Obama's Tech Fallacy

President Obama embraces a philosophy that is the enemy of technological progress.  A simple example demonstrates his fallacy: would a perpetual motion machine be a boon or a bane to society? 

Surely it would be a boon, right?  Here's a machine that, once started, would run in perpetuity without additional energy input.  Just imagine the reduction in emissions from internal combustion engines alone.  OPEC would become a nonentity.  Electric bills would be a fraction of what they are today.  Energy, in general, would be subject to Moore's Law. 

Sounds too good to be true, and it would be, even if a perpetual motion machine were possible.  A perpetual motion machine would be Schumpeterian change on steroids: it would surely be creative, and it would surely be destructive -- destructive to the status quo.  

A perpetual motion would displace jobs in virtually all business sectors.  Opponents would be many, and organized from both sides of the political isle for obvious selfish reasons: on the right, oil, coal, natural gas would be decimated, as would many agricultural machine manufacturers.  On the left, phony, quixotic alternative energy -- windmills and solar in particular -- would be rendered even more useless.  The need for labor in manufacturing and production would be greatly diminished, thus diminishing the ranks of organized labor.

From the politician's perspective, money from reliable sources would become less reliable.  Anxiety among politicians and other status quo would rise.  Legislation to protect the entrenched would multiply many times over: perpetual motion machines could be manufactured only in the United States and only by unionized labor.  The machines themselves could be used only with a minimum number of workers in attendance and by workers who attend at a minimum wage.  Perpetual motion machines would be prohibited in transportation, thus ensuring domestic oil an artificial business.  Perpetual motion machines would be limited to a small percentage of electricity production, thus extending natural gas, wind, and solar their privilege.

One could go on and on with the lobbying and protection rackets that would surely arise -- rackets driven by fear and misconception that machines and technology reduce employment.  The notion is fueled partly by fear of the unknown and partly by belief in the lump of labor fallacy -- the belief there is only so much work to do, and that machines and technology reduce the limited number of jobs associated with the perceived quantity of work. 

It is incredible that the lump of labor fallacy persists to this day.  After 200 years of remarkable technological evolution, you would think no one would be employed.  But most of us are employed, and markets continue to demand work.  Markets grow, but why?  The answer is simple: there is no finite demand for labor; human demand is infinite, as is the urge to create supply to stimulate demand.   

Stasis thinkers refuse to or cannot understand this economic fact.  Politicians, of course, are motivated to maintain the status quo, because the status quo is familiar and keeps the rice bowl overflowing with minimum effort.  What is more, the status quo is just as eager to keep filling its own rice bowl in exchange for legislation that favors the status quo and protects it from competition and innovation -- a point finely noted from the left's Gabriel Kolko and the right's George Stigler

The status quo focuses on jobs; the market process focuses on value.  Labor is a scarce resource, like the other inputs to production, land, and capital.  Machines and technology release labor to focus on higher-value projects.  So an ATM might displace bank tellers, as President Obama suggested in an NBC interview last year, but it enables those tellers to produce elsewhere, where they are of greater value.  A teller continuing to work at a job where an ATM is the more efficient option is simply working, not creating value.  She has a job, but she isn't a productive member of society. 

Anyone can have a job.  Visit any third-world country and you will find that everyone over age 12 has a job.  Now, that job might be picking through manure for undigested remnants or scavenging through garbage, but they have jobs nonetheless.  Such jobs are tragedies, because they shouldn't exist.  These countries -- due mostly to kleptocracy and bureaucracy -- are marked by lack of machinery and technology (capital) and, just as important, a lack of entrepreneurs.  (Capital is nothing without entrepreneurs to direct it.)  Life, therefore, is reduced to a subsistence level on par with a wild animal.

So the opposite of the status quo is true: machines and technology create valuable work, not eliminate it.  Machines and technology elevate us to a wealthier, more civilized plane.  Machines and technology enable us to increase production, specialize our labor, work where we are most efficient, and work where we can create value through trade. 

