A Clean Slate for 2013: Rejecting the Politics of Plutocracy, Singularity, and Pollution

By Walter Borden

To address the long term unemployment crisis in 2013, the U.S. must increase investment in its clean economy and infrastructure. U.S. citizens own the world’s most robust non-profit, namely the United States Government. The U.S. can act now for a reason that trumps profit: the General Welfare.  Renewable energy, infrastructure, and pollution remediation increase labor demand and thus, long term, sustainable employment. By contrast, the dirty energy sector primarily provides temporary and short term jobs. Fossil fuels,  automation, and de-unionization have converged to aggressively drive down the middle class share of profits generated by our national economy. The outlook for labor is further complicated by rapid uptake of capital-biased technology: machine intelligence that further shifts profit away from labor by replacing its participation in the economy with robots.

The TAKRAF RB293 is a giant bucket-wheel excavator used in coal mining. (Click to Enlarge)
The TAKRAF RB293 is a giant bucket-wheel excavator used in coal mining. (Click to Enlarge)

Dirty energy outputs unsustainable amounts of seemingly cheap energy and goods. Coal extractionists value coal at low domestic prices to skip large royalty payouts when mining federal land all the while fetching much higher prices on international markets. The inevitable societal costs of damaged environments and cleaning up pollution reveals this bargain to be Faustian and, as such, provides a diminishing benefit.  Further, environmental protections and clean energy factor into job growth with wages and salaries that accrue to the economy as opposed to rentier payments that primarily fill Swiss bank accounts.

Restraining dirty energy shifts capital to labor thereby counterbalancing the decadal trend of asymmetric capital accumulation to a shrinking few. Corporate profits continue to surge to multi-year record highs. Yet, as a share of GDP, wages have declined over the past thirty years. This has become in its own way a kind of hidden inflation. Clean energy policies address this imbalance with greater quantities of quality jobs.

Currently in the U.S., our most pressing problem is one of high, long term unemployment. Deficit and debt to GDP ratios matter; yet, the primary driver of deficits is a lack of employment growth. History and empirical evidence show how these ratios, as well incomes inequalities, quickly come down as revenues grow due to greater employment at living wages. Further, industry sits on record hoards of capital, yet chooses not to invest. Now is the time to increase public sector spending to create low impact demand. Clean energy is an optimal starting point for increasing demand per capita in sectors that are sustainable and regenerative.

Resource Rents North America vs. East Asia and Pacific (Click to Enlarge)
Resource Rents North America vs. East Asia and Pacific (Click to Enlarge)

The moral dimensions are plain and demand constant consideration. Most people in most societies feel that extreme inequality is problematic and favor an equitable distribution of the benefits and burdens of their society. Psychologist Lawrence Kohlberg‘s proposed a stage of moral reasoning which considers life to be more valuable than  property rights or profits, and that this is a more adequate moral position for making policies to achieve distributive  justice. Immanuel Kant held  that morality presents itself as an categorical imperative.  Aristotle observed, “It is in justice that the ordering of society is centered.”

A Clean, Compassionate Economy Is A Path to Sustainable Prosperity 

Alleviating contemporary unemployment and ensuring that its does not become a long term crisis requires rejection of  classical economic conventions, namely, that labor is only a cost to be mercilessly driven down and that search frictions are a hard, growing reality: i.e. in the real world, it’s expensive to relocate and retrain.  For the long term unemployed, it is next to impossible.Yet, social innovation and impact investing policies can restore balance.

Some argue that the subsidies required to launch a green economy are too steep. But, that assertion has little evidentiary support and fails a common sense test as well. In reality, clean energy drives labor demand via its need for large, scaled up amounts of infrastructure, operation, remediation and, of course, R&D.

