Tuesday, March 10, 2015

Minimum wage prevents economic innovation

Have you heard of Moore's law?  Building better computers is all about being smaller, faster, and more efficient.  Every 18 months, approximately, the number of transistors you can fit into the same space cuts in half.  This is amazing.

In the past, our economic systems were very different then they are today.  The very first economic systems were probably tribes that would share resources to improve chances of survival.  Some people are good at hunting, others are good at gathering.  When you hunt together you can kill one large animal and split it between all tribal members.  If  you were hunting alone it would be more difficult to catch your prey and most of the meat would go to waste.

Tribes are a social structure/economic innovation that gave humans a great advantage.  I'm not sure exactly when in our history they were first created, other animals have social organizations as well, but without tribes, humans would have never been so successful.

Over the years we have seen many more economic innovations.  Trade.  War.  Marriage.  Farms.  Government.  Taxes.  Money.  Roads.  Treaties.  Contracts.  Feudal systems.  Slavery.  Abolishing slavery.  Factories.  Joint Ventures.  Mechanization of labor.  Supply chains.  Socialism.  Education.  Unions.  Free email.

All of these significantly changed the economic landscape.  Some of them were bad: slavery, and others were good: socialism.  Some of these innovations were creative and universally empowering, while others were about power, control, or oppression.

I personally feel like our modern world is poised to see economic innovations similar to what happened with Moore's law and the computer revolution.  The industrial revolution was all about inventing and organizing in order to find better means of production.  We dramatically improved productivity by developing new tools, and organizing ourselves in order to maximize productivity.  Factories were organized so that individuals could maximize their efficiency, by repeating the same simple task repeatedly, reducing downtime and transition time.  Improved transportation and trade allowed us to organize global trade and production to take advantage of each region's unique resources and advantages.

What will the next economic revolution look like?  I believe it will involve 2 things.  The industrial revolution was about increasing production, but our next revolution will be about decreasing consumption.  The industrial revolution was about centralizing labor to improve coordination and productivity, but the next revolution will be about decentralizing production in order to create freedom, independence, and flexibility.

Our ability to produce already far outstrips our consumption needs.  We will continue to make productivity innovations.  Many of these innovations will be dramatic, but I'm afraid we are facing diminishing returns.  At a certain point, falling prices stop mattering.

Right now the ZTE zinger at Walmart is a smartphone that costs $20.  It is no longer impressive to say that these devices have more computing power than we used to go to the moon.  It probably makes more sense to compare such a device to the computers of the late 90s early 2000s.  The $20 smartphone has modest specs and performance, but the utility of this humble device far outstrips even the most expensive personal computers from 15 years ago.  This is because of the technological environment into which it was born.  The $20 smartphone can browse the web, send and receive email, send and receive text messages, hold gigabytes of information, take digital photos, work as an mp3 player, connect to bluetooth devices and keyboards, hold a fingernail size card that increases its storage by up to 32 gigabytes.  It can browse the web, you can buy ebooks and games directly from the device.  You can publish low quality videos to Youtube.

I don't know about you, but in the year 2000 most people were happy to type up a document and print it or send email, maybe play starcraft, oregon trail, or sim city.

At what point do lower prices stop making a difference?  At what point do we start realizing that a finite budget is not the resource limiting what we can do?

Let's look at our budgets for a moment.  What is cheap and what is expensive?  As I just finished explaining, computers are cheap.  What else is cheap?  Food is cheap.  Try making a living growing vegetables in the backyard.  I know it can be done, but it's not easy.  What is expensive?  Houses are expensive.  Cars are expensive.  Health care is expensive.

We all understand how technology innovations made computers affordable, powerful and amazing.  But for some reason, it's hard for us to imagine these same kind of innovations affecting other parts of the marketplace like housing or healthcare.

I firmly believe that dramatic innovations that will reduce the baseline cost of housing, transportation, and healthcare by orders of magnitude are on the horizon.

But we need a change in how labor works.  It is overdue and sorely needed.  What happens when we have labor regulations that mandate that we produce the equivalent value of 2.5 smartphones every day?

I don't know, but it's not good.  I don't want more money.  I don't want lots of money.  I want independence and flexibility.

If we want to speed up the decentralization of production, we need to be able to fall back on the old way of doing things.  Decentralization isn't just about 3d printers and independent youtube channels.  It can involve any technique that gives us greater economic independence.  Some of these techniques may require more technology, but others require less technology and more self sufficiency.  In the early days of the Western United States, people lived this way out of necessity.  I'm not saying that we completely revert to the old way of doing things, but we can integrate aspects of the old way of doing things with aspects of the new way of doing things.

I haven't been employed for 3 years now, but I have repaired clothes and backpacks for myself and family members with nothing more than a needle and floss.  10 minutes later I am pushing changes to an open source software library on github that enables 3d drawing in web browsers on very limited performance computers.  I spent 2 years only washing my clothes by hand, but during the same time I used a computer and 3d CAD software I wrote myself to sketch plans for a carpentry project(this).  That is the kind of flexibility I am talking about.

I have very modest needs.  I am trying to embrace new economic models.

I want to use another analogy.

Nanotechnology is an exciting area where a lot of our current technology improvements are coming from.  This video explains something that people might commonly misunderstand about nano technology.  It might seem like very small structures can't be very strong.  But that's not true.  Small structures are some of the strongest.  Strength is determined by shape more than it affected by scale.

Economically speaking, quality of life is not about income alone.  It is about the ratio of income to expenses, and what we can afford at a particular ratio.  The obstacles to a low income, high quality of life are not only technological.  There are marketplace obstacles as well.  The market is bad at accommodating low income lifestyles because we have forbidden those kind of lifestyles with the minimum wage mandate.  The legal mandate reinforces a social stigma that further inhibits innovation and accommodation. Perhaps without this mandate we would have the flexibility to create high quality low consumption lifestyles.  We would have more choice of where we worked, for how long, and what we did.  More people could walk to work instead of driving.  There would be more and better housing available for low income individuals because they would be more trustworthy, reliable, and there would be a larger market.  We could design neighborhoods and communities that focused on walking or biking instead of driving.

That is certainly what I want to see.  Minimum wage forbids me from living that kind of lifestyle.  It forces me to support corporate power and accept inflexible employment relationships.  I don't want $7.25/hr people.  Please just let me be.