Planning For Future Employment and Careers

July 21, 2014

Introduction

Those born since 2000, and probably earlier, ask whether there will be a job for them, will it be the type they want and will it support the lifestyle they will aspire to. Concern about the loss of future good paying and interesting jobs is uppermost in the minds of young people. It should be, as it has been for young people previously. What it should encourage is starting to plan for the future at a young age, or for parents and friends to do it, which many already do. The good news is that while it has always been a concern for young people, it has usually worked out far better than initially expected. Living standards, with the associated jobs, are higher today in almost all parts of a world in a much larger population than existed 50 and 100 years ago. Things have got better for many people, not only in Canada, but throughout the world.

Employment, and the associated income, results from what takes place in the economy, which depends largely on the technology used to perform different functions. Over the past three centuries, especially since around 1765, much of the global economy has moved from an emphasis on agriculture to manufacturing and now services. Each change has required people having a new or revised set of skills, which are acquired through early life schooling as well as lifelong education. The latter is more necessary today.

The first industrial revolution saw a movement from agriculture to factory production and the use of the steam power to replace man, animal (horse) and water power. In the second, factories became further established, the internal combustion engine introduced using petroleum energy, and the development of mechanized means of transportation on land, sea and in the air. A third industrial revolution is now underway, starting around the 1960s, with the introduction of computers and digital advances leading to new means of production, transportation and communication. At each stage new or revised skills are required by the labour force, as is the case today.

What matters for our purposes is not what the current revolution is called – the internet age, the nuclear age – but what skills are required and what aspects of education best develop these skills. Those properly trained have the best chance to prosper during their lifetime. While the current third revolution seems to be more disruptive, albeit with positive effects, than the second, it may be that the second beats the third on the disruption score. Today is too soon to make such an evaluation. What is happening is that the rate of change is faster than previously, meaning that people will have to adapt (retrain) during their working lifetime, which is longer now because people are living longer.

I had one job as an academic and two main employers, both universities. These were combined with two years of required national service in the army and various summer jobs as deckhand, tour bus driver, bank clerk, construction worker, liquor store and postal employee. My grandchildren can expect to have more main employers and/or to retrain for the careers they initially pursue.

 

Understanding the revolutionary process

 

Economists and historians have studied these revolutions and made certain generalizations. Joseph Schumpeter explains progress as follows:

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”
– Joseph Schumpeter, Capitalism, Socialism, and Democracy (1942)

Schumpeter describes capitalist change as a “perennial gale of creative destruction.” This leads to a paradox of progress involving the demise of old industries and the rise of new ones as described by W. Michael Cox and Richard Alm

Schumpeter and the economists who adopt his succinct summary of the free market’s ceaseless churning echo capitalism’s critics in acknowledging that lost jobs, ruined companies, and vanishing industries are inherent parts of the growth system. The saving grace comes from recognizing the good that comes from the turmoil. Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs, and higher living standards.

Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.

The sad news for some is that certain jobs will be lost forever. The good news is that new jobs are created all the time. Public policy measures are needed to minimize the harm done by the losers. The job of individuals is to prepare, or like an athlete, train for the next event.

Some of the facts for Canada, but also for most parts of the world are as follows:

  1. The Canadian population and labour force has expanded enormously over the past century while the unemployment rate has remained in single digits, at times as low as 5%. There are more Canadians employed today than in the past as new technologies have been introduced. There has been no shortage of employment opportunities. They may not be the same jobs and some may not consider them as “good” jobs, but there has been no shortage of jobs leading to high unemployment.
  2. Women now constitute a far higher share of the Canadian labour force than previously, and this has not caused the unemployment rate to rise. And with the ageing of this population there will be more opportunities for employment by young people.
  3. An examination of the labour force by occupations reveals the changes. One glaring example is the proportion in agriculture in 1900 and now. It has declined from over 20% to less than 2% while the output of this sector has expanded enormously. This is due to the substitution of capital (machinery, fertilizer and seed improvement) for labour. In 2010, the average cow in Canada produced 22,000 lbs of milk per year versus 5,300 lbs in 1950, a 5% increase a year for each of the past 60 years. (I am unclear whether there has been rising unemployment in the cow population.)
  4. Allister Heath (Daily Telegraph, June 11, 2014, B2) observes the following:

 “Most of the jobs that allowed our ancestors to earn a living no longer exist, replaced for the most part by machines of various kinds, but more people in the UK work than ever before….In fact, many of the trades listed across the UK in the 1891 census no longer exist at all….In one hundred years’ time, many of the jobs we fill today will have gone the same way….The speed of the transformation has been phenomenal. Imagine someone from 1980 reading a jobs website today – not only would they have no idea what the internet was, they would barely recognize the jobs on offer.”

 

 For some, the adjustment will be easier than for others. Typically, those younger and more recently educated and trained will find it easier to find a new job than older workers brought up using earlier technologies. For example, in the publishing industry metal print machines require different skills to electronic typesetting. The stoker on a coal-fired steam railway engine requires muscle-power, different from the skills needed by the driver at the controls of a diesel engine.

These examples illustrate the “lump of labour fallacy,” often alluded to concerning the employment opportunities available in the Canadian (and other) economies. There are no fixed number of jobs available in a dynamic economy where millions of new jobs are created each year to replace the millions lost due to various types of change.

Are there good and bad jobs?

Jobs can be described as boring or interesting, legal or illegal, well or poorly paid, but good and bad are not useful descriptive terms. Manufacturing jobs are sometimes labelled as good jobs in contrast to service sector jobs, but this is misleading. Some jobs in the manufacturing sector are poorly paid and others highly paid, depending on the skills required to perform them. Some in the service sector are paid low wages – fast food workers and retail sales staff for example, but doctors, software engineers and computer programmers may be highly paid as is the case for a wide variety of health related services.

Confusion is created by reports showing that industrialized economies have moved to 75% service sector jobs. Some of these are the hamburger flipping, barrista-type jobs, but many are service jobs which were formerly part of the manufacturing sector and are now conducted in separate facilities. When an accountant or lawyer moves from providing in-house services in the automotive sector to a standalone accounting or law firm, they become workers in the service sector as opposed to the manufacturing sector.

Much of the stated change in employment in these two sectors are a result of such corporate reorganizations. Some of the reorganization may involve outsourcing work to foreign firms. When higher paying service sector jobs are outsourced (foreign or domestically), they may not be replaced by equally high paying jobs. This is part of the process of “creative destruction.” A dynamic economy wins some and loses some and it will never be an equal balancing process.

 

How to prepare for the future?

Assuming that a person completes a typical junior and high school education, what comes next? University and/or community college are two possible institutional progressions. Alternatively a high school student may enter the workforce directly and receive some degree of training on the job. Combining education with work is another option as it links an apprentice-type process and provides the training which any employee will have to receive, whether preparing espresso coffees or articling to be a lawyer.

Apprenticeship is often thought of in terms of skilled trades, but it happens in all occupations in some manner particular to the occupation. A trainee lawyer, accountant, doctor, dentist and engineer goes through an apprentice process peculiar to the skills required for the job. All occupations have levels and types of skills and may be paid differently, but each one requires a screening process on entry, even if it just means being able to understand a language. An immigrant hired to stock warehouse shelves will need to understand and read the language used by the firm. Similar understanding in a different context is required by an immigrant surgeon where failure could be lethal.

 

What subjects, where and when to study?

(This section is a revised version of an earlier posting which included input from a number of former graduate students. Many of the ideas originated with them. I don’t expect them necessarily to agree with my treatment of them.)

        Introduction

The stages of life and education progress from kindergarten to primary and secondary school, university and/or community college to the workforce. Some go direct from high school to the work force. Lifelong learning takes place in a formal sense when adults engage in programs of continuing education of various kinds. Online courses make it easier and cheaper to undertake learning both in earlier and later years. How this will affect existing institutions is unclear.

There is an extensive literature on this general topic, and I am no expert, but we have all had the personal experience of the various stages of education, and may have children, grandchildren, relatives and friends who are going through the process.

While details of the present are fairly clear, looking ahead ten years is like looking into a fog, and may be as reliable as a weather forecast three months hence. As technological, political and economic events are moving very fast, continual updating of the present and near future is necessary. Just this week, a Malaysian airliner has been downed by what is likely a Russian supplied missile to Ukrainians. Earlier this year, Muslims formed a new country out of parts of Syria and Iraq. These are known unknowns.

The stages of the education progress from kindergarten to primary and secondary school, university and/or community college to the workforce. Some may go direct from school to the work force where they engage in some form of apprenticeship, the term used traditionally in the trades, but similar to articling procedures in the professions. Lifelong learning takes place in a formal sense when adults engage in programs of continuing education of various kinds. Online courses make it easier and cheaper to undertake learning at all stages of life. How this will affect existing institutions is unclear, but the best universities are becoming involved in some use of online education, and it will be seen as a means of cost savings for all institutions. Firms already use online education when they administer in-house training courses delivered online. What the future will hold for the educational process in general is only faintly understood….at least by me.

