Rethinking the middle-class

ScreenHunter_21 May. 16 13.08

Cross-posted from Paul Wallbank

Technologist Jaron Lanier says the internet has destroyed the middle classes.

He’s probably right, a similar process that put a class of mill workers out of a job in the Eighteenth Century is at work across many industries today.

Those loom workers in 18th Century Nottingham were the middle class of the day – wages were good and work was plentiful. Then technology took their jobs.

Modern technology has taken the global economy through three waves of structural change over the past thirty years, the first wave was manufacturing moving from the first world to emerging economies as global logistic chains became more efficient.

The second wave, which we’re midway through at the moment, is moving service industry jobs and middleman roles onto the net which destroys the basis of many local businesses.

Many local service businesses thrived because they were the only print shop, secretarial service or lawyer in their town or suburb. The net has destroyed that model of scarcity.

The creative classes – people like writers, photographers and musicians – are suffering from the samee changed economics of scarcity.

Until now, occupations like manual trades such a builders, truckdrivers and plumbers were thought to be immune from the changes that are affecting many service industries.

The third wave of change lead by robotics and automation will hurt many of those fields that were assumed to be immune to technological forces.

One good example are Australia’s legendary $200,000 mining truck drivers. Almost all their jobs will be automated by the end of the decade. The days of of relatively unskilled workers making huge sums in the mines has almost certainly come to an end.

So where will the jobs come from to replace those occupations we are losing? Finance writer John Mauldin believes the jobs will come, we just can’t see them right now.

He’s almost certainly right – to the displaced loom worker or stagecoach driver it would have been difficult to see where the next wave of jobs would come from, but they did.

But maybe we also have to change the definition of what is middle class and accept the late 20th Century idea of a plasma TV in every room of a six bedroom, dual car garage house in the suburbs was an historical aberration.

Just like the loom weavers of the 18th Century, it could well be the middle class incomes of the post World War II west were a passing phase.

If so, businesses and politicians who cater to the whims and the prejudices of the late Twentieth Century middle classes will find they have to change their message.

Unconventional Economist

Comments

  1. I’m back! But I am asking a serious question – Are we seeing the demise of the middle class in Australia, as we know it, mainly because of globalisation. I know of people using Accountants in India for a tenth of the price and even getting legal advice from the net. People are going to Bali & Thailand for teeth & cosmetic surgery…..the manufacturing industry has been thrown under a bus, with Oh well, so sad, can’t compete……but are all those new jobs in health & community services??? Or are we, like the Americans, going to be looking at full employment at 7.5% ?

    • darklydrawlMEMBER

      Perhaps, but keep in mind that new jobs are created as well. The most obvious ones based on the example above would be the folks who design, build and maintain the automation technology that drives the trucks. So one truck driver loses their gig but 5 new jobs maybe created.

      This is bad news for the Truck driver as the skill set is going to be different.

      This process is nothing new. Just look at common English surnames such as “Fletcher” and “Blacksmith”, whose once valued skills are now pretty much worthless today. The surnames are the only echo of how common and valued those skills were.

      I think the statement “new jobs will come, but we dont’ know what they are” is bang on the money.

      The trick as an individual is making sure you keep your ability to (re)learn something intact.

      I have had lots of different jobs over the years, and I find that can be a bonus, rather than a hinderance. But maybe that is just me.

      • That is correct regarding the jobs that are created. Robotics teams have sprung up in Australian Universities jointly funded by Mining and Defence companies to create automated vehicles. It goes beyond the automated sorting and trucks mentioned. They are developing a whole raft of interesting machines for various parts of the mining process. The problem is that we do not have the people here in Australia so we are seeing robotics specialists coming from Mexico, Israel, the US, UK and even one from Cameroon who I met the other day.

        So given the changes in roles required a rethink in education would be required. Given that we have gutted Uni research funding last year and then general funding next year unfortunately it appears that under-respresentation of Australians in research will continue.

        So as 10 truck drivers are sacked and a specialist has to be brought in from overseas to develop and maintain it. It is an interesting conundrum we find ourselves in.