The status quo so frequently refutes this fact because it so infrequently acknowledges Frederic Bastiat's the unseen. When someone says "technology kills jobs," he means it kills jobs that no longer create value.  He fails to see that jobs killed untether labor to move to higher-value projects that have not yet materialized, but will.    

A perpetual motion machine would be an unequivocal boon to our well-being.  To be sure, a perpetual motion machine would send a quake of Schumpeterian change throughout the world, but it would also inspire ripples of Kirznerian change (Israel Kirzner): the incremental, often imperceptible improvements that raise living standards. 

The early automobile was Schumpeterian, dooming the once-powerful passenger train sector to a niche.  Incremental improvements to the automobile -- disc brakes, air conditioning, air bags, stereo systems -- are Kirznerian in contrast and created a bounty of value and work that far exceeded anything passenger trains provided.

Fortunately, the world is sufficiently populated with entrepreneurs who overcome the status quo and force us -- willingly or kicking and screaming -- to move forward into higher-value projects by supplanting our current employment with machines and technology.  The good news is that it always works out for the better by expanding the economic pie; the bad news is there are always politicians and political rent-seekers at work to thwart their progress.       

We'll never experience the seismic changes a perpetual motion machine would have on our lives; the laws of physics as we know them force us to keep human capital deployed in sectors where a perpetual motion machine would enable that capital to be deployed in even higher-value projects.  The quantum leap forward in our living standards is hardly imaginable.    

But there is much that is imaginable to ensure that machines and technology progress with the smallest amount of friction.  Progress is always attenuated through war, strife, nationalization, taxation, price controls, mandates, and restrictions.

Institutional factors -- legal framework, mores, attitudes, customs -- explain and quantify changes in human progress.  If the goal is progress, then these factors should always encourage Schumpeterian and Kirznerian entrepreneurship and discourage privilege and political entrepreneurship.  Promoting property rights, low taxes, light regulation, and regime stability are key.  So is simply getting and staying the hell out of the way.  

Stephen Mauzy is a financial writer and principal of S.P. Mauzy & Associates.  He can be reached at steve@spmauzyandassociates.com.

President Obama embraces a philosophy that is the enemy of technological progress.  A simple example demonstrates his fallacy: would a perpetual motion machine be a boon or a bane to society? 

Surely it would be a boon, right?  Here's a machine that, once started, would run in perpetuity without additional energy input.  Just imagine the reduction in emissions from internal combustion engines alone.  OPEC would become a nonentity.  Electric bills would be a fraction of what they are today.  Energy, in general, would be subject to Moore's Law. 

Sounds too good to be true, and it would be, even if a perpetual motion machine were possible.  A perpetual motion machine would be Schumpeterian change on steroids: it would surely be creative, and it would surely be destructive -- destructive to the status quo.  

A perpetual motion would displace jobs in virtually all business sectors.  Opponents would be many, and organized from both sides of the political isle for obvious selfish reasons: on the right, oil, coal, natural gas would be decimated, as would many agricultural machine manufacturers.  On the left, phony, quixotic alternative energy -- windmills and solar in particular -- would be rendered even more useless.  The need for labor in manufacturing and production would be greatly diminished, thus diminishing the ranks of organized labor.

From the politician's perspective, money from reliable sources would become less reliable.  Anxiety among politicians and other status quo would rise.  Legislation to protect the entrenched would multiply many times over: perpetual motion machines could be manufactured only in the United States and only by unionized labor.  The machines themselves could be used only with a minimum number of workers in attendance and by workers who attend at a minimum wage.  Perpetual motion machines would be prohibited in transportation, thus ensuring domestic oil an artificial business.  Perpetual motion machines would be limited to a small percentage of electricity production, thus extending natural gas, wind, and solar their privilege.

One could go on and on with the lobbying and protection rackets that would surely arise -- rackets driven by fear and misconception that machines and technology reduce employment.  The notion is fueled partly by fear of the unknown and partly by belief in the lump of labor fallacy -- the belief there is only so much work to do, and that machines and technology reduce the limited number of jobs associated with the perceived quantity of work. 