 

       Passion and employment

  1. A recurring comment on the subject of what and where to study is that a person may decide to pursue their passion or employment opportunities. Pursuit of passion can lead to employment but often in a highly competitive environment where the financial rewards may be slim. Greater certainty is associated with taking a path towards an occupation or profession where the initial steps are clearly marked out. But the general advice given by some is to pursue what interests you – your passion.
  2. By passion, I mean someone who may want to become a musician, singer, composer, actor, athlete, writer, academic or artist. Many of these activities can be pursued as a hobby throughout life, but rewarding employment is more difficult. Some arts and sports may be subsidized by government, but the reliability of a steady income is not great. This is not an argument against following one’s passion, but to realize the likely impact on one’s future livelihood
  3. Less risk is associated with a university degree route which leads to some type of recognized certification – for example, lawyer, doctor, dentist, nurse, accountant, engineer, architect, economist, programmer, and business executive.  An MBA degree is one popular option. If pursued, it should be taken at a first rate university, and on a full-time basis. It can provide entry into the first job, and the employee’s program may be subsidised by an employer. After any initial job, personal performance will determine advancement.
  4. Each person will have to discover and decide what their skill-set is. Don’t be surprised if you end up pursuing some discipline or activity about which you knew very little when entering university. While still in high school, you have limited knowledge about the different job opportunities and disciplines. I went from agriculture to commerce to economics in university. Perhaps a slow learner, but I did not appreciate what each possible occupation involved until I became more familiar with it. The UK system forces students to narrow their disciplinary focus by the time they enter university. The North American liberal arts approach starts with a wider exposure to disciplines and a narrowing of focus often at the graduate level. The latter suited me better, but both can provide satisfactory outcomes. The fact that there is choice is a good thing for those considering how to navigate the future.
  5. A BA program which does not lead to some professional certification has little employment value in today’s labour market. Only the truly exceptional are likely to have the same job chances as those following a more professional program.  Many service sector jobs, such as in fast food and retail outlets now require a university degree. This is not because the job requires a degree but because labour market conditions allow employers to require this qualification.
  6. A valuable comment about universities is:

Go to the best school you can:  This matters for three reasons.  First, you will be judged by the university that you go to.  The better the school, the better the first impression. Second, many opportunities arise later in life through the network of friends that you met at university, and higher-ranked universities tend to produce more valuable networks. Third, at better universities you are often (though not necessarily) exposed to and competing with a higher calibre of student.  You will learn early what standards need to be met in order to compete. 

7. High school marks should be evaluated and understood with care. There has been grade inflation, at least in the Ontario school system, and some of this carries over to early university years. Some argue that first year university has become a continuation of high school, or what should have been learned in high school. Graduation grades often fall one or two letter grades (A to B or A to C), between high school and university.

8. In school and university, it is useful to become involved in extracurricular activities, sports, clubs, newspaper, radio. These will widen your knowledge of what awaits you after university, and creates a network of contacts which can be valuable for the first job and throughout your life. Today, it is much easier to stay connected with former friends and colleagues. Increasingly, younger (and many older) people have electronic devices for communication and study by accessing internet sites.

9. A pertinent comment made about university study is:

 As to implications for university studies, it is not so much what you study that matters, but that you study.  What matters are the following skills that normally you will find in a proper university study: problem solving and analytical skills, ability to think strategically about given topics, ability to communicate well in English and at least one other language  (the better you can express yourself, the better you can convey your message), moderation/negotiation skills, numerical/financial awareness (always good, even if in a non-financial area), exposure (to different disciplines, cultures, etc), ability to manage projects. The latter is really important – irrespective of the level at which one is in a job as it requires very good planning, target orientation, analytical skills, communication skills and a lot of direct/indirect leadership plus team work. Universities can also stimulate the latter through group work on given topics (versus only individual work).  

 

What subjects to study?

  1. Here there is a wide variety of views, often made by those who have pursued a particular career path, and now look back on what they would have liked to have studied. I studied economics and now wish I had studied more history, demography and geography. I realize that this is not the stage that teenagers are at. They have to decide how to allocate their scarce time at university before they enter the labour force, so they need to know what line of work they might like to pursue.
  2. Before giving my list of subjects, note the emergence of online learning by way of MOOCs supplied by firms such as Coursera, Udacity, the Khan Academy, and Singularity University. While lifetime learning has always existed through correspondence courses, the Open University in the UK and courses provided free by MIT, it is now more readily available together with sites like TED talks. There is now even less reason why formal education cannot be an ongoing process rather than being compressed in the early years of life. MOOCs are changing the operation of universities. At present a large number of people enroll in MOOCs – why not, they are free – but less than ten percent complete the course and most of these are over thirty.
  3. At high school, the study of English, Maths, Science, History, Geography, the Arts (dance, drama, music, the visual arts), health/sports would be on my priority list. A second language (French, Spanish or Chinese), statistics and computer studies would come next.
  4. Mathematics is important both in itself but also for undertaking research, writing reports, and for interpreting and understanding other people’s research findings.  An ability to write well in English includes writing clearly, grammatically and with correct spelling. Nothing undermines the value of a piece of written work more than if it is poorly written and presented. Even if it is submitted as a draft, it should be carefully edited before presentation, as a first submission of any kind leaves an impression which tends to stick.
  5. In my view, there are certain subjects which can be left to study at university. These include amongst others, psychology, sociology and economics. If taught in high school they are often taught poorly. In economics my lecturing experience was that first year university students performed better if they had not previously studied it in high school, where it may be taught by those with little economic training. I am now ambivalent about when economics should first be taught. Watching teenagers and preteens navigate the various payment plans for mobile devices, working at part-time jobs and often being mislead by those who employ them, I see a need and an opportunity to teach basic economic concepts at a junior school level. A group of economists at Rutgers University studies this topic and shows how children’s literature can be used to illustrate economic concepts.

Curiosity and creativity

  1. These are two words which frequently arise in the discussion of education, especially the need to encourage both of them. Kenneth Robinson (in a TED Talk) makes the case that the traditional educational path destroys the innate curiosity with which children are born.  He uses the metaphor of Death Valley in California where there is typically no rainfall and nothing grows. One year there were seven inches of rain and the desert blossomed with flowers, suggesting that life is dormant until stimulated. The same he argues is the case with the educational system, which frequently destroys the creative instincts of children.
  2. Referred to as cognitive development, some suggest that curiousity and creativity can be addressed in part by exposing children to a wide range of experiences, including travel, learning a second language, developing a hobby, having a mentor, and providing an environment in which the child is encouraged to raise questions.
  3. Research on and answers to many questions can be undertaken now with the push of a button by accessing Wikipedia or using a search engine. The published volumes of encyclopedias and the World Book have been replaced by easily accessible online sources. TED talks are another way to expose students to researchers working at the frontiers of their specialty, and often have intriguing displays such as Hans Rosling on statistics. Programs like GIS for geography, Sketchup for land use planning, Tableau for maths and economics are available and necessary for those entering certain occupations.
  4. One implication of the foregoing is that parents and friends, as well as teachers, are needed to stimulate these forms of curiosity and questioning. Parents often say that teachers appear to be downloading teaching responsibilities to the home. This may be the case but education requires the input of both home and school. By being part of the educational process, parents may end up educating themselves. As a grandparent, I learn from finding out about the educational process in schools.
  5. Community colleges now play an important role in preparing people for rewarding occupations. Sometimes people can attend colleges after university, sometimes instead of university and sometimes the two are combined (as occurs now at Carleton and other universities). Earnings in the trades taught at colleges like electrician, plumbing, carpentry, heavy equipment operator, and cooking can be substantial.

 

Communications media and hiring

  1. In hiring, employers use the internet in two ways. First they hire firms to look for talented people online, in the same way that athletic teams use scouts to search for future stars. They may find a person who has started a business, written a program or authored articles which have been published. Some firms specialize in identifying people with certain skills.
  2. The downside occurs when information is found on the internet which compromises the candidate because of items appearing on sites like Facebook, Twitter and Instagram. Nothing can be deleted from the cloud where most of these postings are stored. My rule of thumb is never to post anything on the internet that you would not want your parents or grandparents to see. This is true for emails too. You cannot assume that any posting is deleted forever.
  3. The big software employers like Google, Amazon and Microsoft run their interviewees through day- or days-long processes to determine how well they can express themselves, solve problems, brainstorm and organize information and research results.  This means the loner tech geek still has to be able to work in groups and engage in confrontational creativity.
  4. The hiring approach used by Google ties in with the concept of emotional intelligence or political astuteness, meaning learning to understand what motivates people and organizations, and learning to judge how people are going to react and interact with each other. One example is a colleague who gives talks to government officials about their economic policy making and performance. He starts by telling what they are doing right and then proceeds to what needs to be changed. If he reversed the order or told them that many of their policies and procedures were self-defeating and possibly disasters, he would lose his audience… and not be rehired as a consultant.