      • Safety not just productivity is a driver here, problem is the unions can’t argue with safety. Safety is the ultimate “talk to the hand” excuse for anything. But ultimately to the Mine owners safety is still a productivity issue (incl. legal costs compensation etc.).

      • Crocodile Chuck

        “Perhaps, but keep in mind that new jobs are created as well. The most obvious ones based on the example above would be the folks who design, build and maintain the automation technology that drives the trucks. So one truck driver loses their gig but 5 new jobs maybe created.”

        Pray tell: how can technology displace workers, but require the creation of FIVE new jobs for every one rendered superfluous?

        That’s NOT ‘bang on the money’.

    • Alex Heyworth

      I very much doubt that we will have long term unemployment at 7.5%. My main reason for thinking this is that an aging society means a lot more people require personal care of various kinds and to various extents. These are the sort of jobs that are not amenable to automation – a robot may be able to do some of the tasks involved, but it lacks the “human touch” that is so important to the recipients of care.

      • drsmithyMEMBER

        Personally I go in exactly the opposite direction. I expect the BBs to embrace extensive home automation long before they submit to the “indignity” of in-house care and nursing homes.

        Not to mention what the costs of human vs robot care will be.

      • drsmithyMEMBER

        Wow, you are a glass half empty kind of guy/gal.

        I try very hard to live optimistically, but sometimes reality just hits a bit too hard.

        I see little in current (or potential) political “leadership” in this country or others to suggest a fundamental shift in priorities from “making the rich richer and screw everyone else” to “helping everyone to be wealthy and prosperous”.

  2. The “automation of human functions” phenomenon has even smashed Wall Street already and few people have woken up to it. The following is a “must read”:

    “Eunuchs of the Universe”, by Tom Wolfe.

    http://www.thedailybeast.com/newsweek/2013/01/04/eunuchs-of-the-universe

    “……James Simons hid his operation so well, it was more than a decade before Wall Street woke up to what Simons had there. For a start, he set up shop with a team of other quants, virtually all strangers to Wall Street, in a town on the north shore of Long Island out in Suffolk County, named East Setauket. East Setauket was the sort of town so small in scale, so given over to little buildings in a colonial—New England style—the first settlers had sailed across Long Island Sound from New England three centuries ago—people went away saying, “Oh, how picturesque.” East Setauket had two advantages: it was very near Simons’s office at Stony Brook—and nobody, nobody, in the Wall Street financial world ever heard of it. Good. Simons didn’t want anybody from Wall Street to come near the place.

    With one exception, he hired no one tainted by Wall Street experience or even Wall Street ambitions… such as business-school graduates, M.B.A.s. Their young minds had already been twisted too far. They had been expertly educated to become dim-witted macho blowhard frat-boy losers. Simons wanted only mathematicians and scientists…..

    “…..In its first 24 years, Renaissance Technologies brought its investors—and its help—yearly returns averaging 38.5 percent… net of fees, and his fees were the stiffest in the business: 5 percent of each account each year and 36 percent of the fund’s profits. Simons’s own yearly income ran in the hundreds of millions. In its third year, 1990, the Medallion Fund turned a 55.9 percent profit, again net of fees. In 2000, during the dotcom crash, the Standard & Poor’s 500 Index fell 10.1 percent—and the Medallion Fund rose 98.5 percent, net……

    “…….By 2007 he was by far the biggest player the markets had. Next to James Simons, Warren Buffett and George Soros were elves of the Old Time variety. Yet news stories about Simons were rare…..

    “……“………The “quants” robo-monster accounted for 10 percent of all trades in 2000. Thereafter, the number rose in a steep, steady climb to a peak of 73 percent in 2009, close to three of every four trades—and nobody in the outside world, not even the press, had ever heard of it! The first mention of it in the press was not until July 23, 2009, in the New York Times.
    The majority of men working full-time right here on Wall Street didn’t know much more. They were as innocent as the suckers, the guppies, the muppets. They learned in such tiny steps, they didn’t get the whole picture until very late in the game. Their first inkling came when the investment banks’ trading floors began to calm down… fewer and fewer traders yelling at each other or into the telephone or at Fate. Before long they were sitting at desks behind banks of computer screens and communicating with each other by text message.
    The robots cost some old traders and salesmen their jobs but, again, gradually, and intermittently, somebody still had to attend to the muppets and marks who continued to come to Wall Street to invest—to the quants the word seemed so archaic—to “invest” their money. What the Masters didn’t realize was that their muppets, marks, guppies, and chumps provided only the liquidity—i.e., ready money… useful mainly to provide the quants’ robo-diddlers with numbers to play with, discrepancies the robot battle machinery could game and exploit…..

