Decades ago, it was thought that technology would allow us to work less and enjoy life more. Some predicted a workweek of 20-hours or less. Today, we seem to be working longer hours than ever! Have you ever wondered why technology hasn't delivered on the promise of a more leisurely life? The answer reveals one of the more significant problems in our economy today, though it has a surprising silver lining.
Technology hasn’t resulted in a shorter work week because of the way the economy responded to automation. From the beginning of the Industrial Revolution in the mid-1800s until the 1970s, salaries rose in lockstep with production. Better tools enabled workers to produce more and they earned more. But that changed with automation in the ‘70s. Wages flattened as automation replaced workers and wages have remained flat ever since. Instead of making the worker more valuable, automation had the effect of marginalizing the value of labor.
The advent of automation created a critical juncture in the development of our economy. We could have increased wages while also reducing the hours we worked, but that’s not what happened. What went wrong?
The answer is that instead of valuing production, we valued money. This may be the gravest error of capitalism. What we really should have valued is contributing to society. Instead, we valued making money over contributing to society. As capitalists, we presumed that the one would follow the other. But it didn’t. The consequence was that once technology was sufficiently advanced so that producing all we need seemed trivial (it’s not), the door was opened for the creation of new jobs that had nothing to do with producing goods and services but were all about making money.
This birthed the phenomenon of financialization and the unfettered growth of what I call the monetary economy. As technology continued to flourish, a smaller percentage of the workforce was necessary to produce the goods we need, which meant an increasing percentage of the workforce could pursue endeavors that were focused only on the generation of profit.
Today, the monetary economy is so huge that it dwarfs the very thing that enables our standard of living—the material economy. Ironically, those that work in the monetary economy tend to earn the most money, which, of course, enables them to buy a greater portion of the goods and services that are produced in the material economy. In this way, those that don't produce compete with those that do produce, which is part of the reason for inflation.
The best way to quantify the disparity between the two economies is to compare the relative annual volume of payments made in each economy. The GDP is the standard barometer for measuring production in the material economy—it stands at about $21 trillion. The total payments in the economy each year, something the Federal Reserve has only recently been able to track, weighs in at a whopping $7,200 trillion! You can see the data that the Fed publishes on payments in a periodical called the Red Book (https://stats.bis.org/statx/toc/CPMI.html). In other words, the GDP is dwarfed 350-times over by an economy comprised purely of synthetic financial assets.
So, where’s the silver lining to such inequity? Well for one thing, we could do away with all the income taxes, FICA taxes, sales taxes, capital gains taxes, and property taxes that we pay each year if we merely taxed payments at the rate of 0.2%. If we did that, the taxes that you’d pay on earning $100,000 would plummet from $30,000 to just $200! And yet we'd collect enough revenue to pay every adult citizen $24,000 per year in basic income, while also being able to provide free healthcare and college for all. As shocking as that seems, even with such extravagant benefits we’d have a surplus of $2.6 trillion. In other words, we could finally pay off the national debt.
It's funny how a mistake—paying people who don't produce—can lead to such a possibility. Technology would finally be delivering on its promise.