The latest article by Paul Krugman says that it is hopeless for Americans to try to educate themselves into higher-paying jobs. White collar work will be outsourced to Watson or India/China. The exciting action in the U.S. job market will be for truck drivers and janitors. In a globalized economy, how is the U.S. janitor to continue to out-earn his counterpart in India or Cambodia? Unions: “We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages.”
Part of me wants to agree with Krugman. As I’ve already noted, investing in America’s children may be a waste of money; we’re so bad at education that we would be better off investing in other stuff. On the other hand, his argument seems to be “a stupid society, given enough labor unions, can sustainably earn more money than a smart society”. That doesn’t strike me as intuitively reasonable.
If Krugman were correct, wouldn’t the countries with the highest middle-class standard of living have been the Central and Eastern European nations under socialism? They had a high level of education and a good infrastructure and all of the means of production were controlled by workers or the state. There were no hedge fund managers or investment bankers skimming off the cream, and consequently wealth was distributed fairly equally, yet somehow the total prosperity was not sufficient to make the average worker better off than in neighboring West Germany or France.
What do folks think? Are you convinced by Krugman’s argument?
Education is a waste of money only if we believe ROI is the only important reason we are educated.
Hardly. Krugman has ignored basic economics for so long that he doesn’t even attempt to evaluate his ‘reasoning’ against it. If blue-collar jobs collectively demand more than a free market would pay them, then obviously the difference comes from somewhere else – such as willingness to invest in efforts that produce more output than they require in resource input, also known as that dirty word in Krugmania as ‘profit’. Why make investments onshore when one can’t believe there will be effective control of various fixed-effort costs – i.e. janitors and truck drivers.
So, truck drivers and janitors are “stupid” compared to the people who nearly sunk the world economy by betting on derivatives?
John: Excellent point! But I would argue that nearly sinking the world economy while taking home $200 million in profit every year from 2002-2007 and then taking home $200 million in tax dollars every year from 2008-2010 makes an individual pretty smart.
In the past year or so that I’ve been reading Dr. Krugman’s columns, my impression of him has gone from “Nobel Prize-winning economist with an openly liberal/progressive take on policy issues” to “Democratic Party hack with an impressive economics resume”. Given that the list of top Democratic Party campaign contributors is full of unions (e.g. http://www.opensecrets.org/overview/topcontribs.php?Bkdn=DemRep&Cycle=2010), it makes sense that Krugman is pro-union from a political standpoint.
http://www.npr.org/2011/03/02/134203177/why-unions-matter-to-democrats-its-not-just-money shows the situation pretty succinctly (and it’s pretty hard to imagine NPR cooking the data in an anti-Democrat way).
I don’t know that Krugman’s argument is actually “a stupid society plus unions can earn more money than a smart society”. I think he feels that greater unionization will lead to less “inequality”. He wants “a society of broadly shared prosperity”. Given a choice between a weak economy with more equal wage distribution and a vigorous economy with less equal wage distribution, I think he’d really prefer the former.
I think Krugman’s point — and Scott W.’s point, above — is that producing goods and services at a competitive isn’t necessary. We could all get rich washing each other’s floors for $100 an hour and all retire at age 35, if we only had the moral courage to support stronger unions. It’s easy.
I see at least two errors in the premises that Krugman reasons from in this article.
First, he cites the examples of legal discovery and chip design, and then implies that this is much more broadly applicable. He says “More broadly, the idea that modern technology eliminates only menial jobs, that well-educated workers are clear winners, may dominate popular discussion, but it’s actually decades out of date”. This is a claim presented without evidence, only 2 anecdotes from 1 source. Given that the NYT article about knowledge workers losing their jobs due to great technology was itself a bit forward-leaning, I wouldn’t concede this point without substantially more evidence than two anecdotes lifted from another article.
