
The Great Decoupling - nrao123
http://avc.com/2015/05/the-great-decoupling
======
bkeroack
Note that the decoupling correlates closely with the computerization of
society/business around the mid-1980s.

The market for most types of human labor is soft in advanced economies, and
getting softer. We don't grow the economy by assembling a huge workforce to
do/build something, we grow it when (relatively) tiny teams build a new tool,
create a new market or disrupt an existing industry.

One could argue that there are lots of projects out there that could use
people to do physical labor. My response to that is that it has become
_extremely_ expensive to employ workers in physical jobs in the US, due to
declining health of the general population (obesity, etc) and the overhead of
things like disability insurance/worker's compensation. Since the US has
essentially no social safety net to speak of, the primary source of welfare
ends up being workplace injury-related benefits. This produces a powerful
secondary-gain situation that incentivizes injury for those who work physical
jobs.

I don't think people _intentionally_ get hurt of course, but rather when they
do sustain an injury it becomes economically advantageous to prolong it as
much as possible since the job is hard and their pay for working is so low.
Usually it's the only way for menial laborers to get a paid vacation, and
(sadly) getting permanent disability benefits is like early retirement.

I'm not advocating for getting rid of those benefits, but rather changing the
incentives so that working pays more, everybody gets some form of paid
vacation, and that there are safety nets/alternatives for the poor. We need to
recognize that our economy simply needs fewer people working to function (I
don't know if the basic income is the right solution, but it could be).

~~~
jtbigwoo
>> Note that the decoupling correlates closely with the computerization of
society/business around the mid-1980s.

It also correlates closely with the decline of labor unions.

~~~
Kalium
Hi. I'm a software engineer. Show me a union whose membership improves my
life, and I'll be happy to talk.

Bear in mind that _improves_ is present-tense for a reason.

~~~
bkeroack
We don't need a union per se, but a professional association (aka guild) would
be fantastic. As professionals we need to stop letting employers be the sole
arbiter of competency, and we also need to institute a code of engineering
ethics that is independent and based on sound theory and practice (rather than
whatever the business wants at any given time).

Imagine being SEOA (Software Engineer Association of America) Level 1
certified and never having to do Fizz Buzz at an interview again. Or a
Glassdoor-like employer database that gives you a clue what you might be
walking into. Independent health insurance coverage, etc. There could be lots
of great ways it would improve the average engineer's life.

~~~
kasey_junk
Also imagine not being able to get a job because you tried to implement some
new and cutting edge process or program and were black balled for life.

That's also what guilds do.

------
digikata
Personally, I blame spreadsheets. Well, not spreadsheets per se, but their
ability to ease quantification of certain money streams above others. They
make it easy to optimize profit margin in the short term, and dismiss long-
term, difficult to quantify investments. The short term numbers are nice and
solid, and the long term risk and investment are fuzzy.

In the near past, this focus improved the economy, but now I think we're in a
stage of overoptimization of short term profits over real value. You can see
where real GDP is now beginning to tail off in the charts - it happens later
than the salary drop but it's there. Company lifetimes are getting shorter
(showing misallocation of risk & R&D, and less buffer to weather mistakes &
downturns), general numbers of new business starts are lower (suspect this is
a side effect of less time & salary for workers).

Worker salaries are hit as a big side effect too.. how you do quantify long
term value of a worker - it's easier to quantify short term worker outputs as
shallow primary effects and ignore the longer term secondary effects of
retention and experience. Now compare fuzzy secondary effects against the
calculation of short term profit projections. You can see how jobs are easily
slashed, or moved overseas... even if three to five years down the line you
lose some efficiency (it's not quantified so it doesn't exist in a cost-
benefit trade off).

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gambiter
> the professors put forth as potential solutions [...] education,
> infrastructure, entrepreneurship, immigration, and basic research.

