My earlier post, Mapping the Road to American Disunion, discussed the apparent high likelihood of increased social and political unrest in America in the coming years – a process which, with the ongoing partisan stand-off in Washington, might well be under way. This was based on the work of Peter Turchin and his field cliodynamics.
The political disarray speaks to the increased conflict between the distinct American Nations, as discussed by David Hackett Fischer and Colin Woodard. Both Turchin and Woodard noted that increased tension between the distinct American nations was likely in the coming years, of which perhaps we are getting a taste of today.
Many readers accordingly seem to have taken from my post that this internecine strife is the main problem that awaits the country in the coming years. However, I don’t think that’s the case, not by a long shot. I suspect that a far greater problem looms over the horizon. That is economic collapse.
In this post I will discuss why I think this problem looms, what I think will happen, how to get through it, and how to possibly mitigate it:
1. Setting the Economic Stage: Inequality
2. The Reasons: Mass Immigration Pressure
3. The Reasons: Natural population Increase and the Population Cycle
4. The Reasons: Automation
6. How to Survive
One of the defining conditions of our day is rising economic inequality. The wealthiest Americans are pulling away from the rest of us. The staggering scale of this inequality is illustrated by this clip, which was featured on Steve Hsu’s blog.
What’s the reason for this? There are two overarching reasons, those are labor oversupply (which stems from immigration and natural population increase) and labor obsolescence (which stems from automation and globalization).
The first cause of economic inequality is perfectly captured by this venerable set of graphs (featured at Mangan’s):
This is a juxtaposition of graphs comparing the portion of wealth held with the top 1% wealthiest of the population with the share of the U.S. population composed of immigrants. As we see, there’s a tight correlation.
Peter Turchin explored why this correlation exists (see the posts linked here, at my HBD Fundamentals page, in the section “On the economic impact of demographic changes (particularly immigration and the Baby Boom in the United States)”). In short, the wage an average worker can earn is a function of the demand for labor relative to its supply. When labor is tight, workers are in a position to command a higher salary (and considerably better working conditions/benefits) – and hence a higher share of the total pie. When labor is plentiful – as it is today – there are many possible workers for any given position. Any given worker is easily replaceable, and hence not worth much. It’s basic supply and demand.
This situation greatly contributed to the first Great Depression. This piece from economist Robert Reich explains why (emphasis added):
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.
The economy is “weak” – and remains so – because middle-income earners (the people whose spending drives the economy) don’t have the money to spend. This is why “consumer spending” – which ultimately drives everything else in the economy – is weak. The average consumer is broke.
Mainstream pundits and politicians talk about the need to foster economic recovery, and all the standard rubbish solutions to accomplish this, but none are addressing the root problem: the oversupply of labor, which is primarily caused and exacerbated by ongoing mass immigration.
In fact, the standard conventional wisdom solution to the problem, more immigration (on the rationale that it’s “good for the economy” – ignoring the key question of “whose economy?”) merely serves to fuel the fire of economic malaise. Indeed, this is reflected by the fact that during the “recovery” periods following the two recessions in this century, the “economic” gains went mostly to the immigrants themselves, and, more telling, all of the income gains went to the wealthiest. See Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion (since 2001) and 95% Of Income Gains Since 2009 Went To The Top 1%.
This was the type of condition that presaged the Great Depression of the 1930s. Wealth was so concentrated at the top that the economy collapsed. Unfortunately, and most unsettlingly, we are right back at that point.
While immigration contributes significantly to the labor supply, the cyclical pattern as detailed by Turchin captures another factor behind this oversupply: natural population growth. During good economic times, fertility rates shoot up. These good times typically occur in periods of relatively scarce labor. The increased wealth of the average family allows them to pour more of their energies into reproduction. However, unless population growth is accompanied by geographic expansion, this partly undoes the condition of labor scarcity that spawned it. Wages fall, and with them, so does fertility. Relatively lean and quite competitive times ensue, only to be reversed by the next period of labor scarcity brought on by the previous era’s lowered birth rates. Fundamentally, this appears to be engine driving Turchin’s cliodynamic cycles, as he explains in his masterful piece in Aeon magazine:
Another reason why the labour supply in the US went up in the 19th century is, not to put too fine a point on it, sex. The native-born population was growing at what were, at the time, unprecedented rates: a 2.9 per cent growth per year in the 1800s, only gradually declining after that. By 1850 there was no available farmland in Eastern Seaboard states. Many from that ‘population surplus’ moved west, but others ended up in eastern cities where, of course, they competed for jobs with new immigrants.