Then he makes a really subtle error. He says: “Why is this happening? The belief that education is becoming ever more important rests on the plausible-sounding notion that advances in technology increase job opportunities for those who work with information — loosely speaking, that computers help those who work with their minds, while hurting those who work with their hands”
This is a strawman argument in my mind. The core claim is that “advances in technology increase jobs for those who work with information”. This may be true in some cases, but I think the causality is actually backwards! It’s the people who work with information that cause the advances in technology. These advances themselves are economically worth having, and benefit those who make them, which justifies hiring in pursuit of them, and in exploitation of them. By “advances in technology” we should include not just IBM’s Watson, but minor productivity increases in factory processes, and a host of other creative knowledge-related tasks.
To make this more concrete: Krugman sees the legal document discovery thing as firing a lot of educated lawyers. And yes, the software means 1 lawyer can do the job of 200 previous. What *I* see is a potential opportunity for more people to bring cases that they previously couldn’t, because the cost of litigation was prohibitive in part because of document discovery. The idea that more efficiency means lower employment has been around since industrialization came about. More on that in a minute.
The last part just doesn’t make much sense. He says: “We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen.” This seems to imply that knowledge workers have some sort of uber-bargaining power which laborers do not have. This doesn’t make sense, since part of the premise of his article is that knowledge workers will be fired and made redundant in droves. In fact, most knowledge workers outside of the public sector aren’t unionized, and typically don’t have any collective bargaining power. They’re able to negotiate good salaries precisely because the premise of this article (that the middle class of information workers is being hollowed out) is wrong. Case in point:
“The fact is that since 1990 or so the U.S. job market has been characterized not by a general rise in the demand for skill, but by “hollowing out”: both high-wage and low-wage employment have grown rapidly, but medium-wage jobs — the kinds of jobs we count on to support a strong middle class — have lagged behind.” — YAWN. Substitute this paragraph for “The rich are getting richer, the poor are getting poorer” and you’ve got something that a guy could have been yelling from a soapbox in pre-industrial England. This sentiment will never change, no matter the economic tide or time period.
The “secret sauce” is that innovation begets efficiency and more free time, which begets more innovation. It’s wonderful to have 100% employment in cottage industries where everything is made by hand. And industrialization does cause people to lose their jobs. But the fact that most everything becomes faster and cheaper frees more people to innovate at an even faster pace than before. Perhaps we’re seeing the same arc again here, just with more basic knowledge work and a new crop of technology (legal document discovery, Watson, etc. etc)
David: Thanks for the thought-provoking answer. Krugman’s saying that Watson will lead to unemployment among lawyers is a lot like saying that Google has lead to unemployment among reference librarians. If Internet search engines did not exist, we would have hired millions of reference librarians to answer telephone inquiries from patrons.
Krugman’s been making this argument for quite a while: Looking Backward (1996). In short:
1. Technology and trade are making the US economy richer as a whole.
2. Technology and trade are also decreasing the need for white-collar jobs in the US.
3. When the economy as a whole becomes more efficient in one sector, this tends to reduce the number of jobs in that sector, while the number of jobs in less efficient sectors will increase. This is extremely counter-intuitive, but Krugman makes a good argument in this essay, The Accidental Theorist (1997).
For example, we’re much better at hardware development than software development, which is why we need so many software developers: we haven’t advanced much beyond trial and error. This is why Krugman thinks we’ll end up with lots of plumbers and janitors (and teachers and nurses, for that matter): these are all jobs where it’s difficult to make efficiency gains.
Perhaps your friends’ expensively educated, unemployed children should have become plumbers or electricians instead?
Krugman argues for stronger unions as a counter-weight against increasing inequality in this Mother Jones article, The Spiral of Inequality (1996).
It’s amusing that in a world of self-driving cars and Roombas, Krugman believes “manual labor, from truck drivers to janitors will tend to grow even in the face of technological progress”.
