photographers than anyone in history!

Would you mind just writing us all a cheque now, Bill, for all that lost income and we’ll call it square?

What none of those raising such a clamour seem to realize is that the ‘robots’ – and how conveniently sinister THAT term seems, with its echoes of every piece of dystopian science fiction from Frankenstein to Terminator and beyond – will only be installed if they allow more or better goods to be made at lower cost and that for their installers to enjoy a return, those goods have to be able to be sold at a price the masses – including the robotically-displaced masses – can afford to pay!

Another irony is that the very people who throw their hands up in despair at the demographers’ gloomy prognoses of a depopulated, greying humanity are largely to be identified among the congenital pessimists who fear that the imminent robot army might soon make-up for that same projected lack of able-bodied factory hands and delivery boys!

We can keep going. Despite labour supposedly being both scarce (demographics) and superfluous (cybernetics), the cyclical voices of ill-omen bewail the fact that real wages are now falling as prices finally begin to respond to the monetary violence long inflicted upon the market mechanism by our current crop of ineffably Oz-like central bankers.

But, wait a minute. If we wish to stimulate more demand for a product, the usual trick is to make it cheaper. Reduce the price of shoes and people will not only buy more but may well increase the number or frequency of their purchases super-proportionally to the price reduction, so boosting the entrepreneur’s overall receipts and, hopefully, his profit (through spreading his fixed costs over more units, if in no other fashion).

There is no conceivable reason why the same argument should not apply to the product of human toil – i.e., to our labour. Make it cheaper and more should be demanded. Ergo, a lowering of real wages should act to encourage greater employment. While a possible source of hardship for the individual who is already securely in a job, the reduction represents a boon to the man or woman currently without one and so potentially acts to increase the total earned when all workers, new and old, are considered as a whole.

Indeed, so fundamental is this that neither Austrians nor Keynesians find much to disagree with here, their principal dispute being with regard to the way real wages should be adjusted to changing economic circumstances.

The Austrian – and, indeed, most of his Classical School counterparts – would let money wages fall in response to a bust, until the worker’s cost to his employer again becomes less than the estimated value of his product. The Keynesian, insisting that the man’s money wage is ‘sticky’ – and worried that wider risks exist within a chain of mutual obligations specified largely in nominal terms – would rather try to inflate prices, hoping that these will respond more rapidly in the upward, as well as in the downward, direction.

In a world of unemployment then, falling real wages – or, more exactly, falling real wage rates – should be seen as part of the cure and not as a symptom of further decline.

As a practical instance of this, take the UK. While one may find much to criticise in the policies pursued in Britain by both the Treasury and the Bank of England in recent years, it is undeniably the case that the relatively rapid pace of price rises which ensued, coupled with modest increases in money wages, have acted to expand employment greatly.

The official numbers show that, from their level at the peak of the boom, real weekly earnings fell 8.5% to their subsequent trough before staging a modest recovery over the past two years – albeit one which still leaves them 4.5% below their earlier maximum. Meanwhile, from its own 2011 low point, total employment has expanded by 3 million – or almost 10% – while the proportion of the labour force in work has hit a high not seen in the 45 years such data have been collected.

The corollary to this has been that official measures of productivity have fallen, to the utter consternation of the punditocracy. Yet the effective substitution of cheap(ened) labour for relatively more expensive capital could not have been expected to do otherwise.

Once again, the inconsistency is striking. The constellation of low wages, more workers, and lesser per capita output is bemoaned by the same intellectuals who so fear a robot take-over that they dream of sending us serfs back to the fields in daylight hours, equipped only with sickles and wicker baskets, while mothballing the farmer’s air-conditioned, GPS-guided, round-the-clock combine harvester – all to our supposed benefit.

The Roman historian Suetonius tells us that during his rebuilding of the Capitol, the Emperor Vespasian was approached by an engineer, who promised to transport the heavier columns for a much lower outlay of money and effort than had theretofore been possible. Vespasian – himself no stranger to money-making schemes – is said to have responded as what we might now call a patent-squatter, rewarding the man handsomely for his invention, but refusing to use it, saying: ‘You must let me feed the poor commoners.’

It is sobering to think that today, almost two millennia later, our clique of Fake Economists would heartily applaud.