Economic omelette

The economic is supposed to create new from old but this seems to hurting more

Economist often talk about the economy as a pie but it could also be seen as an omelette in that it requires at least a few eggs to be broken. This refers to the sense in which parts of the economy are broken down and formed again into something new so as to ensure that resources are put to efficient use. This process is an essential part of capitalism as there would be no progress if everything was to stay the same. And yet the breakage involves some economic pain which seems to hurt more than in the past and is making our politics suffer.

This economic omelette-making already has a name, creative destruction. This term was coined to describe how old parts of the economy are destroyed so that new businesses can be created. This is necessary because the economy has limited resources such as the number of workers or shops on a high street. Without businesses going bust or people losing their jobs, it would be a lot more difficult for anything new to ever be made.

It is expected that the resources that are freed up from any economic demolition will soon be put to good use in the newer sectors of the economy. It is thought that workers would inevitably move onto something better as higher wages are typically offer in up-and-coming industries. The new companies could pay more as they exist thanks to new technology or an improved way of doing business that was more productive.

But even the most cutting-edge technology eventually is put to use so much that it becomes routine and easy to use. For example, the earliest computers would have required specialist knowledge to operate but have long ago become basic for most users. The benefit of more people being able to use any given technology expands over time while the wages of those workers will fall as expertise becomes less essential.

The expansion of our knowledge expands drives new technology further in terms of applying even more complex and specialized learning. In pushing the boundaries of what is possible, we come up with technical know-how which typically fewer and fewer people know how to use. The pay is high due to the skills required but such work is only available to the relatively few people can educate themselves enough.

The resulting trends is for existing technology to be simplified while new advances demand more in terms of expertise. Work is thus increasingly polarized between highly-skilled and less-skilled work with little in-between. The progress in computing along with the Internet has been particularly disruptive on both fronts. A lot of middle-class semi-skilled work has been replaced by either a few well-paid workers or a multitude of minimum-wage jobs.

The obvious solution seems to be to invest in more education but not everyone is suited to acquiring large amounts of knowledge. And anyway, schooling systems in most countries suffer from underfunding which means that a lot of effort goes into securing a limited number of routes to good-quality education. Instead, many companies seem to find it easier to import skilled immigrants than to find a ready supply from within their national borders.

On the other hand, technology seems to be developing so as to make use of workers with few skills. For example, an Uber driver does not need to know the streets nor does an Amazon worker have to work out how to put together a shipment as the technology is there to do the thinking for them. While having their skills being taken over by technology, low-skilled workers also lose out as any potential collaboration with more skilled colleagues is limited as more educated workers tend to congregate together in the cities.  

Things are likely to get worse as well as the economic trends are unlikely to change. The full deployment of existing technology has yet not reached its full capacity, without even factoring in the possibilities of advances yet to be conceived of. This economic situation would be difficult to manage at the best of times, and yet the political system is struggling. Any measures to alleviate the issues are hampered as the diverging economic outcomes are further exacerbated by differences in culture, creating tribalism within borders.

A political solution is needed so as to allow for better sharing out of pain as well as the gain. Without intervention, it is likely that destruction will shift from the economic realm into something a lot less creative in politics, resulting in a stagnating economy but fierce battles over how to do things. In much the same way that economic growth creates its own virtuous cycle, the reverse may drag us all down. Thus, if we continue to break economic eggs, we may end up walking on political eggshells.