This connection between the oversupply of labour and plummeting living standards for the poor is one of the more robust generalisations in history. Consider the case of medieval England. The population of England doubled between 1150 and 1300. There was little possibility of overseas emigration, so the ‘surplus’ peasants flocked to the cities, causing the population of London to balloon from 20,000 to 80,000. Too many hungry mouths and too many idle hands resulted in a fourfold increase in food prices and a halving of real wages. Then, when a series of horrible epidemics, starting with the Black Death of 1348, carried away more than half of the population, the same dynamic ran in reverse. The catastrophe, paradoxically, introduced a Golden Age for common people. Real wages tripled and living standards went up, both quantitatively and qualitatively. Common people relied less on bread, gorging themselves instead on meat, fish, and dairy products.
So, unfortunately, it appears that good times sow the seeds of their own undoing. They do so mainly by swelling the population, which forces individuals to compete with each other – sometimes tooth and nail – for a little piece of the pie.
This, is, by the way, why people calling for ways to reverse sub-replacement fertility are fundamentally wrong-headed. Unless you’re going to open up new frontiers for colonization, you don’t want fertility rates to get too high, because population growth without geographic growth inevitably leads to falling standards of living for the people and more strife. But such is the problem with people who can’t see beyond their own small little academic worlds.
Add immigration on top of natural population growth and you have a recipe for economic disaster. It took many decades of mass immigration to drive the U.S. economy into the first Great Depression. However, the current wave of mass immigration has been going on for many decades, and it has helped drive inequality to where it was in 1929.
Labor oversupply, via natural population increase and via immigration, is the first big factor contributing to severe inequality. The second big factor is labor obsolescence, both through globalization (essentially overseas labor competing with domestic labor) and, perhaps far more importantly, automation.
As previously discussed in my post Human Labor Becoming Obsolete?, robotic advancement continues at a steady and impressive rate. Previously, many have argued that automation merely freed up humans from drudge work and allowed them concentrate their efforts elsewhere. These speakers are unconcerned because they believe that this process can continue indefinitely. However, it can’t. The big reason for this is simple, as I noted previously:
But one oft-quoted maxim about automation and technology is that while they may make some jobs obsolete (e.g. the switchboard operator), they open up new jobs in other fields. This line of reasoning ignores the reality of IQ. The fruit picker displaced by a robot isn’t going to get a job fixing those robots. Indeed, in general, and as was Half Sigma’s main point, the low-IQ are the ones that have the fewest options in any Brave New Economy, for the range of jobs they can do is the most limited. This means that the IQ threshold for economic viability rises as labor becomes more automated.
This has been driven home by several recent developments:
From HBD Chick, strawberry-picking robot
“No human hand touched this hamburger. It was made entirely by robots.”
In “The Future of Employment: How Susceptible Are Jobs to Computerisation?,” Frey and Osborne estimate that 47 percent of U.S. jobs are “at risk” of being automated in the next 20 years. This does not mean that they necessarily will be automated (despite the way the study has been portrayed in somemediaoutlets)—rather, the authors argue, it is plausible over the next two decades that existing and foreseeable AI technologies could be used to cost-effectively automate those jobs out of existence.
What do the authors predict will happen to those whose jobs are automated out of existence? “Our findings thus imply that as technology races ahead, low-skill workers will reallocate to tasks that are non-susceptible to computerisation–i.e., tasks requiring creative and social intelligence. For workers to win the race, however, they will have to acquire creative and social skills.”
Their paper can be found here. Frey and Osboune recommend that workers acquire “creative and social skills” – as if workers have unlimited ability to do so. This limitation is why increased automation posses an ever-increasing threat to workers, especially to those on the left side of the IQ bell curve.