Couldn't the other solution be less greed on the part of business owners? It
seems like the bigger issue is that they just aren't paying their people
enough.

~~~
Afforess
> _Couldn 't the other solution be less greed on the part of business owners?_

Greed has very little to do with the problem. If one business pays their
employees slightly less, and gains an edge over the competition by doing so,
it forces their competitors to either adopt the same lowered pay rates, or
slowly be defeated in the market. Only one "bad" actor has to be 'greedy' to
force the entire market to chase lower wages. Often this can become a self-
perpetuating system, driving down wages.

It is probably impossible to prevent this sort of behavior. The incentives to
avoid chasing lower wages do not exist, or are very weak. Also consider that
higher wages increases incentives for businesses to automate labor. Even if
you create a higher minimum wage, the pace of automation will increase.

The fact of the matter is that the supply of jobs now no longer matches the
number of employable people, and the supply will continue to shrink,
indefinitely.

~~~
beachstartup
this is part of it. however, things are just out-of-whack economically.

in my company, we pay our most-senior engineers above-market wages, for a
variety of reasons including retention, schedule demands, etc. for example, we
pay a senior remote sysadmin in the south/midwest $150k. we are based in
southern california where that salary would still be above-market.

the truth of the matter is even if we paid him 200 grand, his real income
would probably not be as good as it was 30 years ago. our local california
engineers can't afford houses+family no matter how much we pay them (within
reason - assuming single income). i know people from the previous generation
who own multiple houses on what were modest single incomes.

something fundamental is driving the cost component of everything through the
fucking roof, without a corresponding increase in purchasing power.
employers/managers can be only so generous - the dollar just isn't going as
far.

in other words, the actual purchasing power is accruing at the _very very_ top
in an entirely different class of ultra-rich people. small biz owners, middle
managers and employees are getting shafted even though everyone is trying
their hardest to keep things on an even keel.

~~~
eli_gottlieb
>something fundamental is driving the cost component of everything through the
fucking roof, without a corresponding increase in purchasing power.

If I had to guess, the "something" is the conversion of capital gluts at the
top of the economy, boosted by cheap borrowing rates, to drive speculative
bubbles in all available "assets" \-- things you can invest in to get a
capital gain. Since most of the world doesn't tax land values, land values
have soaked up much of the speculation, making real-estate unnaturally,
uselessly expensive across most of the civilized world.

~~~
meatysnapper
Real estate speculation by foreign investors has definitely driven housing
prices to levels not supported by the locals- Vancouver BC being a prime
example of this.

I've always wondered what the best way to prevent this would be... if non-
residents were prevented from buying more than a single small property in a
country, would that help at all?

~~~
eli_gottlieb
>I've always wondered what the best way to prevent this would be... if non-
residents were prevented from buying more than a single small property in a
country, would that help at all?

Land-value tax is what experts generally recommend.

------
carsongross
One interesting thing that happened in 1971 (right when the income divergence
occurred, which I view as the major problem) was that Nixon closed the gold
window:

[http://en.wikipedia.org/wiki/Nixon_Shock](http://en.wikipedia.org/wiki/Nixon_Shock)

Association of course does not prove causation, as a graph of murders and IE
usage will demonstrate. But it is suggestive. I wonder if the unlimited
leverage that the financial system had access to after the gold window closed
allowed them to suck out more and more of the productivity gains.

This graph suggests that this might be so:

[http://www.yesmagazine.org/blogs/david-
korten/images/financi...](http://www.yesmagazine.org/blogs/david-
korten/images/financial-sector-as-percent-of-u.s.-gdp)

~~~
cstoner
An alternate hypothesis is that starting in 1971, labor union participation in
the US began its decline.

Rather than needing to use leverage, as you suggest, they just directly
filtered the increased productivity gains to the top of the company.