Russil: Thanks for the history on Krugman. The fact that he has been making the arguments for a while doesn’t make them any more likely to be correct, does it? Krugman’s grand theory of income inequality doesn’t seem to have panned out since 1996. Nearly all of the increased inequality since then is due to one sector of the economy: Finance. If Krugman were right, we should have seen that increased inequality develop in the wider economy, not just in one government-regulated industry.
A lot of Krugman’s argument seems to be contradicted by the facts, even at the time that he wrote it. For example, he says “We have allowed public schools and other services that are crucial for middle-income families to deteriorate”. In fact, inflation-adjusted funding for schools, police, and firefighting has never been higher. Even in 1996 it was much higher than in the supposed glorious days of the 1960s.
http://nces.ed.gov/fastfacts/display.asp?id=66 shows that per-pupil funding in 1961 was $2,769 in 2007 dollars. In 1996, when Krugman wrote that the American people were starving the public schools, it had risen to $7,891. In 2007 it was $10,041. If you included pension commitments, retiree health care commitments, and capital costs, it was probably closer to $20,000, roughly 7 times higher than in the worker’s paradise of 1961.
I don’t agree. I see tons of demand for software engineering talent and as someone who interviews, the engineering education system is just fine. I’m in Australia and we have a broad mix of immigrants from asia (china, indonesia, india) applying and interviewing. They don’t strike me as better or worse than American educated engineers.
Same goes for Americans vs western (Australia, Europe) educated engineers. Also, among these engineers, the American work ethic stands out. A 38 hour work week, 4 weeks vacation plus 10 sick days plus 6 holidays is mandated by law in Australia for every single job. My European co-workers complain about Australian working conditions. Apparently in Europe, work is taken less seriously. You get more vacation time and the work week is even shorter. In the western world, Americans are commonly considered workaholics.
We maintain an office in Malaysia and outsource some work there. Their work varies from awesome to garbage but ultimately it’s difficult to manage on a day to day basis. Therefore we only send them non-critical stuff to do. This has been my experience with outsourcing throughout my career as a software engineer. It’s not going to put competent people out of jobs. There were guys I went to college with who got a Master’s degree but they couldn’t code their way out of a wet paper bag. These are the people who lose their jobs to outsourcing.
Setting aside the argument about inequality and unions, I thought the most interesting and counter-intuitive part of Krugman’s argument is expressed in The Accidental Theorist: as we get better at doing something in a particular sector (including through technology and trade), we get fewer people working in that sector and more people in other sectors–so we end up with most people working on things that we aren’t very good at! (If we can automate truck-driving, more people will shift out of that sector and into less efficient sectors.)
I have more to say about rising inequality in the US, but I should probably save it for one of your future posts.
Russil: By this argument we shouldn’t have many fewer hardware designers (your earlier example) than a country where people are really bad at designing hardware. Maybe we can rename Krugman’s theory the “There is only a Constant Amount of Work to be Done Theory”.
I don’t think Krugman’s example of U.S. manufacturing is well-chosen. Due to the high costs of manufacturing labor in the U.S., e.g., the automakers had to pay union members for years of sitting in the “jobs bank” rooms and not working, the automakers paid for pension and health care benefits for retirees beginning at age 48, a lot of manufacturers substituted fancy machines for labor. That might not have happened without the market distortions of unions and government-generated inflation in health care. http://www.heritage.org/research/reports/2008/11/auto-bailout-ignores-excessive-labor-costs shows that the Ford, GM, and Chrysler were paying $70-75/hour for workers in 2006, compared to an average of $25/hour for all private-sector workers. If GM and Chrysler had been able to get workers for $25/hour they might have employed quite a few more people and not invested so much in labor-saving machinery.
I’m thinking of comments like this one: “In the past, there were typically more hardware developers than software guys. This is now reversed, with 2X to 10X or more software to hardware engineers.”
Krugman:
Productivity gains are a good thing, of course, not a bad thing: they make the economy richer as a whole. The United States has a long history of innovation in labor-saving machinery; here’s a description of innovations in agricultural machinery in the 19th century, for example.