Jobs fell much further and faster during the Great Recession than in the previous 2 (marked by the lines to the left of the zero point on the x-axis) yet job growth in the current recovery is similar to job growth by this point in the previous 2 recoveries. (Click To Enlarge)
Jobs fell much further and faster during the Great Recession than in the previous 2 (marked by the lines to the left of the zero point on the x-axis) yet job growth in the current recovery is similar to job growth by this point in the previous 2 recoveries. (Click To Enlarge)

Reduced labor costs are not resulting in shared prosperity. Does the private sector truly want a continued collapse of labor prices in the U.S.?  Labor is a cost in classical economic thinking. Lower costs mean cheaper goods and services; a greater general welfare in principal – as long as producers do not loose their incentive to pass on cost efficiencies to consumers. Yet, in an era of record corporate profits, employment growth has steeply decelerated. Core CPI has been low, but when stagnant wages are considered along with higher education and healthcare costs, the benefits of lower CPI seem rather ephemeral.

Here again, a green economy points a way forward. A recent MIT carbon tax study lays out scenarios where a carbon tax could either be revenue neutral or partially so when the excess revenue is used to reduce debt or build infrastructure. In addition to raising revenue, it would reduce pollution by incentivizing the transportation industry to generate more efficient products.  This is an instance where the tax code can help create more progressive outcomes, and in this era of ever rising inequality, which recent data suggests is increasingly decoupled from recoveries, can address that inequality. Restructuring the code needs to be a major, bipartisan goal.

The Private Sector Isn’t Using Its Multi- Year Trended Record Profits for Shared Prosperity

     Progress towards full employment is badly impeded. One of these impediments is the AI/Automation complex. Many high profile economists and managers have pointed to AI’s threat to employment in past months. Both automation and robotics, virtual monopolies, and duopolies already threaten prospects for  growth in long term employment and demand per capita. This disruption of typical recovery patterns raises the specter of yet another jobless recovery for the middle class.  All while rentiers have unprecedented amounts of capital, and management teams are motivated to drive wages in the U.S. ever down so as to gain short term stock price rises and bonuses.

What can be done to counteract wealth and income  concentration/hoarding and the resulting decline in debt-money velocity? Or put another way, can these hyperconcentrations of capital in the hands of a vanishingly small few ever inure to the public good? Scholars now write about the impact of a Third Industrial Revolution where tectonic shifts in the technologies of production destroy and degrade jobs due to the shift from labor worker input to the non-human factor: human-intelligent machines, superautomation, robotics, digital computer operations. All of which are driven by the short-term efficiencies of allegedly cheap energy.

The US deficit as a percentage of GDP (red line) vs. the unemployment rate (blue line).
The US deficit as a percentage of GDP (red line) vs. the unemployment rate (blue line). (Click to Enlarge)

The Singularity and False Economies: What is the benefit of ever cheaper goods and services if low to no wage jobs are dominant?

The singularity is a slow motion, silicon, singularly dangerous hydrogen bomb of an idea, interesting on paper – a disaster in real life. Increasingly manufacturing operations returning to America are skewed towards automation. Policy responses need to be designed to prevent long term underemployment, joblessness, and poverty. Due to globalization, oligopolies can just close stores and sell elsewhere (much like Amazon does in various American states once its tax subsidies run out) rather than adjust to supply/demand curves in a classical sense. How to manage ownership of capital or its income streams in an automated economy is at issue.  Further, if unions continue to weaken, workers face a greater  disadvantage, and the labor market will further find itself at the mercy of 21st century oligarches, monopolists, and monopsonists.

Contemporary AI replaces more than manufacturing. It now challenges a range of white collar jobs.  Developing AI techniques called  deep learning perform human cognitive skills. They can assemble products like microprocessors with 100s of times the accuracy and speed of a human.  So the current massive, distortionary imbalance of capital between the middle class and the oligopolies is poised to worsen via virtual slave labor (robot, after all, derives from the Czech term for slave). This will result in multi-factor productivity, the amount of work and material needed to make more stuff peaking, with returns to labor’s share of investment and GDP consequently falling, reducing the rate of growth of employment and aggregate demand. People can’t buy iPods and Fords without jobs, no matter how cheaply they are made.