    “……Two things showed quite concretely how lowly the traders and salesmen had fallen. For a hot quant prospect, employers would pay up to five times as much as for a Master of the Universe. Or as a New York Post headline put it recently: “Slick ‘Wall Street’ guys ousted by $1M geeks.” And a quant’s rogue algorithm for a single stock could bring down the entire market, as in the “flash crash” of 2010 and the 1,000-point nosedive of 2012……”

  3. “Finance writer John Mauldin believes the jobs will come, we just can’t see them right now.”

    Perhaps he is right. But perhaps the jobs cannot be seen right now, because they are not going to come.

    Say, the driverless humongous robotic mining trucks will still require technicians to service them. Sure.

    But how many of these technicians will be required? How much are they going to be paid? And how long until a new technology comes around and replaces these technicians?

    It doesn’t seem reasonable to _assume_ as many seem to do, that as many technicians earning as much as the current drivers, will be required. Why not? Because if that were so, why would mining firms invest in this new technology?

    “But maybe we also have to change the definition of what is middle class and accept the late 20th Century idea of a plasma TV in every room of a six bedroom, dual car garage house in the suburbs was an historical aberration.”

    This may be closer to the real outcome. But perhaps instead of imagining a rather fantastic scenario (how many people do you actually know have a plasma TV in every room in a six-bedroom house?) maybe one should consider a world of two-bedroom apartments, no private cars, no holidays, no public medical services, perhaps a single TV; just the little, second kid going to high school, because the older one needs to help the old folks.

    And that for the middle-class…

      • It’s not a matter of “jobs” in general.

        It’s a matter of how many jobs, paying how much and lasting how long. And with what requirements.

      • There are limitless jobs.

        Everyone can be doing something, product can not come to market by itself.

        How much we pay also determines how much we spend.

        How long is a tradeoff between consumption and leisure time.

      • drsmithyMEMBER

        Everyone can be doing something, product can not come to market by itself.
        No, but it can certainly come to market with bugger all human input required.

        We are within a generation of robots being able to perform any physical task and computers being able to perform a substantial proportion of cognitive tasks.

      • Alex Heyworth

        If production and distribution of material goods is all done by robots, society will redefine work to mean something else. I am mildly hopeful this would result in real full employment, probably involving people doing things they actually enjoy. Work will become play and play will become work.

        Presumably robots will only replace people if it is cheaper to do so. Thus material goods should be cheaper and thus abundantly available to all. I am hopeful that this in turn will lead to people valuing material things less and valuing non-material things more, as well as material things that are works of art/craft.

      • Alex Heyworth

        Of course, the alternative view is that robots will never be able to be built cheaply enough to do some jobs more cheaply than a human can do them.

        This would lead to the divided society posited by drsmithy in his 7.34pm post below, with a rich minority and the poor hordes doing the jobs that robots can’t do because it costs too much.

      • drsmithyMEMBER

        Of course, the alternative view is that robots will never be able to be built cheaply enough to do some jobs more cheaply than a human can do them.
        I’m a little unclear on why this is a precondition.

      • No, but it can certainly come to market with bugger all human input required.

        Yes, machinery does that. It reduces the required levels of human input.

        Once it took hordes of share croppers to bring produce off a 100 acre plantation.

        Now it is much less.

        The displaced labour was reallocated to something else (maybe not the individual labourers themselves I agree) to jobs that could not have existed back then.

        So how that works is we produce lots of machines so that there is a vast array of accomplished tasks each being performed with little human input.