Russil: There were more hardware designers than software in the olden days and now the situation is reversed? If true, I don’t think that has anything to do with productivity. First, as the industry matured, there was consolidation in CPU design. Instead of 20 competing CPU designs we now have maybe three (IBM Power PC, Intel Pentium, ARM). Second, as CPUs got faster, we could do things in software that formerly required hardware (see http://en.wikipedia.org/wiki/Software-defined_radio for example). Third, as computers migrated from research labs and accounting departments into toaster ovens, automobiles, thermostats, desktops, pockets, washing machines, etc., there were a lot more application programs to be developed.
Let’s go back to the 1930s. Any process that needed to take advantage of electronics required hardware design. There was no such thing as software (unless you count punch card machinery programming, like what IBM Germany did for the German government under Hitler; see http://www.amazon.com/IBM-Holocaust-Strategic-Alliance-Corporation/dp/0609607995). So the ratio of hardware to software designers was near-infinite. Without any productivity changes, the very possibility of writing software would have resulted in a big change of the ratio.
Unions don’t seem to be working for Bolivia. Not that they don’t try. Just the largest union represents about 20% of the country’s population (http://es.wikipedia.org/wiki/Central_Obrera_Boliviana).
I thought the backward state of software development, compared to other branches of engineering, was well-known. In fact you’ve referred to it yourself:
See also David Parnas’s papers on SDI:
Or Dijkstra’s Why is software so expensive?.
Given the primitive state of software development, the way we write working programs is by trial and error. (Some software development organizations have as many testers as developers.) That works, more or less, but it’s extremely labor-intensive (and thus a good candidate for outsourcing to India, via the Internet).
Do you think there’s been significant progress in the last 10 or 20 years? As a profession, are we getting any better at software development?
I did not say that hardware engineers were more productive, Russil. When I said “brilliant job” by hardware engineers, I was referring to the fact that a modern CPU is much faster than an old CPU. I wasn’t offering an opinion on whether it took 1 or 1,000,000 hardware engineers to build that modern CPU.
Are software engineers more or less productive than in the past? Certainly SQL and HTML made it much easier to build a multi-user Internet application than when I started building Internet apps (1983). But mostly, as I noted earlier, software engineers are mostly building things that nobody wanted in the 1960s (because computers were large, slow, and expensive). What would you have paid for a desktop single-user spreadsheet program in 1965, given that the computer to run it would take up your entire office and cost $1 million? If the answer is $0, that tells you why no programmers had jobs building desktop single-user spreadsheet programs. Or how about an editing program for photos from your non-existent digital camera? How much value would that have had to you in 1970?
Well for the past 200 years people have been screaming about how technology destroys jobs (you can read articles from the 1880s about how machines to offload coal from ships put stevedores out of work) and they have always been wrong.
But I have to wonder if progress in NLP and AI in general will change that, and if it does that I suspect with the more or less exponential progress in technology if a sandwich maker at subway loses his job in 2020, then I’ll lose my research job in 2035 at the latest.
“I did not say that hardware engineers were more productive, Russil.”
But … aren’t they?
The number of “computer hardware engineers” doesn’t appear to be growing (California (PDF): “The main source of job opportunities for this occupation will result from the need to replace workers who move into managerial positions, transfer to other occupations, or retire”), but they’ve been delivering twice as much raw computing power every 18 months, at lower and lower cost, for decades.
At my workplace, we build test equipment for high-speed networks, which means that we need to develop both hardware and software. Our hardware developers have gone from building 2 Mb/s interfaces in the early 1990s to 10 Gb/s interfaces today–a 5000-fold increase in bandwidth!–with roughly the same number of people.
On the software side, the amount of development and QA effort required appears to scale linearly, at best, with the number of features delivered: to deliver 5000 times as many features, we’d need 5000 times as many people! It’s worse than that, of course, because you get interaction between features, so the amount of effort increases non-linearly, more like n^2.