Enter the multiplier effect. In depressed economies, public sector capital deployment is more stimulative of economic growth than the private sector. The U.S. government, in its non-profit mission, deploys capital in order to provide for the general welfare. Put another way, it decides what is a more productive – labor utilization for F-35s and/or stable, affordable food supplies, clean air, and water. The internet arose from government labs rather than a business plan. Our short-term myopic private sector could never have invented such. Just as the public sector could not have monetized it and brought it to fruition at scale.

Economist Menzie Chinn recently pointed out that not only did the 2009 stimulus, or ARRA, create jobs and grow the economy, but that if the mantra that taxes and stimulus spending would crowd out investment were accurate, then the Fortune 50 firms should not be worried about the so called Fiscal Cliff  because the private sector, which is flush with cash, would simply make up the difference by investment (empirics can be found here). And, Paul Krugman’s confidence fairy would surely then appear:  investors that have been on the sideline for fear of new taxes and big government should be confident and deploy capital to create jobs (never much commentary on why they would do such absent demand) as opposed to off-shoring it to the Caymans or Switzerland. Interestingly, Dr. Chen makes a compelling case that policy uncertainty does inhibit private sector investment.

Public sector spending is more stimulative when the economy is significantly below full employment. This is achieved by maintaining aggregate demand until conditions improve and the private sector is motivated to deploy capital. Or as stated in the U.S. Constitution: “The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States”. As peak Baby Boomer demographic effects reduce the rate of growth of entrepreneurial activity, which is the primary source of growth of new employment, this function is more critical than ever.

Benefit corporations are required by law to create general benefit for society as well as for shareholders. Benefit corporations must create a material positive impact on society, and consider how their decisions affect their employees, community, and the environment. They must publicly report on their social and environmental performances using established third-party standards.
Benefit corporations are required by law to create general benefit for society as well as for shareholders. Benefit corporations must create a material positive impact on society, and consider how their decisions affect their employees, community, and the environment. They must publicly report on their social and environmental performances using established third-party standards.

We could see scenarios over the next decade, as the plutocrats abandon real commitment to the general welfare, where even buffers for economic shock like Debt to GDP ratio management and government spending lose their effectiveness in an industrial/post-industrial fossil fueled and automobile based suburban development model of the 20th century.  In this scenario, we face the real danger of a jobless future with falling incomes, spending, investment, tax receipts, and government spending per capita indefinitely unless a concerted shift occurs to provide meaningful citizen ownership of the banking intelligent-systems complex matched with a concerted move away from fossil fuels and their collective hegemony over the means of capital formation and incomes thereof. The results will be diminishing returns at high fixed costs of built infrastructure and an environment that simultaneously discourages risk taking and additional capital investment, thereby reducing business formation rates as well as reducing employment and returns to labor’s share of GDP. Such a slow or no job growth society will result in flat to falling consumer spending per capita and thus real GDP per capita.

Dirty Energy and Pollution: Diminishing Returns

Whereas dirty energy generates mostly short term, temporal benefits, akin to a quick sugar rush, clean energy is more akin to the effect of an apple. Long term employment of the type that sustains communities and allows people to benefit from capital formation while leading healthier lives will more probably flow from renewable energy and the types of infrastructure it engenders, such as high speed rail.

Occupationsin the Clean Economy, 2010Source: Brookings-Battelle Clean Economy Database and U.S. Bureau of Labor Statistics Occupational Employment Statistics and Employment Projections Program
in the Clean Economy, 2010
Source: Brookings-Battelle Clean Economy Database and U.S. Bureau (Click to Enlarge)

The majority of mining and extractive jobs are not long term ones. Wells are tapped, mines depleted, pipelines are built, and refineries are completed. While a few similar constraints apply to labor demand from clean energy, society benefits from less pollution thus cleaner air and water as well as lower healthcare costs. When  the engineering and infrastructure challenges for deploying clean energy and transportation in the U.S. are added, the potential rates of labor utilization are much higher. Even the ancillary effects of pollution control and remediation require greater rate labor utilization. This can be seen quite clearly in in the coal sector.