Miscellaneous thoughts

  1. Seize any opportunity to engage in public speaking, this includes acting and improv. Making posters as notes for giving a talk is a way to start becoming comfortable talking to groups. Evaluating the talks of others teaches you the things that impress or annoy you. Ask your friends for comments, and do the same for them. Don’t be afraid of being critical in a positive manner.
  2. Paid and unpaid work at a young age is an indicator of a person’s willingness to become involved and active in a community. This has a positive payoff in later job interviews. Travel is a way of rounding out your education at any time.
  3. Careers to avoid include any activity which is likely to become automated or outsourced abroad.  Assembly line work has and will continue to be automated; 3D printers will make possible parts production in small batches; online courses will displace teachers especially at all levels. Opportunities will exist for those giving the courses and making the machines which substitute for labour.
  4. Governmental bureaucratic organizations have a different work environment than the private sector. The military, schools, universities, non-profit organizations, NGOs, charities, religious organizations all have particular work environments. One way to learn about these is to read about them, and talk with people in these organizations and those who have retired from them. The best way to find out about a particular school, university or program is to talk to people who are in the program now and to those who have recently graduated from the program. A university’s or college’s general reputation will often be based on the past rather than the current situation, and it is the current information which a prospective student requires.
  5. Graduates in law, economics and other disciplines are found to be strong in theory but with little understanding of the application of their disciplines to the real world. Thus emphasis is needed on simulations, negotiations, mock trials, report writing, and use of technology to aid application of the theory.
  6. The last is not just the use of existing programs such as Power Point and spreadsheets, but some ability to write programs – in Estonia all children are taught to “code” starting in primary school. Unless involved in a computer program, students in Canada tend to learn how to use existing programs but not how to write programs to solve particular problems.
  7. Universities enroll too many students in arts programs which have a dead end as far as possible employment is concerned. Universities cannot tell students what to take any more than they can tell them not to smoke or take drugs, but they can and should advise them of the consequences of alternative choices.   High school counselors can play a role here by being familiar with the job market. Note, if “dead end” results from following your passion, do so but understand the consequences.
  8.  Select people whom you see as mentors or role models. Practice observation and asking questions about things you see. Drawing, painting and photography are activities which train people to be observant.
  9. Start a business at a young age, child-care, paper deliveries, cooking, in order to understand how to interact with the public. If this sounds too materialistic, parallel advice for arts students would be to learn a musical instrument, volunteer to act in plays or provide stagehand services.

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For Future Generations – What Now?

June 24, 2014

 

 Summary

 This posting is an attempt to examine the type of world which our grandchildren, or those born since 2000 will inherit and grow up in. How should they think about the future and their lives in it? What can they do, if anything, to prepare for it?  I ended up with a smorgasbord of topics which I think have some relevance to these questions, but the choice resulted mainly from issues which interested me. What I am looking for is a framework combining these issues with others which are relevant to understanding how to cope with the future. Suggestions would be appreciated.

 

Following are the eleven issue areas noted:

 Geography

Demography

Technology

Employment opportunities

Grade Inflation

Universities and colleges

Online learning

Environment

Immigration and multiculturalism

Working of democracy

Conflict situations

 

Introduction

 

A year ago in 2013, I started a project. The aim was to think about, predict would be too strong a word, what the world will be like for those born since 2000. For example, what type of educational experience might be beneficial, what kind of work will they do, and how will it differ from my lifetime over the past 80 years. Those who had tried to forecast the events since the thirties were largely unsuccessful, and today few are able to anticipate major events which break out daily in the news headlines  – the Arab Spring, the Syrian uprising, the absorption of the Crimea into Russia, Sunni uprisings against Shia in Iraq, China’s  claims to mineral rights in the South China Sea. This is today’s list. A year hence it will have changed.

 

These political events are only a small part of past and current changes. Technological and economic factors since the 1930s have shattered and transformed firms and industries. Computers and communications are only one aspect. Energy, medicine, physics, chemistry and astronomy have all experienced new developments. No one in 1930, looking forward, imagined what would take place over the next 80 years. The same true today, although many try. One can either despair, and not make any forecasts, or one can try, by sifting through the massive literature on change, and still expect to be woefully wrong.

 

In pursuing this exercise, I had the benefit of tapping into the knowledge and experience of a number of former graduate students all of whom have interesting jobs, and were kind enough to give me ideas about issues to examine, which might be important for the next generation, often their own children. I also listened to my grandchildren and their friends who provide a sounding board for finding out what today’s world is like for them. That is my current educational experience. It requires asking questions, listening and not passing judgment on the answers.

 

Over the past year, I have read widely, mainly on economic and political topics but also a fair amount of history. I have enrolled in online courses which stimulated an interest in the future of online education in general, as well as the subject matter covered in the courses. On some of these topics I have posted pieces on a blog at cmaule.wordpress.com which provides a way of organizing my thoughts in the form of working papers on which I could receive comments. In fact there were few comments sent to the blog, but I would circulate pieces to people whom I knew were interested in a particular topic and received comments back from them directly. This is a useful aspect of blogging. Some topics which initially I thought I would cover are left out. Others are added. This will be a work in progress, probably for the rest of my life, or for as long as I can stay awake.

 

One general note: retirement for me, and I suspect for others, has been transformed for the better by communications technology which allows research to take place at home, with access to more material than there is time to read it. Contact can also be made with authors who are often willing to talk or correspond by email, so that home study and research is not only rewarding but practical. The main constraint is 24 hours in the day. The supply of productive time remains limited, while the demands made on it increase daily. Economists are trained to deal with problems of scarcity, so perhaps I have some advantage here in understanding the mechanisms at work. For example, the number of hits a website gets is used to establish advertising rates.

What then have I learned about understanding the near future? Each of the following topics is worth lengthy treatment. Here I point to selected aspects.

 

  1. Geography

 A general knowledge of geography frames an understanding of the past, present and future. The world (planet earth) is a finite place of land and water plus the air above. It has not increased in overall size but has experienced some changes to the division between land and water. Knowledge about the universe in which planet earth is situated has expanded considerably, especially over the past decade. While research of future economic and political factors surveyed here is confined to the earth, the planet itself is a minute part of the universe. In universal terms, the earth hardly matters, and if it is demolished by a meteorite or comet, no one outside of earth, will notice. In universal terms, traditional macroeconomics is actually very micro, and what we fuss about is in one sense inconsequential, although it may be less so if space travel finds another habitable planet.

 

The geography of planet earth has a political and an economic dimension. In 1945, the Charter of the United Nations was signed by 50 countries. Today there are nearly 200 with places like Scotland, Quebec and the Basque region of Spain agitating for separation from existing states. Their aim is greater independence, ironically at a time when sovereign countries are becoming more dependent and giving up powers to multilateral organizations like the GATT, regional trade agreements such as NAFTA, the EU, NATO and a myriad of international agreements.

 

While there exists no world government, the UN tries to enforce commitments from member countries. In turn these countries try to use the UN when it suits their purposes, and otherwise ignore it. Although ineffectual in providing world government, the UN does act as a mail box and meeting place to deal with issues of international concern. It does little to address obvious cases of violence such as in Rwanda, Syria and Iraq, and refugee issues through the so-called Responsibility to Protect agreement, but aid to alleviate famine and the landmines agreement are where the UN does some good.

 

One dimension of the present and near future to note is an increase in the number of sovereign states covering a finite land area, and no world government to manage the interdependencies which arise. The term globalization refers to growing interdependence of countries and peoples in a number of dimensions. Knowledge of geography is one essential to understanding present and future events. When I was Director of a School of International Affairs, there was no world geography requirement. There should have been. (It is sometimes wryly remarked that Americans go to war in order to improve their knowledge of geography.)

 

   2. Demography

 How many people are there now and likely to be in the future? Until about 1800, the world’s population was stuck at around one billion. It reached 1.7bn in 1900, 6bn in 2000 and 7.1bn today. Forecasts for the end of the century are for just under 10bn and then a decline. Many issues which are the topic of public discourse are the result of population growth. Yet few point to this as a factor if it implies possible measures to curb growth, which only a few countries like China have seriously undertaken.

 

Population is linked to issues like ageing, the adequacy of working age people, the cost of caring for seniors, people living longer, employment opportunities, immigration procedures for regular immigrants and temporary foreign workers, the cost of providing educational, health and welfare services and so on. Together with the need for physical infrastructure such as roads, railways, airports and sea ports, these place a tremendous demand on global resources and the means to finance them either privately or by governments. The private-public distinction is never clear cut, as governments create the framework for firms, and firms supply governments with the goods and services they need.

 

A knowledge and understanding of demographic factors is essential for living and working in current and future conditions. Combined with geography, these are part of the foundations of living and working in today’s world. Both are fundamental to understanding both domestic and international affairs, and the world that future generations will inherit.

 

  1. Technology

 Labour and capital are foundational inputs used in an economy. Combined with technology they create different industrial opportunities through a process which Joseph Schumpeter described as “creative destruction.”

Over time, horse and animal power displaced human power. Then water power and the steam engine, followed by hydrocarbon generated power and then nuclear power. These represent part of the forces of “creative destruction,” which cause economic change, and the rise and decline of industries and occupations. Understanding where a national economy sits in the process of change is vital to being informed about the employment opportunities today and tomorrow.

 

John Mauldlin is a consultant whose writings examine future developments and are useful to those contemplating near and long term employment opportunities. A recent (June 2014) piece discusses the increasing rate of economic change based on a measure of the turnover of companies in the Standard & Poors index: http://www.mauldineconomics.com/frontlinethoughts/the-age-of-transformation

 

“And while your job may be one of those that will ride easily into our brave new future, the same may not be true of your stock investments. Companies show the same pattern of destruction and rebirth. Only five of today’s hundred largest public companies were among the top hundred in 1917. Half of the top hundred of 1970 had been replaced in the rankings by 2000…..the average lifespan of companies in the S&P 500 Index was about 60 years in 1960. Today they last about 15-20 years. That means we are currently replacing a stock in the index about every two weeks.

 

I can see many of my readers rolling their eyes and saying it won’t happen in 20 years. Or 30 or 40. Things just don’t happen that fast, you say. But that is just your old Homo sapiens brain extending the past in a linear fashion into the future. Moore’s law tells us that the number of transistors on a chip roughly doubles every two years (and the chip drops in price). But other industries, like solar tech and genome sequencing, are on exponential paths that make Moore’s law look positively snail-like. If the power of exponential change keeps working – and it will – we will see more change in the next 20 years than we saw in the last 100!”