The combined result of these two forces – labor oversupply and labor obsolescence – can be seen in the distribution of income in American households. The TechCrunch article America Has Hit “Peak Jobs” featured a graph from Wikipedia (also discussed by Steve Hsu) which illustrates this:
Think all those job losses over the last five years were just caused by the recession? No: “Most of the jobs will never return, and millions more are likely to vanish as well, say experts who study the labor market,” according to an AP report on how technology is killing middle-class jobs.
When I was growing up in Canada, I was taught that income distribution should and did look like a bell curve, with the middle class being the bulge in the middle. Oh, how naïve my teachers were. This is how income distribution looks in America today:
That big bulge up above? It’s moving up and to the left. America is well on the way towards having a small, highly skilled and/or highly fortunate elite, with lucrative jobs; a vast underclass with casual, occasional, minimum-wage service work, if they’re lucky; and very little in between.
But it won’t be 19th century capitalism redux, there’ll be no place for neo-Marxism. That underclass won’t control the means of production. They’ll simply be irrelevant.
Why? Technology. Especially robots.
All these factors, acting together, leads me to suspect that a second Great Depression is likely, if not inevitable, especially if current policies and government dysfunction remain in place. The collapse could indeed be imminent, perhaps within a few years to a decade at most.
Should this occur, this will dwarf all other concerns, as the Great Recession did.
However, there are very important differences between today and the 1930s. Positively, for one, today there is a considerable social safety net in place, in part a result of the previous Depression. As well, we have a government – as bumbling as it is – that actively guards against economic malaise, and will try to combat at least the acute problem with measures designed to alleviate it (such as economic stimuli), as opposed to what they did back in the 1930s. These could help to prevent the Depression from reaching the depths the 1930s collapse did.
On the on the hand, a key negative difference between this time and the 1930s is this: back during the Depression, immigration restriction was passed a few years earlier. The seeds of economic recovery were in place even as things tumbled out of control. Today, immigration continues unabated – currently standing at well over one million legal immigrants per year. Indeed, its pace may even be doubled. That coupled with automation, might leave us without the foundation for recovery.
Should this occur, it’s hard to overstate its impact on America – and the world (the effect of the Great Depression in Germany gave us the Nazis, and thus, World War II). The social toll of the Depression isn’t fully appreciated today. This includes, aside from the previously featured demographic contraction (see Who’s Having the Babies? and 100 Blog Posts – A Reflection on HBD Blogging And What Lies Ahead: Fertility), but the impact on the psyche of citizens, as discussed in The Atlantic article Suicide and the Economy:
“We never spoke of them. Why would we?” Learning the the truth about my great-grandfather, and 40,000 Americans during the Great Depression.
Roy was one of at least 40,000 Americans who took their own lives that year and the next, the two-year span that suicide rate spiked to its highest recorded level ever: more than 150 per 1 million annually.
In the modern era, for every 1 percent increase in the unemployment rate, there has typically been an increase of about 1 percent in the number of suicides
Beyond the economic impact, what effect would another Depression have on societal stability, such as rates of violence, as Turchin’s cycles predict? That’s harder to say. If the flare ups in societal violence are driven by racial tension, then there are mixed signs on that front. While there is higher fraction of clannish peoples in America, particularly non-Whites, than there was during previous flare-ups, there is no large-scale migratory patterns in place that previously brought the different groups into contact, and hence conflict. Also, as commenter Greying Wanderer notes, surges in violence may be led by an excess of young men in a society. While Peter Frost has commented on this, it’s not quite clear that this problem is pretty acute today. As such, a large surge in violence might not occur, other than perhaps some limited intensification of clashes at current tense racial boundaries.
And what about the American nations themselves? Are they primed to fly apart? That too is unclear. I can picture two broad scenarios. Perhaps as the new Depression slogs on, partisan bickering – with each nation blaming the others for causing and/or prolonging the Depression – will ensue. In such a scenario, little this is productive will take place and tensions between the various American nations will rise.
The other scenario – as was the case from the 1920s to the 1950s – would be for the American nations to come together and unite in their common interest. It is this sentiment that allowed the passage of the 1920s immigration restriction. World War II further served to tighten this alliance.