Capital Hoarding and Vanishing Labor Demand: Oligopolies and their Robots 

Capital is accumulating to the 0.1% of the private sector while labor’s share is decliningAs a thought experiment, suppose everything needed by the U.S. could be produced by machines and 100k people. What happens to the rest of the work force? To whom and how will the stream of goods be transferred? How will anyone earn money, if goods can be made with ultra cheap robot labor costs? FANUC, the Japanese robotics company, has been operating a lights out factory for robots since 2001. Robots build other robots at a rate of about 50 per 24-hour shift and can run unsupervised for as long as 30 days at a time. “Not only is it lights-out,” says Fanuc vice president Gary Zywiol, “we turn off the air conditioning and heat too.”

It’s not just in the manufacturing domains and sectors; biometrics and telepresence now replace much of what doctors and nurses routinely do. Some suggest automation, virtual monopolies, and monopsonies are already the underlying cause of the declining state and bleak prospects for quality, long term employment in the United States. Indeed, we increasingly see “jobless recoveries” over the last 20 years – both in terms of quantity but especially in terms of quality. More and more, people who lose their jobs don’t get re-hired because their employers figure out how to do more with less thus increasing productivity gains which do not trickle down.

For example, the U.S. had 17 million manufacturing workers in 2000 but has only 12 million today. In the last few years  output is back to 2000 levels but not employment due significantly to automation. This is a vast productivity improvement benefiting a shrinking few. Significant public policy consequences should ensue if not in 2013 certainly in this decade. But, can they?

Exports Per Job in the Clean Economy Versus the Overall U.S. Economy, 2009
Exports Per Job in
the Clean Economy Versus the Overall U.S. Economy, 2009 (Click to Enlarge)

Now dominant oligopolies have achieved tight regulatory and political capture. This intensifies their threat to sustainable, broad based employment. For example, take Wal-Mart. It is a virtual monopolist and monopsonist in the U.S. (the U.S. is the only nation where its employees are not unionized).  Many Wal-Mart associates working 40 hours a week are on food stamps. Taxpayers are subsidizing  Wal-Mart. Its cheap goods then are false economies for all but the biggest Wal-Mart stockholders like the heirs of Sam Walton whose combined net worth is about $27 billion. The odious maker vs. taker position is false to the core.  Based on findings of the Hamilton Project, 84% of  U.S. citizens, over their lifetime, will pay income tax, not just payroll and sales taxes.

Wal-Mart defenders argue that the low labor costs makes for cheaper goods, but these same low wages degrade communities that rely on taxes to fund their public schools. The toxic combination of implicit and direct taxpayer subsidies compounds the damage, all the while, making it all but impossible for the majority of its employees to emerge from the ranks of the working poor.

Finance and Super Automation Have Merged

The standard private equity operational model is to absorb, not create, massive wealth by extracting more profit with more debt and less labor. In its upside, world debt is a virtue and employment a vice.  Mitt Romney’s failed presidential campaign brought greater scrutiny to this process. Here too, especially with hedge funds and dark pools, super-automation is ascendant. Labor is only required from a technocractic elite who design, engineer, test, operate, and optimize the physical and software components of many a hedge fund’s intelligent-systems superstructure,  supporting internet work nodes and exclusive enclaves of exchange.

Bankers, decoupled from their traditional roles of financing commerce for communities, peddle opaque financial instruments. From the capitals, they report parameters and constraints to employees, known as F9 Monkees, who input them, and then press f9 on a keyboard to get model outputs.  Often these employees are unpaid interns. Few of these financial professionals understand  the engineering they sell. This makes the picture of their utility for the general welfare even more foggy.  The financial industry’s adventures far too often cripple whole economies. But,via almost total regulatory capture, little is done.

In finance the ascendancy of  mass of interconnectivity relentlessly makes transaction, interaction, and information traces about each of us available for any intelligent-systems algobot and/or its master to access and process for whatever reason. Our virtual selves are increasingly owned and subject to exploitation or erasure. Machine-to-machine transactions between the largest firms that capital to scale  are supersystems that now dominate global banking and its attendant economic activity.

