Informational Capitalism: A.I. and Free Markets in the 21st Century

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informational capitalism

What’s a practical hunting use for a privately-owned shotgun in Long Island? Shooting drones, apparently. It was just two days ago that 26-year old Gerald Chasteen shot a drone that was flying over his house looking for a missing dog. Drones, along with other sorts of robots in the workforce, are going to become far more common in the 21st-century American economy. Gerald displays every sort of skepticism that Americans have with artificial intelligence, big data collection, and free markets in the modern era, and so far only the left has addressed it.

The Democratic Party’s field of 2020 candidates along with the new, young representatives from the 2018 midterms represent a leaderless radical ideology of individuals attempting to out-progressive each other in moves to socialism. Many of them do not critique the concepts or the rich history of capitalism, but rather, the present state of the economy they attribute it to. The far left has proposed policy prescriptions to adapt to the technological advancements and economic changes in recent years, but I argue that capitalism isn’t broken, doesn’t need fixing, and these proposals don’t address the reason why many workers might see their skills will no longer be needed in the workforce in the coming years.

Historically, this argument would prove untrue: the creation of the cotton gin didn’t end slavery on cotton plantations in the Southern United States and the invention of automobiles just meant that horse-drawn carriages became taxis. However, the information and computer age is unlike any other, and one must fully understand how the US has changed since the creation of the internet and arguably the largest advances in education in world history.

Lessons from Education and Technology

One major development in the wage structure in the US (and the world) is how minimal of an impact the greatest strides in education really had. What I mean is this: in 1960, only 41.1% of the US population had a high school diploma, something we take for granted. From 1980-2017, the percent of the population with a college degree more than doubled from 16.2% to 35%. One would think that the rapid increase in the supply of highly-educated, white collar workers would mean the wage of blue-collar workers relative to that would increase as well.

With over double the share of the population having advanced degrees, in theory, jobs that require such degrees wouldn’t pay as much because of the influx of educated workers. Places like steel factories would pay more because the dwindling number of blue-collar laborers would mean they would be in high demand. However, the opposite has occurred. If you look at the chart made by the Congressional research service, the ratio of the mean wage for people with advanced degrees to those without an HS diploma has increased from 1.76 to 2.88 in less than 40 years, and understanding this means understanding what is likely the largest factor in rising income inequality.

informational capitalism

Even more astounding is what happens when you look at engineering and business majors during these years. One would think that the computerization and information revolution of the 1980s meant that Silicon Valley engineering majors and Wall Street finance, economics and accounting geeks floated in cash during the 1980s and 1990s when Apple and IBM started pumping out computers. After all, their fields benefited the most from computerization and therefore, it should’ve propelled them to become millionaires. Wrong again. While the average mean wage for Engineering majors was approximately $51,100 in 1980, it fell to just over $45,202 in 1995. (This takes inflation into account)

Why did the majors and occupations one would think would benefit most from the information revolution see their earnings decline? Well, for one, just because computers made their work easier to do, doesn’t mean it made themselves more valuable. Second, in engineering specifically, the majority of them are mechanical engineers, which are tied far more to industrial factories than they are to Silicon Valley (As a note, Chemical Engineering majors experienced nearly three times higher wage growth between 1960 and 1995).

There are two lessons to take away from this. First, the fact that America went from a country where high school diplomas went from being considered uncommon to expected in workers in less than 50 years proves that there isn’t much room for growth in education, not nearly as there was before at least. Despite 90% of the population having a grade 12 diploma, entry-level unskilled jobs still exist in massive numbers, as there are supposed to be 2.05 million job openings for cashiers, retail salespersons and food servers per year for the next 10 years.

The second point is that it’s not about getting a college diploma and education, it’s about getting the right education. There’s a 20:1 ratio among 2013 graduates between Mechanical Engineering majors to Petroleum Engineering majors, and Actuarial Science majors outearn Marketing majors at a 2:1 ratio (It’s almost exactly 2:1 for Petroleum – Mechanical too, oddly enough).

There are plenty of growing job fields that don’t require post-secondary education and several occupations that require degrees that are simply disappearing. Yes, the US is expected to lose 428,000 executive secretaries, administrative assistants, and team assemblers combined over the next 10 years. However, over the same period, the US will add 438,000 registered nurses, 778,000 personal care aids, 255,000 software developers, 150,000 Construction workers and 136,000 customer service representatives. Yes, jobs and businesses are disappearing, but other ones are easily replacing them, and now it’s time to explain how to fix this, and how not to.

The fix for this isn’t difficult. Colleges should be encouraged to charge different tuition levels based on the college major of the student, and firms that hire certain majors should be able to donate to schools knowing their donation goes directly to a scholarship for a student in their major. Trade schools are also a cheap way to obtain important workplace skills without acquiring serious debt.

However, most importantly, the government must stop its loaning frenzy which has made education so expensive. In the past 30 years, tuition has increased three-fold while government aid has quadrupled, and since the loans are guaranteed, colleges can increase tuition bills instantaneously since they know they’ll get paid no matter what. Further, many liberal arts general education credits aren’t necessary to perform job functions in the real world. Driving down the cost of education and rolling back the degree requirements will make obtaining a degree for displaced workers cheaper and quicker than ever before, and if that isn’t the goal, I’m not sure what is.