        The aggregate output is what we call a higher (material) standard of living.

        Alternatively, we can work less hours.

        We are within a generation of robots being able to perform any physical task and computers being able to perform a substantial proportion of cognitive tasks.

        Yep, just many increases in machines have in the past performed a substantial proportion of physical tasks.

        I suppose that just leaves us all to do some sort of creative task…. each.

      • drsmithyMEMBER

        I suppose that just leaves us all to do some sort of creative task…. each.
        If you can find a “creative task” for which someone will pay you.

        Big “if”. Especially when it’s likely many previously “creative tasks” (eg: programming) will be substantially automated in the future.

  4. Ten years ago my father was running a business that sold GPS units to mines for the drag lines. That business still exists, but he also supplies modems that go on construction equipment, so that the driver can be told exactly where to bulldoze etc. Neither of those industries existed 20 years ago. Yes, they will start to push the unskilled out, but those are new jobs there, programming developing.

    We may yet see the return of some manufacturing- although not as we knew it. The world is running out of countries that can be exploited for cheap labout effectively- the wages in most Asian countries are crepping (and leaping) up and there is only Africa and South America. South America is not as desparate as south-east asia was, and Africa has other issues. As transport costs increase, there will be opportunities

    There are UK firms that are looking at relocating back to the UK for manufacture- the higher wages are offset by cheaper transport costs and the ability to maintain tighter control of the process- and there are local governments offering incentives.

  5. Productivity is a good thing. Having a lot less people accomplish the same outcome as before will allow us to de-populate quickly and efficiently.

    Everyone should aspire to be a scientist, engineer, architect, etc – the real jobs which invent, create, build and fix everything that exists in the world – as well as the educators who create these professionals. Everything else comes second and should be treated as such.

    • And online higher ed (Udacity and similar) means that very large numbers of people are acquiring these skills.

  6. “He’s almost certainly right -”

    When we eventually create machines, sometime thus century, that have the expert problem solving ability of a human then, BY DEFINITION, there is no new job that could arise that a human can do that these machines could not also immediately do. Faster, better, cheaper.

    And so, actually: He’s almost certainly wrong.

    • Then we either say humans are obsolete, or we ration, or we do other stuff.

      If primary materials were extracted by machines, agriculture was harvested by machines and product manufactured by machines, and none of us got a wage, or allocated the final product, how would we acquire them?

      Therefore is humans couldn’t acquire the product, why would me create the product in the first place?

      • drsmithyMEMBER

        The most likely outcome is a couple of percent of the population living in complete luxury and the rest in varying levels of poverty.

        At least, that’s where it seems to be heading at the moment.

      • Alex Heyworth

        drsmithy, see my comment above. If material things are made/distributed by robots, shouldn’t they all be cheaper and therefore widely available?

      • No. Supply will be constrained to maintain profit. Our capital owning, robot controlling masters will still require clowns and minstrels. All other citizens of those nations surplus to robot design, construction, distribution and maintenance will be enslaved. Depending on your master, it may still be an ok existence. Learn to write, compose or deep throat and you may still have a future.

      • Alex Heyworth

        PS, it depends on (1) whether robots can be built cheaply enough and (2) the extent to which elites value a well-off and therefore contented population.

        An obscenely rich elite and the masses living in varying degrees of poverty doesn’t sound like a recipe for stability. But perhaps “control bots” will take care of disciplining the serfs. How dystopian do you want to be?

      • drsmithyMEMBER

        drsmithy, see my comment above. If material things are made/distributed by robots, shouldn’t they all be cheaper and therefore widely available?
        Not if the average person doesn’t make enough money to buy them.

      • The most likely outcome is a couple of percent of the population living in complete luxury and the rest in varying levels of poverty.

        At least, that’s where it seems to be heading at the moment.

        I know where that sentiment comes from, it does look like the current path.

        However enduring poverty does inspire death and torture upon those that are living at the high end.

        Some of us may even get inspired to find way to devise ever ingenious ways to commit such acts.

      • drsmithyMEMBER

        I know where that sentiment comes from, it does look like the current path.