For the most part, hardware works as designed. Software always has bugs. (I remember a customer telling me a couple years after I started: “There’s always a few show-stopper hardware bugs, and then myriad software bugs.”) So the way you get reliable software is by hammering the bugs out of it over time. Microsoft has an army of brilliant software developers and billions of dollars in the bank, but they struggled to deliver Vista, while the free open-source movement (run primarily on volunteer time!) has delivered a ton of reliable software based on UNIX, an operating system dating back to the 1970s.
If you took an army of brilliant software developers, using the latest tools, and built a new operating system from scratch … it wouldn’t work.
Am I being too pessimistic?
(It surprises me that I’m having this discussion with you — I feel like I’m just echoing stuff you’ve written over the years!)
Getting back to the original topic … if you don’t find my hardware/software example convincing, consider farming. The United States has huge competitive advantages in agriculture, and agriculture is a major US export. Yet agriculture only employs 2% of the US workforce.
The idea that as a national economy gets more efficient in a particular sector, it needs fewer people, not more, isn’t some crazy theory that Krugman invented on his own. (This isn’t true at the level of an individual firm, of course; a more efficient firm will get more business and expand its workforce.) I’ll see if I can dig up some standard economics papers on this subject.
“I’ll see if I can dig up some standard economics papers on this subject.”
Steven Saeger, Globalization and Deindustrialization: Myth and Reality in the OECD:
The references are to R. Rowthorn and J. Wells, De-Industrialization and Foreign Trade (1987); R. Z. Lawrence, “Deindustrialization: Concepts and Evidence” (1991); International Monetary Fund, World Economic Outlook (1991).
Christopher Kollmeyer, Explaining Deindustrialization: How Affluence, Productivity Growth, and Globalization Diminish Manufacturing Employment, refers to a book published in 1957 by Colin Clark, The Conditions of Economic Progress:
Philip, why even bother reading Krugman? He seems (with good probability) to be a dishonest hack who hasn’t done genuine economic analysis for years, and hasn’t attempted to explain any to his readers either. E.g., see Cochrane’s “How did Paul Krugman get it so Wrong?” 2009 piece below. Cochrane is certainly not unique in pointing out Krugman’s evil behavior, but he takes a particular, “we are supposed to be scientists” approach which I found worthwhile.
http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.htm
“How did Paul Krugman get it so Wrong?”; by John H. Cochrane; 16 September 2009
http://faculty.chicagobooth.edu/john.cochrane/research/Papers/#news
atp: Thanks for the link. There are some truly beautiful phrases in that Cochrane article, e.g., “Following the last mystic oracle until he gets one wrong, then casting him to the wolves, is not a good long-term strategy for identifying bubbles.” I don’t think it is that relevant to this particular Krugman piece, though.
Reflecting further, I think the saddest part of Krugman’s article is the implicit assumption that most people are simply useless, no matter how much education they get. Perhaps he has observed that the average person is not as smart as he is and therefore the only way that guy is going to have a decent wage is through a non-market mechanism (i.e., stealing from the more successful).
My aviation activities has brought me into contact with a wide range of folks. A lot of them are mechanics who never went to college. These guys make a decent living, despite not having a union, because they are in fact smart, conscientious, and knowledgeable. Why didn’t they go to college? Most say that they hated school. They wanted to be doing something productive rather than sitting idle listening to a mediocre lecture. It may be true that pushing more people through the current U.S. K-12 and university system won’t lead to higher average salaries, but I think that says more about our educational system than about the capability of the average person.
Our educational system is designed by bureaucrats, to produce the next generation of bureaucrats. Like it or not, any advanced society needs a certain amount of bureaucracy to function. But one in which the common perception holds that training for the bureaucracy is the only way to avoid abject poverty is going to be one where a lot of potential is squandered.