Also, I'm not really sure that your graph shows anything except that the
financial industry has been growing since the 40s.

~~~
Kalium
Also related is that that's roughly when automation began replacing unskilled
high-wage labor.

A lot of things happened at once, I think.

------
paulpauper
The decoupling is also obvious when comparing advanced degree employment and
income versus those with only high school or 'some college'. It's also
pronounced between majors, with STEM earning more. these trends have
accelerated since 2008.

------
michaelochurch
My theory is that we're in danger of a global repeat of the Great Depression
that hammered North America and, to a lesser extent, Europe in the 1930s.

The last one, in the 1920s, was caused by ill-managed prosperity, I would
argue. You had sudden gains in agricultural productivity, which led to
crashing commodity prices, which eventually led to rural poverty. One might
have "expected" farmers to move into the cities and become the new middle
class, and some did, but that doesn't work out so well when thousands or
millions of poor, hungry people are doing the same thing. What was just "rural
poverty" (of course, half the country was still rural) in 1925 became more
widespread by 1927-28 (noticeable slipping demand for consumer products) and
finally was recognized as a Great Depression after it tanked the stock market
in 1929-32.

We have, in 2015, a _lot_ of ill-managed prosperity. We have a culture in
Silicon Valley that _glorifies_ ill-managed prosperity. (What else do you call
funding _Clinkle_?) And the same thing that happened to food prices in 1900-30
(slow at first, accelerating toward the end) is happening to _almost all human
labor_ in 1985-2015.

It may not end well. Including the damage brought by the war, I'd argue that
most of Europe didn't get out of the Depression (manifest somewhat differently
over there, especially in the fascist countries) until the late 1950s.

~~~
frandroid
Are you saying that poor peasant led to the Great Depression? I thought
runaway speculation did...

~~~
paulpauper
Thee cause was probably a combination of speculation, leverage, overbuilding,
and so on.

No one really knows the exact trigger, but a popular opinion seems to be that
the Smoot–Hawley Tariff Act made it worse -although even that is debated.

The stock market crash lead to margin calls and the sudden evaporation of
millions of dollars of wealth and that probably triggered a cascade effect, as
business obligations could not be met due to the sudden loss of wealth.

------
phkahler
The obvious solution is birth control. It's not that there are too few jobs,
it's that there are too many people. Offer free permanent birth control to any
low income person who wants it. This is only a partial fix of course, but one
that would help long term.

~~~
dragonwriter
> The obvious solution is birth control. It's not that there are too few jobs,
> it's that there are too many people.

Jobs aren't fixed, such that reducing the number of people will align people
with jobs. Reducing people will reduce jobs, so if you commit to that method
of trying to get them in alignment, you'll end up tail-chasing with more and
more aggressive population reduction efforts until you recognize that the
approach doesn't work.

~~~
phkahler
I disagree. With mass production/farming/entertainment/etc you can provide for
N number of people with N/k people. This has not always been the case. There
were things not getting done, so when automation came along it freed up people
to get some of the less critical things done. I believe we are rapidly moving
into a time when there are not more things to be done and we actually have an
excess of people (see China and India for examples). I knew it was a huge risk
to my rep to post that, but hey, gotta get the idea out there.

More specifically, lets say it takes 10,000 people to meet the needs of 12,000
people. You might then think it takes 20,000 to support 24,000, but you'd be
wrong. Increasing production does not scale that way, there is a sort of
viable minimum after which scaling is easier. So 5000 people would not be able
to serve 6000 because there isn't the critical mass needed to do everything
(these number are purely fictional of course).

It's like mining. It takes a lot of people to dig and move earth, but once
society gets advanced enough we can have bulldozers and dump trucks, and as
you need more mining you just use bigger machinery rather than more machinery
with more operators - or you make them autonomous so there fewer operators.

TL;DR the number of people it takes to provide for a society is not directly
proportional to the size of the population.

------
paulpauper
Ultimately, I think this whole debate on wages, STEM, wealth inequality, and
automation boils down to IQ. [http://greyenlightenment.com/winner-take-all-
nation/](http://greyenlightenment.com/winner-take-all-nation/)

IMHO, people are falling behind because of low IQs and the winner-take-all
economy that enriches some, but doesn't leave a whole lot for everyone else.
Today’s hyper-meritocracy is amplifying the socioeconomic ramifications of
individual cognitive differences such that a person with an IQ >110 is much
more likely to succeed than someone with an IQ <90, whereas decades ago the
disparity wasn't so obvious.

The solution, on the other hand, -I don't know. No one really knows, and
that's why this is such a big debate. So many people realize that this is one
of the most pressing issues of the 21st century. How are we going to develop a
compromise or solution that handles automation-related jobs loss and
inequality. Some propose a basic income; others want redistribution; others
wants more spending on education, and so on...

From students fresh out of college and in debt, to people looking for jobs, or
people who have been laid-off, we're all a part of this debate. Economics is
not just for economists - now more than ever we all experience it in our
everyday lives.