        However enduring poverty does inspire death and torture upon those that are living at the high end.

        In the past enduring poverty has generally meant violence, hunger and desparation.

        In the future it is more likely to mean soul-crushing boredom, barely intrusive oppression and lack of opportunity.

        Then there’s the practical side of things. In the past the capabilities of “professional” soldiers vs armed civilians have been non-trivially different, but not insurmountable. Plus armed forces were often substantially drawn from the peasantry, providing an avenue for coups and such.

        In the future it would be killbots vs people with rifles and small scale explosives.

        The glum view of the future is not one in which revolution will be easily fomented or executed.

      • In the past enduring poverty has generally meant violence, hunger and desparation.

        In the future it is more likely to mean soul-crushing boredom, barely intrusive oppression and lack of opportunity.

        They still are the catalysts for dissent.

        Then there’s the practical side of things. In the past the capabilities of “professional” soldiers vs armed civilians have been non-trivially different, but not insurmountable.

        Soldiers will have to come from the masses won;t they?

        Then again, there was;

        John Wilkes Booth
        Lee Harvey Oswald
        Some Principe dude who threw a grenade into a Hapsburg occupied car in Sarajevo.

        Plus armed forces were often substantially drawn from the peasantry, providing an avenue for coups and such.

        In the future it would be killbots vs people with rifles and small scale explosives.The glum view of the future is not one in which revolution will be easily fomented or executed.

        I know, but challenges have always driven men to bigger and better things.

      • drsmithyMEMBER

        I read a short story sometime last year that described two alternative post-scarcity societies. I wish I could find it again but I can’t remember what it was called.

        Basically, one society stratified into the handful of rich and the majority of poor, with few jobs or avenues for social mobility and a dog-eat-dog attitude amongst the majority, who had to compete with each other for the opportunity to earn (barely) more than a subsistence wage. Unsurprisingly this was set in future America.

        The other was set in Australia (obviously written before the Howard Government), where every person was guaranteed a minimum of a comfortable lifestyle (all the food, clothes, material goods, etc, a normal person might want). On top of these guaranteed basics, people were also paid a salary (simply for being citizens), which they could then choose to use however they desired.

        I found it quite interesting and inspiring. If I can find it again I’ll post a link.

      • drsmithyMEMBER

        They still are the catalysts for dissent.

        But much less motivational ones than starving to death or being randomly dragged off and killed.

        Soldiers will have to come from the masses won;t they?
        Not if they’re robots.

      • The other was set in Australia (obviously written before the Howard Government), where every person was guaranteed a minimum of a comfortable lifestyle (all the food, clothes, material goods, etc, a normal person might want). On top of these guaranteed basics, people were also paid a salary (simply for being citizens), which they could then choose to use however they desired.

        Sounds like a rip off of Brave New World 🙂

      • “The other was set in Australia (obviously written before the Howard Government), where every person was guaranteed a minimum of a comfortable lifestyle (all the food, clothes, material goods, etc, a normal person might want). On top of these guaranteed basics, people were also paid a salary (simply for being citizens), which they could then choose to use however they desired.”

        I can only imagine what the current account deficit looks like in this Australia 😉

  7. What’s destroying the middle class is mass immigration and such high property prices.

    Stable Population Party.

  8. This affects me directly. For the last twelve years I have been working remotely as a technical translator. My niche skills meant that I got paid quite well, and the lifestyle was great.

    In the last five years, my hourly rate has halved in real terms, and I get a lot less work, as parts of my job get taken over my machines (software) and workers in India.

    The net has created a race to the bottom, as customers have access to a larger and larger pool of competing suppliers. On the whole, most customers are not very good at assessing quality, and so suppliers compete in terms of price and delivery times, with quality suffering massively as a result.

  9. Stephen Morris

    The Fourth Stage is Singularity at which point the robots will probably have us all killed off since we will then be redundant.

    The median estimated date of Singularity (from those who claim to be experts on such things) is 2040. So, many readers here should live to see their own annihilation.

    I suppose there is a certain satisfaction in knowing that our life form did its bit to create its ultimate successor.