Now you know. It is all right there on the front page of today’s New York Times, and in fewer than 300 words in this edited excerpt:
Workers are getting more expensive while equipment is getting cheaper, and the combination is encouraging companies to spend on machines rather than people. “I want to have as few people touching our products as possible,” said Dan Mishek, managing director of Vista Technologies in Vadnais Heights, Minn. “Everything should be as automated as it can be. We just can’t afford to compete with countries like China on labor costs, especially when workers are getting even more expensive.” Vista … spent $450,000 on new technology last year. During the same period, it hired just two new workers, whose combined annual salary and benefits are $160,000.
Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession. With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.
[E]quipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent … driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.
Corporate profits, meanwhile, are at record highs, and companies are hoarding cash. Many … are scared off by the uncertain future costs of health care and other benefits. But with the blessings of their accountants, these same companies are snatching up cheap, tax-subsidized tractors, computers and other goods.
Stuff if becoming cheaper, people more dear. High unemployment — and related declining labor-force participation, particularly by men over age 55 — is obviously more complicated. But the cost trade-offs — man/woman v. machine — are a big part of the trend. Today’s low interest rates, held down artificially by Fed Chair Ben Bernanke and his central-bank peers in the world’s rich countries, are of no help to the armies of the unemployed in advanced economies. Companies would buy fewer machines if it cost more to finance them.
That stuff is getting cheaper and people more expensive is, by the way, a handy riposte to modern Malthusians who say that population growth will outrun resources, that we are running out of oil, food and [insert your own favorite commodity worry here]. It is no so. We have too much stuff, not too little. Yes, there are still places, obviously, where nutritious food, clean water and safe shelter are scarce. But starvation and extreme poverty are more often the result of bad policy and the kleptomania of dictators than of resource scarcity.
John Tierney wrote a wonderful short essay addressing Malthusians in the Science Section of the New York Times Dec. 28, 2010. Based on the rules he learned from the late Julian L. Simon, an optimistic economist whom Tierney described as a “Cornucopian” (someone who believes there will always be enough stuff), Tierney bet $5,000 January 1 2006 on the future of oil prices with Matthew R. Simmons, a “peak oil” theorist.
Simmons, a Texas-based investment banker specializing in energy, had written a book arguing that Saudi Arabia was fast running out of oil. Give him this much, he put his money where his mouth and pen were. He bet $5,000 (in late 2005) that the price of oil would average $200 a barrel or more (in 2005 dollars) during 2010. When Tierney in 2005 told Julian Simon’s widow about the prospective wager, she enthusiastically took half the bet. So it was two optimists each in for $2,500 against one pessimist. Cornucopia on one side, scarcity and want on the other.
Simmons, whom I met at a lunch in 2006 at Seattle’s ritzy old-money Rainier Club, where he tried to persuade wealth managers of the correctness of his views, was asked at the end of 2008, after oil had fallen from nearly $150 a barrel to $50, if he had any regrets. “God no,” he replied. “We bet on the average price in 2010. That’s an eternity from now.” (My recollection is that I asked Simmons at the Rainier Club about the perpetual optimism of energy expert Daniel Yergin of Cambridge Energy Research Associates and that Simmons dismissed Yergin as something of a fool.)
Sadly, Simmons died last August at the tender age of 67. Tierney reports that those handling his affairs paid off. Tierney concedes that it is possible Simmons was not so much wrong as early. No one can see the future, and it is always possible that oil prices will spike. Indeed, they have run up substantially recently as the result of unsettled political developments in North Africa and the Middle East. But Tierney also wrote that
[T]he overall energy situation today looks a lot like a Cornucopian feast. Giant new oil fields have been discovered off the coasts of Africa and Brazil. The new oil sand projects in Canada now supply more oil to the United States than Saudi Arabia does. The really good news is the discovery of vast quantities of natural gas. It is now selling for less than half of what it was five years ago. There is so much available that the U.S. Energy Department is predicting low prices for gas and electricity for the next quarter-century.
Tierney’s punch line — and I quote it because I strongly agree:
Julian Simon’s advice remains as good as ever. You can always make news with doomsday predictions, but you can usually make money betting against them.