It is incredible that the lump of labor fallacy persists to this day.  After 200 years of remarkable technological evolution, you would think no one would be employed.  But most of us are employed, and markets continue to demand work.  Markets grow, but why?  The answer is simple: there is no finite demand for labor; human demand is infinite, as is the urge to create supply to stimulate demand.   

Stasis thinkers refuse to or cannot understand this economic fact.  Politicians, of course, are motivated to maintain the status quo, because the status quo is familiar and keeps the rice bowl overflowing with minimum effort.  What is more, the status quo is just as eager to keep filling its own rice bowl in exchange for legislation that favors the status quo and protects it from competition and innovation -- a point finely noted from the left's Gabriel Kolko and the right's George Stigler

The status quo focuses on jobs; the market process focuses on value.  Labor is a scarce resource, like the other inputs to production, land, and capital.  Machines and technology release labor to focus on higher-value projects.  So an ATM might displace bank tellers, as President Obama suggested in an NBC interview last year, but it enables those tellers to produce elsewhere, where they are of greater value.  A teller continuing to work at a job where an ATM is the more efficient option is simply working, not creating value.  She has a job, but she isn't a productive member of society. 

Anyone can have a job.  Visit any third-world country and you will find that everyone over age 12 has a job.  Now, that job might be picking through manure for undigested remnants or scavenging through garbage, but they have jobs nonetheless.  Such jobs are tragedies, because they shouldn't exist.  These countries -- due mostly to kleptocracy and bureaucracy -- are marked by lack of machinery and technology (capital) and, just as important, a lack of entrepreneurs.  (Capital is nothing without entrepreneurs to direct it.)  Life, therefore, is reduced to a subsistence level on par with a wild animal.

So the opposite of the status quo is true: machines and technology create valuable work, not eliminate it.  Machines and technology elevate us to a wealthier, more civilized plane.  Machines and technology enable us to increase production, specialize our labor, work where we are most efficient, and work where we can create value through trade. 

The status quo so frequently refutes this fact because it so infrequently acknowledges Frederic Bastiat's the unseen. When someone says "technology kills jobs," he means it kills jobs that no longer create value.  He fails to see that jobs killed untether labor to move to higher-value projects that have not yet materialized, but will.    

A perpetual motion machine would be an unequivocal boon to our well-being.  To be sure, a perpetual motion machine would send a quake of Schumpeterian change throughout the world, but it would also inspire ripples of Kirznerian change (Israel Kirzner): the incremental, often imperceptible improvements that raise living standards. 

The early automobile was Schumpeterian, dooming the once-powerful passenger train sector to a niche.  Incremental improvements to the automobile -- disc brakes, air conditioning, air bags, stereo systems -- are Kirznerian in contrast and created a bounty of value and work that far exceeded anything passenger trains provided.

Fortunately, the world is sufficiently populated with entrepreneurs who overcome the status quo and force us -- willingly or kicking and screaming -- to move forward into higher-value projects by supplanting our current employment with machines and technology.  The good news is that it always works out for the better by expanding the economic pie; the bad news is there are always politicians and political rent-seekers at work to thwart their progress.       

We'll never experience the seismic changes a perpetual motion machine would have on our lives; the laws of physics as we know them force us to keep human capital deployed in sectors where a perpetual motion machine would enable that capital to be deployed in even higher-value projects.  The quantum leap forward in our living standards is hardly imaginable.    

But there is much that is imaginable to ensure that machines and technology progress with the smallest amount of friction.  Progress is always attenuated through war, strife, nationalization, taxation, price controls, mandates, and restrictions.

Institutional factors -- legal framework, mores, attitudes, customs -- explain and quantify changes in human progress.  If the goal is progress, then these factors should always encourage Schumpeterian and Kirznerian entrepreneurship and discourage privilege and political entrepreneurship.  Promoting property rights, low taxes, light regulation, and regime stability are key.  So is simply getting and staying the hell out of the way.  

Stephen Mauzy is a financial writer and principal of S.P. Mauzy & Associates.  He can be reached at steve@spmauzyandassociates.com.

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