Monday, July 3, 2017

The fallacy

Workers get paid less. Capital gets remunerated more. This leads to workers not having the purchase power to purchase goods and services. Factories close because of a lack of demand. The economy falters and we have a depression. Oh woe is me…

This is the narrative being bandied around by Socialists that do not understand the basic economic principles.

This story is applied in many derivatives – the one you will hear lately is that machines, robots and artificial intelligence is taking over the jobs and therefore - workers not having the purchase power to purchase goods and services. Factories close because of a lack of demand. The economy falters and we have a depression…

We heard it when jobs were being exported to China, we heard it during the Industrial Revolution when machines “took over” the menial tasks, we heard it in the mid 20th century with the advent of computerization. But never ever has this story of doom and gloom actually made the human race worse off – the drive to cost reduction has always led to an increase in living standards.

Schumpeter, when he coined the phrase “creative destruction”, realized too that there will be short term disruptions and that whole industries would vanish in this march towards progress, but that we would emerge wealthier at the end.

The buggy whip maker lost his job when cars became the predominant mode of transport. The chimney sweep had no more work when electric heating became fashionable and whale hunting was relegated to the Japanese when the oil wasn’t needed for lighting anymore.

So how should society respond to these happenings – with tariffs, restrictions, limitations? The Luddites broke the frames – the SA Metered Taxi Drivers riot in the streets, New York bans Uber…

As long as humanity faces problems people will be needed to solve them - from a dripping tap to a heart attack. There will always be work to be done. Yes, the work may be different and not all may be able to adapt...

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