The Robot and Singularity Thesis has its skeptics 

Some question the notion that embedded human knowledge and skills threaten broad based employment and subsistence. Nate Silver is a skeptic:

It’s probably wishful thinking. That would be the polite way to put it. It’s difficult to program a computer to tie its shoes or to fold a towel, things that any 6-year-old can do. What computers are good at are tasks like chess that have relatively simple rules, and it is just a matter of making a lot of calculations. Weather forecasting also falls mostly into that category. But, the term artificial intelligence is misapplied. It’s really brute force calculation speed, and if you have a program making very fast calculations, but with a dumb set of instructions, it’s going to be garbage in, garbage out. So I think that there is not going to be any singularity in terms of what Kurzweil might envision. The idea that machines are going to take over is, well I’d be happy to lay a lot of money against that coming true.

Silver may want to look at the work of investigators like Yann LeCunn’s and his team’s work before going full monty on that last part. And, he is wrong about the shoes as anyone that has watched a video of a robot assembling a microprocessor components knows. But, the point is defensible. The issue is less about sci-fi movies and more about exponentially increasing ways the machines are replacing human labor and what that means for people to subsist in society. And again, no doubt a technocratic elite labor pool is required for the software and hardware for robots. Yet here, again, these professionals are also dependent more and more on AI.  Peter Norvig’s talk at this past year’s Singularity Institute showing alogbots teaching algobots how recognize faces exemplifies this trend.

Nick Rowe offers an economic model based critique of the idea that all this supposedly democratizing technology is being overwhelmed by control of the vast majority of assets and capital by the few. In short, with a little bit of math he shows that human plus robot workers earn a constant share of total output. As more robots are built, human workers earn a decreasing share of this output.  As total output expands, land rents per acre rise. and so Mr. Rowe has provided a very useful addition to subsequent policy design and analysis in the coming year.

Still others argue that while in some cases improved technology yields lower wages, this is by no means always likely. Take banking. Yet again, is this true for all workers? Will their numbers dwindle as intelligent-systems components become aware –  capable of  replicating, organizing, and repairing ? As such the matter remains problematic for labor: decline in the prices of goods and services will be largely due to cost declines (less labor) and the demand per capita will also collapse.

In the end though, machines can’t make jazz. For our national traditions and communities to survive ,we need more than a techno-scientific elite (even they are increasingly reliant upon the increasing capabilities of machine intelligence). The arts must be nurtured as a vital bulwark against the Robots and Robber Barons.

Public Options for Addressing These Threats to Middle Income Prosperity PT I: Break-up monopolies, duopolies, and oligopolies and encourage public banks and B Corporations

Microsoft, had they not been reigned in by trustbusters, would have very likely ensured a U.S with no Google, iPhones, digital cameras, much less Apple. All search would be inextricably linked to the Windows OS. Essentially, Microsoft wanted to earn not just a license fee, but the only license fee, each time one browsed then web. As we all know, such situations are not an incentive to be an innovator, rather they are an incentive to be a rent collector. Duopolies such as MC and Visa (does anyone know a difference?), AT&T, and Verizon function as effective monopolies in many markets. Cable television shows the same trait. Oligopolies have consolidated the media in dangerous ways.

Apart from a need for a new approach of anti-monopolization efforts not stuck in in the 1920’s, there are other ways to get more capital back into the people’s hands. The B-Corporation method is a very encouraging development. Another solution to the disequilibrium is to establish state-owned banks. The US government has paid $8 trillion in interest to private banks on $15 trillion in debt. Interest-free money in public banks like the Bank of North Dakota would preserve that hard-earned nest egg for the people and save the interest, making investment in the people’s common interest, like credit unions. From Ellen Brown’s recent article on Public Banking:

North Dakota is currently the only U.S. state to own its own depository bank.  The BND was founded in 1919 by Norwegian and other immigrants, determined, through their Non-Partisan League, to stop rapacious Wall Street money men foreclosing on their farms….All state revenues must be deposited with the BND by law.  The bank pays no bonuses, fees or commissions; does no advertising; and maintains no branches beyond the main office in Bismarck….. For the past ten years, it has been paying a dividend to the state, with a quite small population of about 680,000, of some $30 million (£18.7 million) a year.