  

  1. Employment opportunities

 Two of the most frequently heard concerns of younger people are that in the future there will be no jobs for them, and that the available jobs will be poorly paid. The first refers to the “lump of labour fallacy,” that there is only so much labour that an economy requires, and if the supply of labour exceeds this amount the excess will be unemployed. Joseph Schumpeter, writing in the 1940s, explains how economics approaches these concerns

 

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation – if I may use that biological term – that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”
– Joseph Schumpeter, Capitalism, Socialism, and Democracy (1942)

 

Schumpeter describes capitalism as the “perennial gale of creative destruction.” This leads to a paradox involving the demise of old industries and the rise of new ones as explained by W. Michael Cox and Richard Alm

Schumpeter and the economists who adopt his succinct summary of the free market’s ceaseless churning echo capitalism’s critics in acknowledging that lost jobs, ruined companies, and vanishing industries are inherent parts of the growth system. The saving grace comes from recognizing the good that comes from the turmoil. Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs, and higher living standards.

Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.

The sad news is that some jobs will be lost forever. The good news is that new jobs are created all the time. The job of public policy is to minimize the harm done by the losses.

An examination of the labour force by occupations reveals the changes which have taken place. One of the most glaring examples is the proportion of the labour force in agriculture in 1900 and now. It has declined from over 20% to less than 2% while the output of this sector has expanded enormously. The change is due to the substitution of capital (machinery, fertilizer and seed improvement) for labour.  In 2010, the average cow in Canada produced 22,000 lbs of milk per year versus 5,300 lbs in 1950, a 5% increase a year for each of the past 60 years….if only humans could increase their productivity to the same degree.

Allister Heath (Daily Telegraph, June 11, 2014, B2) notes similar forces:

 “Most of the jobs that allowed our ancestors to earn a living no longer exist, replaced for the most part by machines of various kinds, but more people in the UK work than ever before….In fact, many of the trades listed across the UK in the 1891 census no longer exist at all….In one hundred years’ time, many of the jobs we fill today will have gone the same way….The speed of the transformation has been phenomenal. Imagine someone from 1980 reading a jobs website today – not only would they have no idea what the internet was, they would barely recognize the jobs on offer.”

 Heath goes on to argue that “…it will be vital to help individuals displaced by the new technologies to find work in new areas…..The lump of labour fallacy is the oldest myth in economics. There is no fixed stock of jobs; in a dynamic economy, millions of new ones are created every year to replace the equally large numbers that are lost. The luddites are as wrong today as they were two centuries ago.”

 

This may seem cold comfort to the recent university or community college graduate looking for a job and unable to find one today, but it alerts people to the need to marry their interests to the actual job opportunities which exist now and are likely to exist in the future.

 

    5. Grade inflation

 This is a topic which should concern students because the marks they receive in school, at least in Ontario, may not be a good reflection of their abilities and a measure of their expected performance.

Contrast the UK with Canada. In the UK there are state wide exams at the high school level used by those applying to university. Students are prepared for these exams and there is no discussion of the grades assigned. It is as universal and about as fair a process as can be designed. One consequence is that teachers teach to the exam and at the end each student takes only three subjects, and is required to apply for the degree she or he wishes to study for, in contrast to the North American liberal arts degree approach at the BA level.

In Ontario, each school grades its graduating students.  Except in limited cases, for example those enrolled in the IB (International Baccalaureate) program there is no province or nation wide exam. The consequence is that grade inflation occurs. Up until the late 1960s, there was a province wide exam and when it was abolished teachers warned that there would be grade inflation. They were right. Now when there is discussion of returning to province wide exams teachers oppose it, knowing that schools and their teachers will be judged according to the success of their students.

Universities are faced with the problem of knowing whether two students with the same grade, one from school A has the same qualifications as one from school B. They respond by putting all students in a first year class and finding out which ones do better. From this the universities can begin to evaluate schools so that first year classes become a sort of university entrance exam, but note this too is not perfect. It is university specific and not a common course evaluation.

Universities are meant to treat all students equally, which is fine when there is a common examination process. In fact, they make judgments based on accumulated experience about how students from different schools perform. Students in turn have adapted to this process by engaging in sports, music and other activities which receive a grade, but also shows the versatility of the student.

A different aspect of university admission flows from the fact that a higher proportion of the 18 to 24 age cohort now goes to university. While the distribution of student IQs in the population is bell shaped, university admissions have increased the share of the total population being admitted. This means that more students with lower IQs are admitted than previously. Partly this resulted from too few university places, and partly because of the vote getting attraction of offering families more opportunities for post-secondary education. At some point the vote getting pressures can lower the caliber of those accepted to universities, which either have to fail the students or lower the quality of those who graduate. This can push the evaluation problem to being dealt with by employers. Part of the requirement for BAs for those working in fast food outlets is due to the declining caliber of university graduates at the BA level; part due to the lack of jobs for which they are qualified.

  

  1. Community colleges and universities

 

There has been steady enrollment growth experienced by community colleges as a result of the changing nature of the economy and the availability of jobs. Students are now attracted by the salaries and work conditions being offered to those who have certain skills training.

 

The adjustment has seen more students enrolling directly in these colleges, or going first to university and then to a college, or enrolling in a combined university and college program. Each alternative may involve some form of work experience while studying, thereby easing fulltime entry into the workforce.

 

Students (and their parents) will have to evaluate where the job opportunities exist and what is the best route to qualify for these positions. They will also need to realize that potential employees will have to be prepared to travel to the workplace. Canada’s recent restrictions on the use of temporary foreign workers suggests that Canadian workers are unwilling to take the jobs which the foreigners will accept. In the past Canadian workers in areas of high unemployment were more willing to travel to available jobs. This no longer seems to be the case, or at least to the same extent as previously.

 

  1. Online learning

 (Please see cmaule.wordpress.com posts for 2014, March 2, 11, 12, 14, April 27 for further discussion of this topic).

 

Where and how students receive their post secondary education in the future will depend on where and how courses are offered. Students will be able to choose what they study and where they study it. The traditional on site educational experience is now displaced or combined with some form of online learning. There will be a range of offerings from 100% on site to 100% online offerings at different prices, and at different costs to the student.

 

Those taking online courses can study at home thereby reducing transportation and living costs, in contrast to travelling to classes and paying for room and board to some third party. While the online experience is not a direct substitute for the on campus experience, the rising cost of post secondary education is partly alleviated by new means of communication, as was the case with its forerunners, correspondence courses and the Open University in the UK.

 There are many other aspects to consider. For those interested, a number of these are discussed in the posts noted above and will not be repeated here.

 

  1. Environment

 

If today’s discourse over the environment had taken place in 1900, it is difficult to imagine the landscape of the Canadian economy. Would the following have been built, the James Bay project, the aluminum smelters at Arvida and Kitimat, the St Lawrence Seaway, the network of pipelines which cross Canada and so on? It’s interesting note that while there are strong forces arguing in 2014 against the Keystone Pipeline and the Northern Gateway Pipeline, there will be additional oil shipped through the Kinder Morgan Pipeline which ends in Port Moody BC, requiring tankers to enter the Gulf of Georgia, Burrard Inlet, go under the Lions Gate Bridge and proceed up river to the storage tanks at Port Moody.

 

No one working today can ignore the environmental debate. I hesitate to enter this minefield, but will do so by referencing Matt Ridley’s summary of the 2014 Report of the International Panel on Climate Change (IPCC) as reported in the Financial Post, June 19, 2014, p.FP9. Ridley is a columnist for the Times (London) and a member of the House of Lords. He has reported on this topic for 25 years.

 

“The IPCC commissioned four different models of what might happen to the world economy, society and technology in the 21st century and what each would mean for the climate, given a certain assumption about the atmosphere’s “sensitivity” to carbon dioxide. Three of the models show a moderate, slow and mild warming, the hottest of which leaves the planet just 2 degrees Centigrade warmer than today in 2081-2100. The coolest comes out just 0.8 degrees warmer.

 

Now two degrees is the threshold at which warming starts to turn dangerous……That is to say, in three of the four scenarios considered by the IPCC, by the time my children’s children are elderly, the Earth will still not have experienced any harmful warming, let alone catastrophe.”

The fourth scenario produces 3.5 degrees of warming by 2081-2100. It is based on the following assumptions:

The global population will increase to 12 billion – this is at least one billion more than the UN expects, and the rate of population growth is presently declining.

The world will burn ten times as much coal as today, producing 50% of primary energy in contrast with 30% today. Assumptions made in the report about nuclear and renewable energy sources mean that fossil fuels will dominate energy production – Ridley considers these assumptions “very, very implausible.”

“That is to say, even if you pile crazy assumption upon crazy assumption till you have an edifice of vanishingly small probability, you cannot even manage to make climate change cause minor damage in the time of our grandchildren, let alone catastrophe. That’s not me (Ridley) saying this – it’s the IPCC itself.”

I am interested in the world inhabited by my children’s children. From what I understand from experts, environmental disaster should be of lesser concern relative to issues such as nuclear destruction, the use of chemical weapons and their delivery provided by rockets and drones. Nevertheless, the environmental debate is one these children should study in order to be familiar with the findings of those with expertise in the field.

 

  1. Immigration and multiculturalism

 

While these two topics can be discussed separately, they are closely related. Immigration concerns the inflow of foreigners, and multiculturalism deals with how those who stay permanently are integrated into Canadian society. For newcomers as well as those who are first, second and third generation immigrants, as well as their children, this is a circumstance they need to recognize. There is not much they can do about it.

  

My views on immigration policy and multiculturalism are posted at cmaule.wordpress.com  for 2012, Feb 13, Nov 9,25,27;  2013,  Mar 21.and will not be repeated here. I would add, however, that the circumstances of recent immigrants differ from those who came before in one important way. Today’s newcomers are more connected to their country of origin through cheap means of communications, such as social media, as well as cheap air travel. They are much less cut off from their roots than I was when I came from England in the 1950s, and the trip from London to Vancouver by train, boat and train took just under ten days. Trans-Atlantic phone calls were over $3 per minute versus virtually free now by Skype and Facetime.

 

Today, the link with the country of origin is stretched but not broken. And when countries compete in a world sports competition, Canadian citizens of different origins may support their birth country and not Canada. This is not an unexpected situation, but it does mean that Canadians are increasingly working among people who may be less committed to Canada and associate more with their country of origin. Young people may find themselves working among contemporaries who consider Canada a convenient platform for their lives, making some newcomers a permanent form of temporary foreign worker. There is not much an individual can do about this except to realize the context.

 

      10.  The workings of democracy

Future generations will need to assess how their system of government is working, and whether predictions about the demise of democracy which they are likely to face is real or manufactured. A starting point is Churchill’s quote that, “It has been said that democracy is the worst form of government except all the others that have been tried.”

 

Accepting Churchill’s conclusion still requires being wary about the health of a democracy in any particular situation. For example contrast the British and Canadian systems. In Britain, Question Period in the House of Commons results in questions being answered directly, often with humour, and with the use of debating skills. On other occasions cabinet ministers may oppose each other, not just in cabinet meetings but in the House of Commons, often to the dismay of the Prime Minister.

 

In the Canadian House of Commons, Question Period leads to questions being unanswered, and to juvenile remarks being exchanged. A cabinet minister who disagrees with the Prime Minister is likely to be fired. The nuances and the workings of a system labeled responsible government need to be understood. However, both systems are preferable to Russian or Chinese style of so-called democracy which gives the word a bad name.

 

Under the umbrella of governance the issues of national security, human rights, income inequality, education, healthcare, taxation and the treatment of aboriginal societies are topics for discussion. Each deserves focused analysis (perhaps at some future time).

 

The same is true for anticipating future micro and macro-economic conditions. The depression of the 1930s was followed by postwar business cycles with reasonable booms and busts, until the financial crisis of 2008-09. Writing in 2014, this last crisis is too close to know exactly why it happened, and whether it will happen again leading to unemployment levels of the thirties. But in time we should learn how to analyse these conditions and reduce the likelihood of a repeat performance of 2008-09.

 

 11. Conflict Situations

 Perhaps the most difficult set of issues to consider is understanding where future conflicts, domestic and international, will arise and how to prepare for them. In 1934, I entered a world that had recently experienced a devastating world war and had witnessed the loss of even more lives due to a flu pandemic from 1918-20. Flu affected an estimated 500 million people and killed 50 to 100 million or 3-5% of the world’s population. Perhaps then we should be more concerned about diseases than violence and terrorism.

 

Few expected the outbreak of WW2 in 1939. The same could be said about the Cold War, the Korean War, the Vietnam War, the Algerian war, the rise and fall of Communism starting from 1989, conflicts in Afghanistan, Iraq, Somalia, Syria, and in Central and South America which continue today, especially in Africa and the Middle East. Some of today’s wars result from the demise of the Ottoman and Austro Hungarian Empires and agreements such as Sykes-Picot at the end of WW1 which set middle-eastern boundaries. Also, the British Empire reached its peak around 1900-14 and rapidly declined over the next 60 years to its present day status leaving the Commonwealth and a few pieces of real estate tied to the mother country.

 

Be prepared for the unknown seems the best advice for younger generations. Almost all the experts who monitor international political and economic affairs are wrong in forecasting future situations of terror, violence and economic crises.  They may appear wise but usually after the event has occurred. The means for terrorist incidents are increasing and can now be conducted by small groups against critical targets without warning. States have responded with more sophisticated surveillance techniques which George Orwell could never have imagined possible. We worry about violence but also about the loss of civil liberties. In sum, perhaps the best advice to future generations is to be aware of what Donald Rumsfeld describes the “known unknowns,” things we now will happen but not when and where.

Why Nations Fail – Not another review

May 19, 2014

Why Nations Fail (Random House, 2012) by D. Acemoglu and J. Robinson

There are enough reviews by eminent persons from different disciplines to make another one unnecessary. Most are very positive. Jeffrey Sachs is one of the exceptions. His review in Foreign Affairs is worth reading for two reasons. He provides an excellent summary of the main thesis and findings of the book, and some of his criticisms are pertinent. His review lead to the normal academic sparring, as the two authors replied with an academic dialogue spiked with sarcasm. Sachs is probably upset as he only gets one mention in the book, but so did Adam Smith who unfortunately cannot defend himself.

Sachs’ succinct summary of Why Nations Fail in the Sept/Oct 2012 issue of Foreign Affairs includes the following:

“According to the economist Daron Acemoglu and the political scientist James Robinson, economic development hinges on a single factor: a country’s political institutions. More specifically… it depends on the existence of “inclusive” political institutions, defined as pluralistic systems that protect individual rights. These, in turn, give rise to inclusive economic institutions, which secure private property and encourage entrepreneurship. The long-term result is higher incomes and improved human welfare.

What Acemoglu and Robinson call “extractive” political institutions, in contrast, place power in the hands of a few and beget extractive economic institutions, which feature unfair regulations and high barriers to entry into markets. Designed to enrich a small elite, these institutions inhibit economic progress for everyone else.” 

Extractive and inclusive political and economic institutions are the four lead actors in this play about national progress, or lack of it. The historical vignettes about these players’ roles in today’s countries reward the reader, stimulate thought and promote further reading about an understanding of today’s world. It is definitely a worthwhile, if lengthy, and sometimes repetitive, read.

What caught my attention was that Adam Smith also gets only one mention in Why Nations Fail. Yet it seemed that, in 1776, Smith had covered similar ground in Wealth of Nations for conditions which prevailed at that time, that is at the start of the first industrial revolution with different national boundaries and much fewer countries.

The global land and sea masses were the same then as now, but boundaries and political institutions differed. Why Nations Fail (WNF) covers some of the same ground as Wealth of Nations (WON) but for a different time period. A review of WNF on the Adam Smith website makes no mention of the failure to reference his earlier work, so I should probably not worry. But it seems to reveal a lack of respect by the present for the past, as well as eagerness to claim originality, when writers today stand on the shoulders of those who came but fail to mention it.

A late former colleague, Eddie West, who was a scholar of Smith, would have been the person to comment on the relationship between the two books, and how Smith’s contribution over almost two and a half centuries earlier supplied the building blocks for WNF. A few extracts will show why it may be reasonable to suggest that Smith had previously given considerable thought to why nations do or do not prosper.

The subtitle of Part 3 of WON is “Of the different Progress of Opulence in different Nations.” This seems to examine issues surrounding the main thesis of WNF.

Part 5 of WON is entitled “On the revenue of the Sovereign or Commonwealth,” with a chapter “Of the Rise and Progress of Cities and Towns, after the Fall of the Roman Empire.” It states:

 “ After the fall of the Roman empire, on the contrary, the proprietors of land seem generally to have lived in fortified castles on their own estates, and in the midst of their own tenants and dependants. The towns were chiefly inhabited by tradesmen and mechanics, who seem in those days to have been of servile, or very nearly of servile condition. The privileges which we find granted by ancient charters to the inhabitants of some of the principal towns in Europe sufficiently show what they were before those grants. The people to whom it is granted as a privilege that they might give away their own daughters in marriage without the consent of their lord, that upon their death their own children, and not their lord, should succeed to their goods, and that they might dispose of their own effects by will, must, before those grants, have been either altogether or very nearly in the same state of villanage with the occupiers of land in the country.”

This seems to illustrate the actions of extractive institutions. Another quote from WON states:

 …”the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life… But in every improved and civilized society this is the state into which the laboring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.”

While Adam Smith did not use the terms “extractive and inclusive political and economic institutions,” he seemed to have something like them in mind. I particularly like the idea of “villanage.” It refers to “a member of a class of partly free persons under the feudal system, who were serfs with respect to their lord but had rights and privileges of freemen with respect to others.” This seems like a fairly extractive arrangement, and one similar today to illegal immigrants who are forced to work for low or no pay in services like the sex trade. But of course we like to focus on more inclusive arrangements.

A graduate student thesis around the general topic of why some and not other nations prosper would be sent back to the drawing boards if her/his bibliography did not include Adam Smith and WON. It seems to me rather naughty for seasoned academics to discuss this topic, on which they have been working for fifteen years, with only one mention of Smith (p. 130), and his exclusion from the bibliography (26 pages of references).

Are things getting cheaper in Canada?

May 16, 2014

One of my tiresome complaints is that the prices of the things I buy are always increasing, and that the Consumer Price Index (CPI) does not reflect my basket of expenditures on goods and services.  Sometimes the CPI is reported while excluding energy and food which seems strange, at least as far as my budget is concerned. Then one day, while staring at my computer screen, I realised that much of what I was watching was actually free, or at least only required owning a computer and paying for internet service.

