George Rebane
Frankly, it’s a bit eerie how the events long predicted on RR are ticking off as recently having happened, or about to happen. Here I want to focus on the infamous pay gap of the American worker, and an economic activity that is hard to track, but globally significant.
Income comes in two forms – wages and profits/interest. As has long been argued here, the pre-Singularity years are illuminated by worker productivity abetted by screaming technology advances. Using new gizmos and software, today a worker can make more and/or service more per unit time than yesterday, and even more tomorrow. Given that the size of the markets requiring new stuff and services is not growing as fast as productivity, the result should be predictable for people who think.
Workers using new technologies and methods will be getting paid more because they are delivering more. But that means fewer of them are required to supply the markets. And if you puzzle on it a moment, it means that in the calculation of wage inequality, things will become more unequal because mid and low wage workers are being replaced by fewer high wage workers. The first effect will be that people still seeking ‘normal jobs’ will have a harder time, and unemployment will go up (with their wages being counted as zero in the grand calculation).
From the income inequality angle things get even worse. The new technologies, methods, and companies are due to investments made by those who have the spare cash, the knowledge to size up what works and won’t, and the guts to weather the attendant risks that always accompany reaching for higher performance and the new. And my how the profits, dividends, and interest payments come in when things work out. Result, even more income inequality as more is done with less.
Putting some numbers on this, the 14dec11 Financial Times reports the bygone average of annual US wages as a fraction of post-war total income was 63%. This has now shrunk to 58%, and is continuing to go down. That means that income from profits/interest makes up the difference, and it is therefore continuing to grow. FT calculates that this reduces today’s wages by $740B, and costs each worker about $5,000 annually, or reducing the median wage by about 10%.
On top of all this we have governments all around the world making it harder and harder to earn a decent living legally. Enter something called System D, a curious yet vanilla sounding label for the shadow markets (q.v.) of the world’s underground economy. Robert Neuwirth (Stealth of Nations: The Global Rise of the Informal Economy) talks about this activity that was always there, but is now growing rapidly (see the 1jan12 Wired or Neuwirth’s blog)
System D is now purported to total about $10T annually, in league with the US economy at about $15T. (The US underground economy itself adds about 10-20% to our actual GDP.) But the real news is who all is participating in these global adjunct economies and why. The short answer is the regulatory and police burdens that governments have always placed on free enterprise that serves what real people on the street need and want. We have to remind ourselves that System D only works with the co-operation of the sellers and buyers, and the more restrictive and/or corrupt is the local government, the more economic activity occurs in System D. (See also the Business Week’s take on shadow markets)
Neuwirth reports that half of the world’s current workforce is already involved in System D, and by 2020 this will increase to two-thirds. All of this is abetted by what I talked about at the top, and more so. Technology in the form of the internet, cell phones, messaging, social networks, … are making underground economic activity more facile and responsive, especially in less developed countries where the biggest enemy of the people is the state.
Now reflect on trends here and in the EU as government spending has reached unsustainable levels, unemployment is high, workers' skill sets are outdated, …, you get the picture. To make a buck, you got to be nimble, discerning (what the market wants), and willing to take a risk. In short, have all the attributes of a legal capitalist, but instead of being above board, the System D entrepreneurs are below board. And their numbers and markets are growing because government managed economies cannot dictate commensurate levels of unemployment and quality of life.
Look for a System D outlet coming to a neighborhood near you.
From the income inequality angle things get even worse. The new technologies, methods, and companies are due to investments made by those who have the spare cash, the knowledge to size up what works and won’t, and the guts to weather the attendant risks that always accompany reaching for higher performance and the new. And my how the profits, dividends, and interest payments come in when things work out. Result, even more income inequality as more is done with less.
Putting some numbers on this, the 14dec11 Financial Times reports the bygone average of annual US wages as a fraction of post-war total income was 63%. This has now shrunk to 58%, and is continuing to go down. That means that income from profits/interest makes up the difference, and it is therefore continuing to grow. FT calculates that this reduces today’s wages by $740B, and costs each worker about $5,000 annually, or reducing the median wage by about 10%.
System D is now purported to total about $10T annually, in league with the US economy at about $15T. (The US underground economy itself adds about 10-20% to our actual GDP.) But the real news is who all is participating in these global adjunct economies and why. The short answer is the regulatory and police burdens that governments have always placed on free enterprise that serves what real people on the street need and want. We have to remind ourselves that System D only works with the co-operation of the sellers and buyers, and the more restrictive and/or corrupt is the local government, the more economic activity occurs in System D. (See also the Business Week’s take on shadow markets)
Neuwirth reports that half of the world’s current workforce is already involved in System D, and by 2020 this will increase to two-thirds. All of this is abetted by what I talked about at the top, and more so. Technology in the form of the internet, cell phones, messaging, social networks, … are making underground economic activity more facile and responsive, especially in less developed countries where the biggest enemy of the people is the state.
Now reflect on trends here and in the EU as government spending has reached unsustainable levels, unemployment is high, workers' skill sets are outdated, …, you get the picture. To make a buck, you got to be nimble, discerning (what the market wants), and willing to take a risk. In short, have all the attributes of a legal capitalist, but instead of being above board, the System D entrepreneurs are below board. And their numbers and markets are growing because government managed economies cannot dictate commensurate levels of unemployment and quality of life.
Look for a System D outlet coming to a neighborhood near you.
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