Universal Basic Income

The most noticeable proposal from the left is “Universal Basic Income”, an idea openly endorsed by presidential candidate Andrew Yang. This idea has been supported by activists like Robert Reich for years and is mentioned in the Green New Deal. The argument is that artificial intelligence and robotics will displace most of the working class, and we need a welfare system for everyone, including those “unwilling to work”.

Apart from lacking fiscal practicality seeing it’s massive price tag, it doesn’t really fix the problem. I don’t want to overlook how unaffordable it is: a $1,000 monthly check to every American would cost the US $4 trillion a year, which is how much we spend on literally everything else combined (military, welfare, interest, everything) and much more than the $1.6 trillion in income tax revenues. We cannot physically pay for it even if we weren’t $22 trillion in debt.

However, throwing money around doesn’t make people more employable long-term and wouldn’t fix income inequality. If anything, it would just promote surviving over thriving, and relaxing over adapting. Student loan forgiveness wouldn’t fix much either, especially since the government would have to eliminate its own loans it gave out that made college so expensive. For actually fix the problem, we need to discuss artificial intelligence a little more and what I am calling “Informational Capitalism”.

Artificial Intelligence

As I indirectly addressed earlier, AI and robotics won’t replace every job, and we’re thinking about it incorrectly. Yes, online shopping will slowly replace retail stores, robotics will slowly replace industrial laborers and drones will slowly replace delivery drivers. However, as I also explained, the jobs aren’t disappearing as much as they’re changing, and this isn’t necessarily a bad thing.

Ask yourself this, how many manual potato farmers are there in the United States? (That don’t use any form of advanced technology to harvest their crops) While you’re asking yourself that, count the number of coal miners you know too. Thanks to technology and innovation sparked by capitalism, the worst low paying jobs of today are better than some of the best 100 years ago. It’s also why 94% of the world lived in extreme poverty in 1820, but only 10% does now. Certain jobs, industries, and occupations will replace others and job conditions will continue to improve, but I haven’t explained the solution to improving the economy such that it adapts to the world around it. The answer to that is “Informational capitalism”, which must replace Industrial capitalism, and at one point displaced Mercantile capitalism.

“Informational Capitalism”

We live in a world where information and data are easier to obtain than ever before, but not everyone has the same access to information, which causes “asymmetric information”. When the buyer and seller have asymmetric information, one can take advantage of the other, which is problematic in capitalism, and assumes people make intelligent, cost-saving decisions. Having the proper information is necessary for that. Another concept is “justice in transactions” which essentially guarantees the product and currency are valid and they’re exchanging what they agreed to trade.

Informational capitalism essentially treats information as a commodity in order to support “justice in transactions” and prevent “asymmetric information” in the marketplace to guarantee that both parties obtain what they consent to buying and selling. In the US, there are complaints that education and healthcare have become unaffordable and many post-secondary degrees have become worthless. The trick to fixing this is of course, is informational capitalism.

Brigham Young University is a prestigious private college that charges less than $6,000 in tuition per year, while Trinity college charges $57,000. A MySavingsDirect online savings account pays off 2.40% interest per year, while a First State Bank account yields only 0.20% on your investment. If consumers were just made aware of the different price tags of items, it would encourage more competition between businesses and prevent “buyers” or “sellers” markets.

There are definitely websites like bankrate.com that help compare prices or service options in industries and it is likely the government could do a poor job being impartial between businesses and providing accurate information. However, I don’t see a problem with the government playing a role in the market to ensure equal information and safe products. The FDA (which isn’t without flaws) requires labeling on consumables and ensures restaurants don’t put something like rat poison in food. (This would also mean pay secrecy shouldn’t be forced on employees) What I’m suggesting is the government is proactive in this sense: creating extremely low-cost websites (or subsidizes/promotes existing ones) that compare costs of schools and healthcare plans and average salaries for majors.

What information capitalism all comes down to is convenience. People in the 21st century have more access to education, investment opportunities, unique occupations and healthcare than any century before. However, to adapt to these changes and take advantage of these opportunities, information must be at a convenience. Not only that, but a reasonable free market thinker can still believe the government should be half the size it currently is (and I do) and believe it should play an active role in making information more accessible to consumers.

Final Remarks (or Re-Marx?)

Even modern Marxists admit he was incorrect about at least one thing: his stage theory. Marx had a linear conception of the rise of Communism, one in which Communism would be only adopted in developed, wealthy, capitalist countries. However, this proved untrue, it preyed on the weak and vulnerable countries such as Russia during World War I, China after World War II and Cuba after a coup d’etat. He thought that capitalism would create inequality, the workers would be endlessly stepped on and the proletariat would have nothing left to lose but their chains.

The reality is that capitalism brought America into the information age and most of these changes aren’t going to leave half the country jobless. I understand the skepticism towards AI and robotics and genuinely believe the calls for a UBI are well-intentioned if absolutely nothing else. However, the evidence for AI and robotics leading America to mass unemployment is questionable at its very best, and the free markets that pushed us to our highest rate of education and lowest rate of poverty can surely push us past the speed bump of changing employment structures as soon as the people and government adapt to it as well.

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Jake Dorsch

Jake Dorsch is a libertarian activist, bank teller, investor and aspiring future economist from Green Bay, Wisconsin that is pursuing a bachelor’s degree in both political science and quantitative economics at Drake University. He is currently on track to graduate a year early and will likely continue to obtain a master’s degree in econometrics.