I read newspapers, magazines, academic periodicals and books for free; listen to music, the radio, watch TV and videos for no charge; have free access to Wikipedia, an online substitute for owning a set of the Encyclopedia Britannica; register and take online courses for no charge; shop, pay bills, trade shares and do banking online; send and receive messages to and from anyone with an internet service both next door and the other side of the world.

The list goes on. In each case, there is often someone trying to get me to pay for a version of what I access or how fast I receive it, but a little willpower on my part resists these temptations where possible. A weakening might be Netflix at C$8 a month for the Canadian service, as opposed to relying on free YouTube postings. US Netflix has 14,000 films as opposed to 1,000 with the Canadian version; a web search (for free) will show how Canadians can access the US service for an additional $50 a year.

Many books are available for free, although less so for recently published books. A first stop is the public library where hard copies are available when not previously loaned out. But now libraries offer e-book and audio editions, which can be downloaded at no cost without leaving home.

Other major home budget items are food, clothing, shelter, travel, healthcare, education and taxes. While each deserves careful analysis,and will be different for a 20 or 30 year old than for an 80 year old, consider the following:

  • Food can be purchased in its original form or with different degrees of processing. Processed food items are more expensive even after the raw food has been cooked at home.
  • Restaurant meals vary in cost depending on a combination of the food, cooking and ambiance of the establishment. Even with coffee shops, food and beverage items vary in price in a Tim Hortons versus a Starbucks.
  • Clothing can be bought online and delivered without the shopper leaving home. Prices tend to be competitive, the choice enlarged and the transaction costs reduced.
  • Home ownership costs depend on mortgage rates which consumers cannot control, but which are currently low. Maintenance costs are often hard to predict, but are typically reasonable for newly built homes and apartments.

Much could be written about the changing costs of the other listed items like travel, healthcare and education where there are more and less expensive ways of consuming and paying for these services. And where the characteristics of the service have changed over time, it becomes difficult to say how much the cost has risen or fallen.

 

My sense is that aside from the price of gas, which is viewed daily in a city (especially over long weekends) and has risen over the past decade, the items which have increased in cost are healthcare and education. But since these are often supplied by government, their cost is paid for out of taxation and understanding the implications requires entering a maze of the ways in which governments raise money at the federal, provincial and locals levels. In a future posting I will discuss how sellers work to raise prices and what, if anything, consumers can do about it; and whether published statistics on GDP and trade reflect changes in the way services are produced and traded.

Real time measure of GDP

May 5, 2014

Technology allows us to monitor things in real time, stock prices, personal health, airline flights for example. National accounting measurement of GDP is a stock measure for each quarter or year. National accounts were developed in the 1930s and dont seem to have been updated much. GDP reports are given wide publicity and may lead to policy changes. Would it be useful to have a real time measure of GDP? If so, why has it not been developed?

What Future for Online Learning?

April 27, 2014

During the past year, I enrolled in a number of online courses including World History from 1300, The History and Future of Mainly Higher Education, Financial Markets and A Beginner’s Guide to Irrational Behaviour. These have helped to shape my views on the future of online learning, which, using current technology, is still in its early stages, although a form has previously existed. It is too early to know how it will turn out. The following are my impressions to-date about its future.

 

  • The beginnings of online learning occurred with correspondence courses, the Open University in the UK, and the publishing of textbooks.
  • Some who have delivered online courses see them as a substitute for text books. Students can watch the course in their own time, and attend classes conducted as discussion groups focused on the lecture content. Many lecturers already provide outlines of their lectures available as Power Point presentations, either before or after a live lecture.
  • Experimentation is taking place with various degrees of in-class and online lectures. Different disciplines and levels (undergraduate and graduate) lend themselves to different blends. The instructor and subject matter will make a difference to what does and does not work. Seminars and lab work require an in class presence.
  • Those who have given online courses say that the upfront (fixed) costs of producing the material are high. The cost of another student accessing the material (marginal cost) is negligible, and make these courses attractive to cash strapped institutions and those not wishing to raise fees. Fixed costs are likely to decline as experience is gained and software improved to facilitate presentations.
  • Those watching videos are used to the production values of first rate television programs such as Downton Abbey, a National Geographic Special or Jeopardy. Online lectures which do little more than put a camera in a classroom will be an ineffective teaching tool, regardless of the reputation of the instructor and the institution.
  • While the foregoing addresses mainly university teaching, online instruction is useful for education at all levels including schools, technical colleges, professional training and any skills which require updating as developments occur.
  • The issue of certification for online courses is always raised. For example, an online course given by a Yale professor may lead to a certificate if the student meets certain conditions. While it will not be equivalent to a Yale course credit (or degree), if the person receiving the credit gets a job, and after a probationary period appears to have the knowledge associated with the course content, the certificate will gain the recognition of having certain value which becomes known to employers. Experimentation is taking place to test different business models.
  • Richard Levin, an economist and President of Yale University for 20 years became the CEO of Coursera, one of the largest commercial companies offering MOOCs  (Massive Open Online Courses). Udacity and edX are two others, while the Kahn Academy offers course material for free. Universities and entrepreneurs are investing in these changes.
  • To-date, information technology (IT) has resulted in significant restructuring of industries, for example, television, film, newspaper, book and magazine publishing, (although less so for periodical publishing), finance, retail shopping, and manufacturing through the use of robots. As outlined above, IT is currently creating changes to the delivery of educational and training services. Quality content is now available worldwide wherever the internet and mobile phones are available. The current world population of 7bn is associated with 6.8bn mobile phones – eg. phones per 100 inhabitants by country, Italy 147, Brazil 137,Morocco 113, China 89, Canada 74, N.Korea 8.
  •  Cost implications for universities depend on the restructuring which occurs. Some universities offer only online courses, and thus save on buildings and salaries of support staff. Others offer a mix of online and on-campus courses, where there will be a mix of additional equipment to distribute online course material but savings on classrooms, offices, support staff and buildings. Ever since the introduction of portable computers, my observation is that faculty has spent less time in campus offices and more time working at home. Other industries no longer provide individual offices for their staff which use shared space. The same could occur in post-secondary institutions.
  •  Cost implications for students include more efficient use of their time, less travel time, easier to work at home and to collaborate with other students and faculty online. They can also mix study with work more easily.
  •  It is the case that taking courses online is not the same as getting the benefits of live interaction with other students and faculty, and use of the other facilities which a traditional university setting offers, such as a library, athletic facilities, clubs and cafeterias. In the same way that restaurants offer different facilities and menus, so post secondary institutions will offer different combinations of onsite and online facilities at different prices to the students and the taxpayers. The latter tend to fund a big chunk of university education in most countries.

 

Why we fail to foresee approaching problems?

April 23, 2014

I am struck by the frequency with which unexpected events occur, some more important than others, and which are widely debated on old and new media when they do strike. For example:

 

  • The US stock market increased by over 25% in 2013. If anyone had predicted this in January 2013, it would have been dismissed derisively. Some analyst did predict a rise of 11%. This was considered as foolishly over-optimistic. While there are thousands of people following stock market conditions, the predictions were worse than weather forecasts.
  • There was little, if any, public coverage about a possible Russian takeover of the Crimea in 2014 before it took place. Events in Tunisia, Libya, Egypt and Syria also emerged with little warning.
  • There is extensive discussion and debate over global warming and its possible effects, but very little discourse about previous ice ages and what happened when warming occurred in the past. (Historians point to at least five previous major ice ages. The last one left the contours of the Canadian Shield and the lakes which I enjoy today in the summer).
  • A failure to recognize in Canada and other developed countries the weakening of the public educational system. Grade inflation has taken place in high schools, especially where there is no province wide exam, as is the case in Ontario since the 1960s. A much higher percentage of young people are entering universities and either being unemployed or employed in occupations which don’t need a university education.

 

The last is like the case of the frogs placed in water who do not notice that it is heating up until they expire. Things are happening around us which we either deliberately ignore or fail to recognise what is happening. Donald Rumsfeld illustrated this.  In 2003, he was awarded the Foot in Mouth Award by the Society for Plain English for the following remark:

 “Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns, there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.”

Canadian Mark Steyn defended Rumsfeld by calling it “in fact a brilliant distillation of quite a complex matter”, and Australian economist John Quiggin wrote, “Although the language may be tortured, the basic point is both valid and important …”

I have had difficulty in sorting out what is included in each category but will try below. The question concerns how an analyst decides the context for decision making about the future. For example, how do you decide when to go to war, how to treat legal and illegal immigrants, whether to sign a trade or environmental agreement?

Known knowns – these are things that we know we know, for example,

 

  • The distribution of intelligence in the population is normal. There are more and less smart people in the population. Schools and universities have to rank students by grades although these may not be reliable indicators.

 

  • The global population was 1.5 bn in 1900, is 7.2 bn now, and will rise towards 9 billion by 2060. The age structure of a country’s population can be estimated fairly accurately.

 

  • Base metals and rare earths will remain in finite supply.

 

  • Migration from country to city will remain high, and migration of people from poor to rich countries will continue both legally and illegally.

 

Known unknowns – things we know will happen but not when, where or how much.

 

  • The supply of natural resources will increase as a result of discoveries and technological change but by how much is not known.

 

  • A major financial crisis will affect commodity prices, stock prices and interest rates, but the extent and timing is unknown.

 

  • Politics and policies in different countries will affect the natural resource sector re exploitation, and the environment, but how and when is not known.

 

  • Earthquakes and tsunamis will occur in different locations, but where, when and their size are unknown.