Which of these is more likely? Well, one key difference between today and the previous Depression is that previously, “social Darwinism” (i.e., hereditarianism with truly racist overtones) was the norm. The WASP elements of the various American nations were able to unite in their suspicion of “subversives”, that is non-WASPs, especially non-Whites. This may have allowed the various nations to work together, but they did so at the expense of minorities.
Today, on the other hand, as the “underground” nature of the HBD-sphere indicates, there is no such sentiment, especially in the Northern nations. P.C., for all of its ills, protects non-Whites from hostile White sentiment – even if that comes to some degree at White expense (see my thoughts over at this post of HBD Chick’s, hbd fallout). Further, there is no World War to unite the American nations to combat another Depression. Perhaps, unfortunately, it never rains but it pours. Sane, moderate sentiment in national interest – wise policy decisions to help combat the situation (such as restricting immigration or instituting some protectionist trade policies) might not fly. Rather, we might be stuck with the current open-door universalism or rabid racism against non-Whites.
So if another Depression is coming, what can one do about it? Well, higher-skilled workers in occupations that are hard to outsource or replace are in the best shape. Those who can depend on being supported, directly or indirectly, by government subsidies should also be OK. This means many practitioners in the health care field, especially doctors. In the worst shape are low-skilled workers (who will be competing with each other as well as displaced higher skilled workers), and those who work in the sale/production of frivolous goods.
City dwellers are in trouble, since they are completely dependent on support from the outside. A recent post titled On Being Independent over the Artisanal Toad’s Hall described one strategy for getting through lean times:
in a declining or depressed economy people don’t have money to buy toys, they buy necessities … This is one of the reasons our current economy is floundering: what do people really need at this point? The market for toys is really, really depressed.
Nobody ever went broke selling things that meet basic needs or addictions. Basic needs are things like food and clothing … Everybody has to have food and in a declining economy, anybody who can provide quality food at a lower price will have all the business they can handle. It’s simply a matter of staying in business long enough to develop a customer base. The customer base is automatically a customer base of repeat customers because food is consumed and there is always a need for more.
Lots of people talk about the collapse that’s coming. Most of them talk about stockpiling guns and ammo. Those are good to have, but better is the ability to produce EXCESS food that can be sold, bartered or used to sustain others who can help produce other things or simply add to your defense capability. Is it worthwhile today? Absolutely. The average suburban homeowner could put up a 200 square-foot greenhouse and produce enough food on a year-round basis to cut their food budget by well over 50%. Combine that with chickens and rabbits and the food bill can be chopped by over 75%. Think about that. We’re talking about hundreds of dollars each month in un-taxable production that is consumed and never leaves the home.
Someone with a few acres could do much, much more. Portable chicken pens that are moved each day allow the chickens to consume bugs and pasturage and cuts the feed expense by 25% or more. The result is healthy, organic free-range chicken at minimal cost. Add a milk cow to that and you’ve got eggs, chicken, milk, cheese and an 800 lb steer to slaughter every year for beef. Modern homesteading has come a long way.
In short, subsistence living (or even producing excess to help others) may be a wise strategy to pursue. People who live in fertile rural areas are at a distinct advantage over everyone else here, at least for a time.
The best hope is that I’m completely wrong, and the economy will slug along with only perhaps relatively minor upheavals like another “ordinary” recession. One can then hope that at some point in the coming years, practical steps undo the deleterious policies in place – such as unchecked mass immigration and easy outsourcing – will be enacted. Unfortunately, the signs I’ve seen point to my not being wrong, and that a major economic calamity lies in the wings.
Even then, one can only hope that such a massive societal shock might be the thing jar the fractious American nations out of their pointless squabbling and finally force us to address the demographic problems that plague us. If so, recovery will follow after a few years, with perhaps a new era of economic prosperity after that. It may seem that only some major crisis might wake the Western nations out of their current self-destructive policies. Indeed, perhaps even stronger social welfare systems might emerge, as they did during the previous Depression, particularly in response to the pressure from automation.
Worse would be no correction to the current problems that face us, particularly immigration. We can only hope that at least that won’t be the case.
This seems quite fitting: