The Horseman
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If we ain't got the money we can't spend it. Pharma tariffs a prime example and losing some of the pharma sector and its corporate & income tax revenues.
If we ain't got the money we can't spend it. Pharma tariffs a prime example and losing some of the pharma sector and its corporate & income tax revenues.I wouldn't be so sure. Putting worms back into an open can is far harder than letting them out was.
As my post above references if we ain't got it we (The State) can't spend itI seriously doubt that. Whatever the problem here is, it's not that tariffs are too low or that the US is too stable or too democratic
Obviously, if corporation tax receipts fall then either other taxes have to be put up or expenditure has to be reduced or borrowing has to go up or (realistically, the most likely) some combination of all three.As my post above references if we ain't got it we (The State) can't spend it
Yes. And there's an important insight buried in here, which is that "saving money and spending it later in life" (unless by that you meaning keeping cash in a shoebox under the bed) requires a mechanism by which wealth is transferred from the workers to the non-workers. If I pay pension constributions, and invest my pension fund in equities, what I am really doing is buying a right to have a share of future corporate profits (generated by future workers) transferred to me, at a time when I myself am doing no work; that's a mechanism for transfers from workers to non-workers. Similarly if I invest my fund in government bonds; that's basically a mechanism for transferring to me a share of future tax revenues, paid by future workers (since the interest and repayment on the bonds is funded by future taxes). If I pay social insurance contributions and so qualify for a social insurance retirement pension, that again is a mechanism for transferring future social insurance contributions and future tax revenues to me. Etc, etc.thats also the fundamental of the monetary system, yes you can save money and spend it later in life but only the minority can do that at any time since you always need workers producing goods and services for everyone therefore transferring money and benefits to too many people then acts as a disincentive which makes everyone poorer.
They are both "welfare" in the sense that they are transfers of wealth that make recipients better off and materially improve their lives. One of them you qualify for by being old and having paid contributions in the past (which were used to pay pensions to other people at the time); the other you qualify for by being old and not having much money. But, in both of them, the pension you receive is funded by taxes paid by current workers (counting PRSI contributions as a tax, which I think is fair enough).No they are not, as I have explained in detail above, one you contribute to the other you do not, it a social insurance payment.
The issue is that as individual income become less dependent on direct labour due to investment income and social transfers the imperative to increase labour productivity is lessened. It's not that individuals become less productive, it's that wealth creation is less tied to labour than it previously was.The transfers are happening because of demographic change — a growing proportion of the community is elderly, and therefore non-working. Unless they are to starve, the amount of wealth transferred to them from the still-working proportion of the community must grow commensurately. Individual labour productivity is unaffected but the combination of unchanging productivity and higher transfers means that the standard of living the still-working proporation of the community must fall. The only way this can be avoided is if there are transfers into the community from outside, so that the non-working proportion of the community can be supported by those transfers rather than by transfers from the still-working proportion.
I would like to think the lessons of the past almost two decades have been learned well enough that the focus would be more tax increases than on expenditure reduction as tax increases impact less on the economy than the same cash value of expenditure cuts. And also how such cuts feed the extremes and make them mainstream across the western world.We have, of course, been in this situation before, in 2008. And, yes, a budgetary crisis did mean social welfare cuts. But they were a relatively small part of a suite of measures which included significant tax increases, public sector pay cuts, major public expenditure reductions and increased borrowing. I think, if it really came to it, we'd see the same again.
You vastly underestimate the ability of the average human to not only actively avoid empirical evidence but also, once confronted with such evidence, to actively & wilfully twist and misinterpret it so it appears at least to them to support whatever firm opinion they are so strongly emotional attached to.You can't escape the maths on this.
But returns on investment, and the tax revenues that fund social transfers, are themselves dependent on labour, no? Shares in a company have no intrinsic value; they just represent a right to receive some of the future profits that the company will (please God) generate. But those profits will be generated by the labour of the future workers employed by the company. And, if more profits are need to make payments to an ever-large cohort of pensioners, then labour productivity must increase, or the whole system breaks down.The issue is that as individual income become less dependent on direct labour due to investment income and social transfers the imperative to increase labour productivity is lessened.
AI and automation increase labour productivity. Suppose an enterprise that used to require, say, fifty workers can now operate with just five. If the revenues and the profits of the enterprise are unchanged, and the wages to the remaining five workers are unchanged, each of those five workers is now 10 times more productive than the 50 workers previously employed in the enterprise were.AI and automation means that people are less important for everything from traditional manufacturing to banking, to medicine (general practice and hospital based medicine), to construction and beyond.
Less so as automation makes capital capable of production without labour.But returns on investment, and the tax revenues that fund social transfers, are themselves dependent on labour, no?
Not necessarily. Increasingly the production of the company is dependent on invested capital.Shares in a company have no intrinsic value; they just represent a right to receive some of the future profits that the company will (please God) generate. But those profits will be generated by the labour of the future workers employed by the company.
Probably, eventually. That's the concern.And, if more profits are need to make payments to an ever-large cohort of pensioners, then labour productivity must increase, or the whole system breaks down.
That increase in overall productivity is mainly due to an increase in capital productivity. Labour productivity has become less important. In fact the 5 remaining employees may be no more productive, maybe they will be less productive.AI and automation increase labour productivity. Suppose an enterprise that used to require, say, fifty workers can now operate with just five. If the revenues and the profits of the enterprise are unchanged, and the wages to the remaining five workers are unchanged, each of those five workers is now 10 times more productive than the 50 workers previously employed in the enterprise were.
Total production of the enterprise, you'll note, is unchanged, and so the amount available to distribute to shareholders is also unchanged. There's no net increase in wealth — nobody is actually any richer. Plus, we've got 45 redundant workers. So, you might think, this is not a good thing.
Or they can get jobs in companies which also have highly automated production processes which are very capital intensive in which they are actually adding very little value.But the 45 redundant workers are now available to do other jobs and if those jobs, too, are well resourced with automation and AI and whatnot, then they too will be very productive and total production will rise . But that crucially depends on the economy being able to generate productive jobs that will make use of the skills and experience of those workers.
You are making the mistake of assuming that increases in productivity require a corresponding increase in the productivity of a workforce.Basically, there are two ways to grow production, so as to keep your ever-vaster pensioner class in modest comfort:
- Increase productivity of the workforce (by education, training, investment, exploitation of technology, etc)
- Increase the workforce (by raising the birthrate and/or facilitating immigration)
But that's what's happened.Or, of course, a bit of both.
Not all of the increased production will (or should) flow to the pensioners.
But that hasn't happened. That's the whole point of this discussion.The increasingly productive workers will expect some share of the incremental worth generated by their increased productivity, so real wages have to rise.
Over the last few decades we have seen a massive concentration of wealth, both new and old, away from labour. That's been due to the internet removing labour from the supply chain (Amazon, Sheen etc), automation of production processes in manufacturing and services, and money printing by governments which overwhelming flowed into stock markets.And, obviously, the people who create, own and supply the automation/AI technology will want their shilling. So there'll be competition, as their always is, about how to divide up the pot. But it's a lot easier to resolve competition of that kind to everyone's satisfaction when the pot is growing than when it's shrinking.
Labour and capital are both factors of production. But they are not opposed; it's not one or the other; you need both. They leverage off one another. Increasing the capital employed in a business makes the labour in that business more productive.Less so as automation makes capital capable of production without labour.
They're massively productive. If there are 5 employees and the company generates revenue of, say, €10 million p.a., then the productivity of each employee is €2 million p.a. Measured as an hourly rate, which is the usual way of measuring labour productivity, that's about €1,000/hr. That's huge.Labour productivity has become less important. In fact the 5 remaining employees may be no more productive, maybe they will be less productive.
Yes, that's the point I was making. You talked about productivity solely in the context of labour.Labour and capital are both factors of production. But they are not opposed; it's not one or the other; you need both. They leverage off one another. Increasing the capital employed in a business makes the labour in that business more productive.
Yes, I work in such a business. I know exactly how that works and I can say categorically that labour is far less of a factor in our production than it was a decade ago and a tiny fraction of what it was 3 decades ago.(There are no businesses that run with no labour at all. At the very least, somebody has to raise the capital, and make decisions about how it can best be employed; that work is labour. Extremely powerful and capable machines that do not operate because nobody decides what use to make of them are not productive at all. And, realistically, even automated machinery requires installation; it requires maintenance; it requires repair; and it requires someone to be responsible for makinkg and implementing decisions about how it is to be used.
That's where you are making your fundamental mistake. The workers don't produce the product. The increase in output is completely down to capital productivity. There are people supporting that production but increases in capital productivity does not in any way increase labour productivity. That's the whole point of the discussion.Sure, a thriving business may require very few workers, but not no workers. And, if it can thrive with very few workers, those workers are highly productive.
They are problems of high capital productivity, thus making labour productivity less important. Outside of the multinational sector Irish labour productivity is extremely low. If we didn't have the MNC's with their massive amounts of highly productive invested capital we'd be a total basket case but we don't have to have good labour productivity because the taxes from productive invested capital are paying for everything.There may be social and other problems associated with such high productivity — see below but these are problems of high productivity, not low productivity.)
Again, the labour is not productive, the capital is. If there was a completely automated factory which never required maintenance which generated a billion euro a year would you assign that productivity to the security guard and the guy that cuts the grass?They're massively productive. If there are 5 employees and the company generates revenue of, say, €10 million p.a., then the productivity of each employee is €2 million p.a. Measured as an hourly rate, which is the usual way of measuring labour productivity, that's about €1,000/hr. That's huge.
The difference is that now the labour element is increasingly not required.Of course, they're only that productive because of the capital investment. But that's nothing new; giving workers power tools intead of hand tools raises their productivity, as does replacing the horse-and-cart with a lorry. Etc, etc. This is just a further instance of the same phenomenon; capital investment tends to raise labour productivity. That's why investment happens, mostly.
Yes, they are industries which create wealth.One of the social problems associated with this is that this phenomenon is unevenly distributed. Some businesses (like the hypothetical one we have been discussing) have huge potential to raise the productivity of workers through capital investment;
AI and technology will utterly change medicine in the next few decades. 80% of what GP's do can be done and done better with technology and drones. They are also industries which do not create wealth.others have much more limited potential to do so (like, say, a care home for the elderly — the frontline staff there are not easily replaced by AI or industrial robots, and there's no technology which will enable one care assistant to tend simultaneously to 50 patients where previously they tended only to one).
Because previously the capital was a multiplier for the productivity of the labour whereas now the capital is productive in its own right. The vast majority of the wealth created in the last few decades has not accrued to labour. It has accrued to the owners of the capital; older people who are invested in the stock market through their pensions. That in turn has made all capital more expensive relative to labour. That's the real reason that housing is so expensive relative to labour in the developed world. Housing hasn't increased at all relative to stock markets. In other words it's remained relatively constant as a proportion of overall wealth it's just that labour is retaining a smaller and smaller proportion of overall wealth.So this gives rise to two issues:
First, the workers who do become vastly more productive expect — not unreasonably — that a share of their increased productivity will accrue to them in higher wages. Historically, this has happened, which is why real wages have risen in capitalist economies. But there is some evidence that it's not happening as efficiently as it used to — a larger and larger share of productivity increases accrues to the owners of the capital invested.
The context of this thread is that labour is becoming less important as a source of income and so labour productivity is becoming less important.Secondly, even if you solve that problem, you would then have the problem of a two tier workforce — a small cohort of well-paid workers who have jobs made vastly more productive by technological advances, and a large cohort of workers whose wages and livings standard stagnate (or worse). And obviously that causes all kinds of societally undesireable outcomes.
In the context of this thread — transfer payments to support retirees — we've already seen that one of the mechanisms for facilitating this is pension funds. Workers save, the savings are invested in equities; in retirement they live off the dividends from the equities (and the phased sale of the equities). But for the large cohort of workers whose wages stagnate for most of their working lives, saving is very difficult. So these workers are going to have to rely on the other mechanism; social insurance.
Yes, we're getting to the main issue here. The fundamental problem is that we conflate wealth and income. We talk about taxing the rich but in fact the rich (old people with valuable homes and big pension funds) are hardly taxes at all and people with very little wealth but good incomes are taxed very highly. I'm not suggesting we flip that around and I don't have a solution. I do think that we need to ask the right questions if we ever want to find the root causes of our problems.But that's also problematic, because the social insurance transfers have to be funded out of tax. And, just as the poorly-paid workers have limited capacity to save, they also have limited capacity to pay more tax. So the tax burden of these transfers will largely fall on the well-paid, highly productive workers.
You might think that, being well-paid, they can afford it, but that's not how they're likely to see it. And their dissatisfaction will be aggravated by the knowledge that they are paying handsomely to sustain a social security system that is of relatively little benefit to them — they're the cohort who have pension funds, remember, and they themselves will receive funded pensions in retirement. So the political stability of the whole system looks to be in jeopardy.
You could justify all this as a mechanism for sharing the surplus value generated by automation, AI and other technological advances. But it's a very indirect and slow-burning way of doing that, and probably very inefficient. It would be better if we could devise ways of sharing that surplus wealth as it's created, so as to avoid the growing division of the community into a small cohort of highly advantaged people and a larger cohort of stagnating people in the first place.
No because as @Purple has said the productivity of the company cannot be attributed to labour if it is by and large a result of automation and mechanisation. That is a fundamental mistake you are making, the increase in productivity would be attributed to the capital investment not the labour. For example a worker without technology and investment would probably require more skill and concentration in order to do his job. Assembly line production was brought in because you no longer needed skilled mechanics to construct a car you could just use low skilled operatives that just needed to perform one task adequately. Is the low skilled operative more productive than the skilled mechanic, yes but not because of his labour but because of the technology and capital investment. Therefore it is fundamentally false to attribute all the increase in productivity solely to labour when it is by and large due to capital and technical investment. Sometimes advances in technology make workers less skilled because they don't need to understand everything from first principles they just need to know how to operate the functions on the latest technology which are now user friendly. A smart phone today requires alot less skill to operate than a 1980s desktop computerThey're massively productive. If there are 5 employees and the company generates revenue of, say, €10 million p.a., then the productivity of each employee is €2 million p.a. Measured as an hourly rate, which is the usual way of measuring labour productivity, that's about €1,000/hr. That's huge.