 

Unknown knowns – things we don’t know we don’t know

 

  • Asset pricing bubbles will arise and then burst

 

  • Political corruption exists in all countries but the degree is unknown

 

  • Income inequality in a society will change over time.

 

  • There will be further revolutions and wars but their timing and location are uncertain (Middle East, Russia, China, N.Korea for example).

 

Some suggest a fourth category, namely Unknown Unknowns – things that we refuse to acknowledge that we know. For example, those who issue warnings re climate change seldom point to previous periods of climate change, although this attitude is changing.

Another example is the refusal by some to admit that prisoners in Abu Ghraib, Iraq, and in Guantanamo, Cuba were subject to torture during their interrogation. Until Wikileaks and the actions of Edward Snowden, there was the false assertion that US agencies were not spying on their own citizens.

This classification shows the difficulty of making decisions in the face of uncertainty, and that uncertainty is made up of different components, some of which are harder to assess than others. The conditions for a game of tick-tack-toe are clear and the outcome predetermined after playing a few times. Drafts and chess have more possible moves, but the board is fixed, as are the moves which each player can make. A computer can be programmed to play chess and has beaten a chess champion.

In the arena of international affairs, such as the west assessing the next moves by Russia in the Ukraine, for Russia the next moves by the west, and for Japan the next moves by China in the South China Sea, there is more uncertainty and the outcome difficult to analyse and predict.

So what are the areas where the water is warming and that should concern us about the future? The following is an idiosyncratic and partial list.

  • In the South China Sea, China faces off against its neighbours, especially Japan, Korea, Indonesia and the Philippines over claims to resources. The presence of the US navy adds to these tensions.
  • In Eastern Europe, the spheres of influence are being tested by Russia in areas involving the Ukraine, Poland, Finland and the Baltic states with implications for NATO member countries which are not sure how to respond.
  • Chinese economic growth has resulted in part from domestic investment projects, including the building of cities for several million inhabitants. Many are ghost towns with few living there. They will deteriorate if not maintained and become a drain on the domestic economy, which in recent years has promoted global economic growth by the demand for imported natural resources and the supply of cheap labour. The wage advantage is being undermined by the substitution of robotics for persons.
  • In Myanmar, with Chinese assistance a new capital is being built at Naypyidaw. It boasts a 20 lane highway with street lights and virtually no traffic, suggesting poor planning and harm for an already poor economy.
  • Institutions in democratic countries are being weakened by domestic forces as politicians compete for taxpayers’ votes by spending taxpayers’ money. This leads to the establishment of entitlements and interest group politics which Adam Smith recognized in the 18th century as harmful to society. The rise of right wing parties, especially in Europe, and pressure groups like the Tea Party are a reflection of this process. Niall Ferguson describes this as the Great Degeneration.

 

I invite others to list their concerns which if not recognized may cause us to become dead frogs.

 

The Second Machine Age – GDP and Jobs

April 10, 2014

In order to plan for economic and social change, it is useful to know what is happening in an economy. Various economic measures indicate current developments, GDP being a widely used overall measure of how national economies are changing. Employment levels and the skill structure of the economy, and those employed or unemployed are other statistics reported quarterly and annually. Others have proposed a measure of happiness.

The remainder of this posting deals with two topics, 1. The adequacy of GDP accounting to assess the state of an economy, and 2. How skill requirements are changing as a result of computers and communications technology, and what this may mean for those providing and receiving education.

 

  1. GDP

GDP was never designed as a measure of overall social welfare although, perhaps out of convenience or laziness, it is often used as a proxy for welfare. Its shortcomings are well known, recently discussed by Diane Coyle in GDP: A Brief but Affectionate History, (Princeton, 2014). To paraphrase Coyle’s preliminary comments on the limitations of GDP (p.35):

  • It measures paid for goods and service, excluding many unpaid services such as parents’ care of children, cooking at home and housework.
  • It includes “bads” such as the environmental costs of pollution.
  • It ignores improvements in the quality of new goods, especially when technology changes (for example from manual to electric typewriter to word processor).
  • It excludes many indicators of progress such as health, education, infant mortality and life expectancy.
  • The simple reporting of GDP per capita does not show the distribution of GDP between rich and poor.

Coyle surveys other indicators such as the Human Development Index, Gross National Happiness, and the output of a working group lead by Nobel winning economists Amartya Sen and Joseph Stiglitz examining the Measurement of Economic Performance and Social Progress.

In sum, there is ongoing research both to improve the measurement of GDP and to develop indicators which incorporate other aspects of social, political and economic welfare. Economic activities associated with the second machine age create some urgency for this work, as many information related activities generate free but valuable goods and especially services, and therefore underestimate a country’s GDP.

Downturns, such as followed the recent recession, may not be as bad in aggregate terms as reported. By April 2014, ninety-three percent of the labour forces in Canada and the USA were employed. But the downside is that at the same time the internet and communications have altered the skill structure of the labour force leading to un- and underemployment. We look at this in the next section.

  1. Skill requirements for employment 

Andrew McAfee, coauthor of Race Against Machines and The Second Machine Age predicts that rapid advancements in automation are eliminating more middle class jobs. The skill profile of the workforce will change from looking like a bowl, with lower skills at one end moving bowl-like to higher skills at the other, to a Tuna can with almost entirely low skilled jobs at one end and high skilled jobs at the other, and very little need for medium skilled (perhaps middle class) jobs. The hamburger flippers are at one end and computer scientists at the other. These skill changing forces are reflected in the rhetoric of politicians who try to win votes by pledging to save the middle class. which is adversely affected by the changes. Probably they cannot deliver.

These trends will likely accelerate. While Canada decries the loss of so-called good jobs in manufacturing to low wage countries, the same loss is happening in China. While initially the jobs moved from high to low wage countries, low cost automation is now replacing low wages.

John Carroll, co-author of The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups, states:

  • “Technology has improved so much, and will keep improving for the foreseeable future. Sensors are so cheap that you can build them into anything for almost no cost. Add a motor and you have a robot. Computing power costs essentially nothing, and everything can be controlled wirelessly these days, so it isn’t hard to imagine interesting things that the robots can do.”

If robots are going to substitute for people, then schools and post secondary institutions will have to adjust their course offerings and their means of delivery with more of it online. Students who want a liberal arts education will still be able to find one, but it may not lead to the desired type and level of paid employment. At the same time they will have the opportunity for lifelong learning, due to the availability of various combinations of online and in-class learning with some of the best instructors from around the world.   Indicative of this trend is the appointment of the former President of Princeton University to become the CEO of Coursera, one of the main commercial firms offering online courses.

 

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Three of the current remarkable examples of computer robots are Google’s driverless car, the computer which beat a chess champion, and the one which won at Jeopardy by answering questions.

Following are some further references to the probable changing skill structure of the workforce, from the Conversible Economist posting for April 9, 2014. (http://conversableeconomist.blogspot.ca/).

It reads as follows:

The current discussion is about robots that are mobile, able to receive a variety of commands, and with the capability to carry them out. For example, the March 29 issue of the Economist has a lengthy cover story on the “Rise of the Robots.” But I’ll focus here on Stuart W. Elliott’s article, “Anticipating a Luddite Revival,” which discusses how robots will affect the future of human work. It appears in the Spring 2014 edition of Issues in Science and Technology.  Elliott did a literature review of the robot capabilities that are cutting edge and now becoming feasible as discussed in AI Magazine and IEEE Robotics & Automation Magazine from 2003 to 2012. Here, I’ll refer to his discussion of the more recent capabilities of robots in four areas: language capabilities, reasoning capabilities, vision capabilities, and movement capabilities.

 

Language capabilities. “[T]he tasks included screening medical articles for inclusion in a systematic research review, solving crossword puzzles with Web searches, answering Jeopardy questions with trick language cues across a large range of topics, answering questions from museum visitors, talking with people about directions and the weather, answering written questions with Web searches, following speech commands to locate and retrieve drinks and laundry in a room, and using Web site searches to find information to carry out a novel task.”

 

Reasoning capabilities. “[T]he tasks included screening medical articles for inclusion in a systematic research review, processing government forms related to immigration and marriage, solving crossword puzzles, playing Jeopardy, answering questions from museum visitors, analyzing geological landform data to determine age, talking with people about directions and the weather, answering questions with Web searches, driving a vehicle in traffic and on roads with unexpected obstacles, solving problems with directions that contain missing or erroneous information, and using Web sites to find information for carrying out novel tasks. One of the striking aspects of the reasoning systems was their ability to produce high levels of performance. For example, the systems were able to make insurance underwriting decisions about easy cases and provide guidance to underwriters about more difficult ones, produce novel hypotheses about growing crystals that were sufficiently promising to merit further investigation, substantially improved the ability of call center representatives to diagnose appliance problems, achieved scores on a chemistry exam comparable to the mean score of advanced high-school students, produced initial atomic models for proteins that substantially reduced the time needed for experts to develop refined models, substituted for medical researchers in screening articles for inclusion in a systematic research review, solved crossword puzzles at an expert level, played Jeopardy at an expert level, and analyzed geological landform data at an expert level.”

Vision capabilities. “[T]he tasks included recognizing chess pieces by location, rapidly identifying types of fish, recognizing the presence of nearby people, identifying the movements of other vehicles for an autonomous car, locating and grasping objects in a cluttered environment, moving around a cluttered environment without collisions, learning to play ball-and-cup, playing a game that involved building towers of blocks, navigating public streets and avoiding obstacles to collect trash, identifying people and locating drinks and laundry in an apartment, and using Web sites to find visual information for carrying out novel tasks such as making pancakes from a package mix.”