Public Option for Addressing These Threats to A Prosperous Middle Class PT II: The Clean economy is the best way to address long term unemployment and income inequality 

Labor and capital are better utilized by the public sector during depressed economies. Multiple lines of evidence show higher multiplier effects  when government deploys capital when the economy is below full employment. By contrast, in such circumstances the private sector, in aggregate, more often hoards capital.  Public sector impact investing will deliver infrastructure and/or improve the commons in ways the private sector is better suited to support. As observed above, many more jobs are created by clean energy pollution controls than by the mining sector. The U.S .should undertake a carbon tax. A framework exists that allow it to make energy cheaper as higher gas prices will incentivize industry to greater fuel efficiency in their operations and their markets.

For too often in the last year, when fossil fuel marketers, financiers, and their agents talk of jobs what they mean is profits. Where greater profits stripped off the economy by labor erasure (off-shoring to slave wage jurisdictions or automating production) ever lower wages were the result. Examples of when they never hesitated to do such are scarce.

The Clean Economy Compared with Other Sectors of the U.S. Economy
The Clean Economy Compared with
Other Sectors of the U.S. Economy Source Brookings Institution (Click to Enlarge)


Capital growth spikes, while the median income share stagnates. Income inequality is best explained outside the idealism of the competitive models of the Chicago and Austrian Schools. The notion of nobless oblige effectively replacing public safety nets cannot be substantiated. In some cases arguments, for such even seems as window dressing for increased rates of capital and profit capture to a shrinking few. On the eve of 2013, we see a picture of the U.S. where management and owners have figured out how to deprive labor not only of a living wage, but full-time, 40-hour work and benefits. This works with a range of factors, monopolization, automation, and de-unionization. Their interrelationships clearly need to be further modeled and empirically analyzed.

Bruce Carman recently observed :

The dramatic increase in machine intelligence capability and the resulting collapse in costs of transactions and goods and services should be a once-in-history boon to civilization and thus should be encouraged as a kind of Manhattan Project II. What we don’t have, however, is a viable alternative to wage/salary income in order to sustain purchasing power for most of us.

Therefore, a radical reformulation of the concepts of “work”, “money”, “income”, “production”, “taxes”, and the function and funding of government. When technology eliminates most jobs and associated incomes and purchasing power, and the top 0.1% of society own the means of intelligent systems society’s production and wealth, an alternative means of income and purchasing power will be required; otherwise, we face eventual collapse.

If the US economy is still to continue its improvement in 2013, we need to first recognize the underlying problem — an increasing divergence between corporate profits and payrolls caused by automation, outsourcing, and off-shoring of tax cuts to the 0.1%.  Oligarchs are not investing record profits from 2012, and demand for labor remains anemic. A key policy implication must be then at the outset of 2013 to undertake public sector investment in clean energy and pollution remediation. Another is a 21st century approach to monopolies, monopsonies, and oligopolies with Public Banking and B Corporations. U.S. policy makers, entrepreneurs, and philanthropists must collectively respond sufficiently and quickly so as to adapt and assist our nation in a successful transition. The U.S. still operates on the basis of a 19th-century industrial model which ignores externalities and is highly wasteful as well as ecologically destructive. This exploitative, overly hierarchical system drives ever larger inequality of income, wealth, and political power.

Both Marx and Smith observed that a way to raise profits is to cut labor costs. But, they diverged on the relationship between government action and economic growth, and what that means for policy and moral sentiment. Is such extreme asymmetry of societal wealth as we see in early 21st century America nothing more than a different version of central planning?

Wisdom and virtue, Smith wrote, are the traits of a person who is “at all times willing that his own private interest should be sacrificed to the public interest.” A noble, utopian idealism, for certain, and one that we need to strongly bias our policy towards in 2013.