One does not need a university education to build and run things, whether those “things” are ephemera like software, or more physical objects like aircraft components. To do that, one needs practice at building things, preferably under the mentorship of someone more experienced at building the same types of things, who can point out when one screws up. Which is why, for any real job except the ones where specific credentials are mandated by law, an applicant’s educational background is at most a line-item check-off for the HR department, while one’s work history is what actually gets scrutinized by a hiring manager and discussed during an interview.
And yet we continue to push more and more people to incur more and more debt and waste more and more of their lives in the process of procuring credentials which will be, at best, meaningless for most.
There’s a more straightforward reason why it makes no sense to send more young people to college. It’s because we already have we already more college graduates than the economy requires. Take a look at this link – http://chronicle.com/blogs/innovations/why-did-17-million-students-go-to-college/27634. It shows that roughly 14% of USPS letter carriers and 30% of flight attendants have a bachelor’s degree.
There’s a related issue in the world of public education, and I’m surprised that it hasn’t come up lately anywhere in the discussions regarding the salaries of public school teachers. What I’m referring to is the fact that, in many states, teachers get a raise when they get a master’s degree. If you consider a public K-12 teacher, where he’s excellent, horrible, or somewhere in between, it’s got to be highly unlikely than he will learn something that will help his students in the process of getting his master’s. If you further consider the fact that most of the universites granting these master’s degrees are state universities and the fact that some school districts probably have tuition reimbursement programs, it must be a massive waste of taxpayer money.
I agree with Phil (#25) and Matt (#26). As a college graduate, I too sensed that education was an increasingly wasteful way to spend my early years. I sat through the lectures and earned good grades, but the knowledge gained was not particularly useful. And it took too much time and cost too much money. I really could have got through with what I needed in a year and half.
Matt nails the other observation I had about education. It seems that there is a push to just train future bureaucrats. As a person who majored in a science, it seemed like all the students were just trying to find ways into our govt subsidized health system via a professional degree. Or they were going into teaching for a public school. Very few even thought about going into private industry and contributing some real productivity to the economy. Who ever was left then tried law school, yet another way to bum money off of people. It’s true all those professions can be useful, but my experience is they produce little and cost much.
I think #26 is pretty right-on, but I do like the idea that my doctor went to med school and met some formal criteria rather than just a mentorship program as was done in the US until the 1930’s. Maybe that is simply because I have been socialized into desiring this.
One observation I can make is that a lot of those “dumb guys” at technical schools are able to do some reasonably complex things because the teachers tend to keep them engaged- not bored. I’ve gotten several certs from a tech school, and on the whole, the instructors are better, more passionate, and more engaging than at my 4-year school.
My tech school used scenarios and role playing to teach delivery methods for complicated pregnancies, and obstetric emergencies. I learned SO MUCH. Conversely, I’m taking a nursing class covering similar material which is taught by a researcher with a Phd (had a baby, but never touched a patient) and its predictably awful. You look at power points and try to memorize a series of lists. There is no action associated with a condition on the list, so low engagement. You are just supposed to know placenta previa is when the placenta covers the cervix. Its like uhh..ok. That sounds bad. So what? In tech school placenta previa means that you consider this a very high priority patient, give oxygen, think about starting a large bore IV, think about hypovolemic shock, perfusion of the unborn baby and the mom, and mitigate these possibilities.
So I’ll be sitting in my nursing lecture, thinking, yep…this lady is telling me how to be a nurse, but she’s never been one herself, and I know more about abnormal births. OH! And she just made the statement that “The gentlemen in the class won’t know what swaddling means, but the women do.” Biotch! And yet, it would be a mistake on my part to think that I have absolutely nothing to learn from her…or so I keep telling myself.
I certainly can’t blame an airplane mechanic for not wanting to endure this kind of torture. Sad thing is they probably sent him to a school shrink who told him he has ADD and thats why he isn’t good at college.
Interesting take from Posner on the Krugman column:
http://www.becker-posner-blog.com/2011/03/what-is-a-college-degree-really-worthposner.html