Movement capabilities. “[T]he tasks included moving chess pieces, driving a car in traffic, grasping objects in a cluttered environment, moving around a cluttered environment without collisions, learning to play ball-and-cup, playing a game that involved building towers of blocks, navigating public streets and avoiding obstacles to collect trash, retrieving and delivering drinks and laundry in an apartment, and using the Web to figure out how to make pancakes from a package mix.”

Second Machine Age – Are the good times here?

April 8, 2014

Each generation blames previous ones, usually their parents, for the current state of the world. This can be a perilous exercise depending on whether one emphasizes the good bits or the naughty bits which precede the present. I would argue that today’s younger generation has much to be thankful for from the past, despite the problems that exist in the world, but then that’s what you would expect from me.

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The Way We Live Now is the title of a satirical novel by Anthony Trollope describing the trials and tribulations of young love, the pettiness of Victorian upper class life, the energy of London, the most powerful city in the world, and the greed and corruption that lay just below the glittering surface. Queen Victoria reigned from 1837-1901. My grandfather lived from 1824 – 1899 and my father from 1889 – 1976. Both survived this era and some years thereafter. They witnessed Trollope’s world at first hand and passed down some of it. Evelyn Waugh, his son Auberon and grandson Alexander, Somerset Maugham, P.G.Wodehouse, George Orwell and Rudyard Kipling chronicled parts of the 1900’s, and Christopher Hitchens the more recent years. For the USA today, Jon Stewart, on the Comedy Channel, focuses a television spotlight on greed, corruption and other kinds of knavery. No change from the past here.

Each generation blames the previous one for causing the mess it lives in. The current younger generation is no exception. No doubt their children will do it to them. But how bad is the current state of today’s world? After the crash of 2007-08, the pessimists point to unemployment, the loss of good paying jobs, public and personal financial deficits and high debt levels, environmental problems, deteriorating public infrastructure, growing income inequality, the failure of public and private institutions and democracy in general.

But are things really that bad relative to the past? Since 1900, there was the Boer War, World War 1, the Great Depression, World War 2, the Cold War, Korean War, Vietnam War, the rise and fall of Nazi Germany and of Japanese militarism, the overthrow of the Tsar and the rise and fall of Communism. Many other military and domestic conflicts, in China for example, could be listed. So conditions today  are probably no worse, perhaps better than what took place in most of the twentieth century. There is no need for today’s older generation to feel overly defensive about the accusations of those younger. For example, today’s elderly had to live through and adjust to the destruction caused by WW2 and the great depression.

A world war cured the high levels of unemployment of the 1930s. But a postwar recovery did occur and there is a partial good news story to tell future generations. Today, people in developed and developing countries have a much higher living standard than a century ago. There remain pockets of poverty in rich countries, but globally, the proportion of people living below the poverty line has decreased. The absolute numbers of poor may be higher but this is because the world population of 1.7 bn in 1900 is now over four times higher at 7.2 bn (Canada is almost six times higher, 5.5 mil and 32 mil).

Before examining today’s problems in the next section, let’s look at the forces affecting global society today.  Erik Brynjolfsson and Andrew McAfee in the Second Machine Age describe how, the world has entered a second industrial revolution. While the first one from about the 1760s revolved around the steam engine replacing manpower and horsepower, the second one is related to the computer and the digitization of information and communications stemming from developments since the 1930s which are ongoing.

The effects of the second machine age are seen in the growing interdependence between people, firms and other institutions locally, domestically and internationally, labeled as globalization; the changing patterns of skills required in the workplace; the demise of some businesses and the restructuring of others. Examples include the book and newspaper industries (the magazine industry seems to be less affected, as do community newspapers which grow fatter as daily newspapers slim down). Restructuring has occurred in the music, television, cable and film industries as well as in the financial industry and many traditional manufacturing industries with the use of programmable robots. Some industries have speeded up their operations so that a fraction of a second makes a difference to the value of a transaction (see Michael Lewis, Flash Boys, A Wall Street Revolt, 2014). Quality has improved for many goods and services, while at the same time prices have fallen, for example for computing power, an online stock trade, payment of a bill, watching a movie and listening to music online.

These changes are causing disruptions. Some are weathering them better than others, but the changes which need to be made so that those in the workforce adapt to the Second Machine Age are fairly clear. Measurement of economic change in terms of GDP and the skills required for the new economy are the subject of a future posting.

The Second Machine Age – Some Comments

April 5, 2014

The Second Machine Age (Norton 2014) or 2MA by Erik Brynjolfsson and Andrew McAfee has received several excellent reviews. Some can be located via Amazon or other web searches where summaries of the book are also available. Rather than repeat them, I note aspects of 2MA which especially struck me.

  • As a book about economic history and the economic aspects of current technological  developments, it is written in a style which is widely accessible. There is an absence of economic jargon and the explanation of economic concepts is understandable to the informed layperson. Even the difference between mean, median and mode is outlined, for example when dealing with the measurement of changing income inequality.
  • The book’s title identifies around 1765 as the start of the first machine age with the development of Watt’s steam engine, which substituted mechanical power for man and animal (horse) power for many types of economic activity. Railways were a big part of this age. Water power and canals were also features of this earlier period. The latter are now often used for tourism, although some like the Suez and Panama remain as busy shipping highways.
  • The second age, 2MA, relates to computers and developments in digital communications. Like most inventions they begin with a series of inputs, one of which was Alan Turing who is often considered the founder of the modern computer with the publication of his 1936 paper. But things took off later. A 1965 article by Gordon Moore, then working for Fairchild Semiconductor, predicted correctly that “Integrated circuits will lead to such wonders as home computers – or at least terminals connected to a central computer – automatic controls for automobiles, and personal portable communications equipment.” Home computing and laptops appeared in the early 1980s. This paper was the source of Moore’s Law, which forecast that the amount of integrated circuit computing power bought for one dollar would double each year. That has happened for over four decades and some extend this forecast for another eighteen months. Others say the law will end in about 15 years due to various physical constraints. Who knows? But scientists are probably better forecasters than economists and meteorologists.
  • Government statistical agencies first noted information technology as a corporate investment expenditure in 1958, another approximation for when 2MA begins. The world is now in its early stages with pioneers like Bill Gates (Microsoft), Steve Jobs and Steve Wozniak (Apple), Jeff Bezos (Amazon), Mark Zuckerberg (Facebook), and Larry Page (Google). Not long ago the leaders were persons in charge of firms like IBM, Hewlett Packard, Digital Equipment, Dell and Cisco. Because this 2MA is still young, the exponential changes are best graphed logarithmically showing the growth of supercomputer speeds, supercomputer energy efficiency, residential internet download speed and hard drive cost efficiency, as well as the number of microprocessors per chip. A graph with a normal scale would go off the top of the page.
  • Two schools of thought prevail about the prospects for future growth. One, supported by Tyler Cowen, sees economic growth declining in the future because we have “picked the low-hanging fruit” of recent technological changes. Another, supported by the authors of 2MA, argues that we are in the early stages of a new machine age and that there will be many applications of information technology which entrepreneurs will introduce. They also argue that the way we measure economic output in terms of GDP grossly underestimates the actual output of the economy, and that new diagnostic tools are required. They do agree that the occupational structure of the labour force has changed and that this accounts in part for growing income inequality.
  • What are the shortcomings of the system of national accounts which provides a measure of annual and quarterly GDP? The US accounts were developed in 1937 by a NBER team lead by Simon Kuznets, and have since been refined and adopted by other countries. Economic texts have always noted problems (they are listed in my 1985 fifth edition of Lipseys’ introductory text and I am sure it would have been in the first edition). National accounting does not distinguish between activity associated with cleaning up after an oil spill and with producing tankers. Both are counted as part of annual GDP. And there is nothing like a war to expand economic output. As well, some economic activities go unreported such as criminal acts and certain activities including the services of housewives. As a measurement of change, as opposed to levels of economic activity, if these omissions are constant, then it doesn’t matter too much. But with 2MA the changes are significant.
  • Much of what is consumed each year is now either free or cheaper than in the past. Take Wikipedia, it is available for free over the internet, except for the cost of having an internet connection. Individuals provide and consumers use the content for no charge, leaving no recorded activity for the national accounts. Many other electronically delivered services have one or other or both of these features. One result is that calculations of ratios such as the productivity of labour (output per worker) would be higher if the numerator (output) was fully reported in monetary terms. A similar argument could be made about many of the apps which are prepared, often for free, to access some service which may or may not valued in monetary terms. (Chapter 8 of 2MA elaborates on these issues).
  • Contrast GDP accounting and reporting with other activities which do record flows of activity. Stock market prices are available in real time, as are current air, rail, and probably truck transportation data (unless the plane disappears). The same is true for the weather, and medical conditions of a patient who wears some type of sensor for blood, heart and other conditions. Why is this not possible for the output of the economy which is used for setting economic policies?   Where is the app for real time GDP measurement? (In Canada, Statistics Canada releases information on a daily basis, but not for the day but for some past period. For GDP, the latest data are for January 2014 as accessed in The Daily for April 4th, 2014.) One explanation is that it takes time to collect the data. But if the data are being generated continuously, then it should be possible to collect and report them even if they are revised at a later date – which is the present case anyway.

A future posting will examine what 2MA means for the nature of employment, education and training, and income inequality.


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