Apropos of my recent blog posts regarding Sam Harris (thanks, by the way, to Samizdata and Fourthcheckraise for the links)—my friend Abel Winn, who is an economist and is therefore allowed to write to Harris, sent him the following:
Hello Dr. Harris,
You noted on a recent post that you’d like to hear from economists with economic arguments for or against a couple of propositions. I’m an economics professor at Chapman University. I’d like to argue against the propositions.
The first proposition was that future technology breakthroughs could destroy millions of jobs, causing a severe unemployment problem.
In the short run that’s undoubtedly true (assuming sufficient technological advance). Let’s say robotics suddenly advanced to where they completely eliminated the need for humans to do any janitorial work. Then a lot of people would be out of jobs.
But economists see labor as a scarce resource—at least in the long run. When capital “destroys a job,” what it’s doing is freeing up labor for other uses. So people who are no longer janitors will go out and find other things to do. What will they do exactly? I have no idea. Just like a biologist can’t predict the course of evolution, an economist can’t predict the course of economic development. But we have pretty good reason to believe they’ll find *something* to do. And if the trends of the last couple centuries are anything to go by, it will be something pretty good (on average, at least).
Also, don’t forget that when there’s more capital, there’s more production—i.e., there’s more stuff to go around. And when there’s more stuff to go around, the prices of that stuff tends to fall. Consequently, it becomes easier to acquire things even without high paying work. To see this one can just compare the living standards of today’s lower quartile of today’s income distribution to the lower quartile of 1950’s income distribution.
The second proposition was that the government should impose a one-time wealth tax to fund an infrastructure bank.
You explicitly say that we should leave aside fears of government ineptitude. Unfortunately, in doing so you’ve chosen to ignore an entire branch of economic research: Public Choice. I won’t go into all of the arguments here, but suffice it to say that in the same way you point out that markets aren’t perfectly efficient, the government isn’t either. And the study of “government failure” takes up a lot of space in the literature.
Setting that aside, there is the basic question of opportunity cost. The resources you are taxing would have been spent doing something else. It’s not obvious to me that the projects they’ll end up funding through the hypothetical fund would produce more value. I’m not guaranteeing that they wouldn’t, but it is possible (and I think probable) that they wouldn’t.
There are three goals for the fund that you mention in your post: jobs, improved infrastructure and energy independence. Labor is—as I said above—a scarce resource in normal economic times. In times of economic downturn there is an argument to be made (though it is not without controversy in the profession) that one can create real value by employing people by fiat through government spending. But if you’re thinking of this as a long-term fund, you’ll eventually run into the problem of opportunity cost.
Improved infrastructure could be of real value, but then one must ask why it wouldn’t be constructed without the production of a massive fund. If the infrastructure in question will really create value, then there is money to be made by producing it privately and collecting a toll for its use. There is also tax revenue for cities, counties and states to earn by building it themselves and reaping the enhanced taxes of a wealthier economy. Admittedly, collective action problems may explain why some of these projects are not undertaken in the absence of such a fund. Some projects may span too many property holders’ lands for a private individual to contract with them all. And others may span too many political jurisdictions for the government entities to successfully coordinate, even with the use of imminent domain. But I would say that the burden of proof lies on the one who wants to set up such a fund to demonstrate that the projects in question 1) truly create value and 2) pose insurmountable challenges to private entities or lower levels of government than the Federal government.
Finally, I would argue that energy independence is no more possible and no more desirable than automobile independence or footwear independence. It’s not possible because the markets for energy are globally interconnected. Even if the United States could produce 100% of the energy that it consumes, the energy production of other nations would affect the prices that we paid. Suppose current consumption were 100 million joules of energy (in all known forms: oil, coal, solar, etc.) and we produced 100 million joules as well. Now suppose OPEC restricts the supply of oil, and at the same time, China and India see continued rapid economic growth, requiring more energy than they can produce domestically. American suppliers of energy would now be able to sell their products overseas at very favorable prices. To keep them from doing so, prices of energy in the U.S. would have to go up as well.
Energy independence is no more desirable than independence in automobiles or footwear because of the notion of comparative advantage. Briefly stated, comparative advantage says that when someone specializes in producing one thing and trades with people who specialize in producing other things, there’s more stuff to go around - more wealth. For the best results, each person should specialize in that activity at which he most excels or in that activity for which he gives up the lowest opportunity. It is not obvious to me that the comparative advantage of the people of the United States is in the production of energy.
And one last thought on energy independence. The cost of energy is something like 7% of the cost of the typical good or service produced. Even if you cut the cost of energy in half, you would cut the cost of the average unit of output by 3.5%. That would be nothing to sneeze at, of course. But it would be a pretty modest accomplishment given the resources and innovation that would be required to achieve even that much.
This message is a lot longer than I was intending. My apologies for that. I hope that it was, at least, not a waste of your time. Thank you for being willing to hear from those of us who don’t share your view of things.
All the best,
Abel Winn
