The Internet Model and Taxes
Using a hypothetical example and assuming that the internet business model could have as great of an impact on other areas of the US economy in the same way as how it has devestated newspapers, what would happen to the economy and public policy?
Job loss is the first thing that comes to mind. If the internet makes businesses more efficent by reduing the number of people required for a job, then a large number of jobs would be lost.
The large number of displaced workers would have a major impact on goverments, costing tax payers money for everything from health care cost to unemployment.
This would put so much pressure on the goverment that raising taxes, would help to solve the budget problems.
We may be entering a period in the future where such an issue becomes a reality. This will become apparent when large numbers of jobs disappear as a result of outsourcing and by efficiencies such as the internet. Such a period will generally put downward pressure on prices due to the cost savings from not needing to use as much labor to get different tasks done.
If something like this happens too quickly, the goverment will most likely have to raise money to take care of these people. Higher taxes for those earning money or high incomes would most likely be the most likely scenerio.
This raises an important issue in the future that efficiencies may be good for some but not others. In the 80′s and early 90′s Japan was considered to be the most promising country in the world. People made predictions that Japan’s robots would eliminate most of the manual labor jobs in the US.
Well, this didn’t happen: the US discovered China as a cheap source of labor and robots only do a small number of tasks today such as painting cars, putting on windshields and a handful of other tasks.
However, technology generally gets rid of more job than it creates. One robot, for instance, might get rid of 5 jobs. The robot itself might create one job. So there is a net loss of 4 jobs.
Cashless registers as seen in many grocery stores today may get rid of 6-8 jobs and create one. The person who watches all of the registers is the one job that is created. There may be other jobs created such as the people building the autmated checkout registers, but most of those jobs are most likely in China or outside of the US. So, in this example there is a net loss of jobs of probably 4-7 jobs.
Newspapers and magazines have been losing money and are laying off people by the thousands because the internet is a more efficient delivery system for news and people can often get the news for free now. Some jobs are created helping to get the newspapers online but more are lost than are gained.
The thing about efficiency is that it generally cannot create more jobs than it destroys. If it did create the same number of jobs as were lost or more, then it wouldn’t be efficient. There must be cost savings and that means fewer workers.
In the future in the US, the next big problem is going to be one that deals with labor. It generally means lower wages for most that are working. Of course there will be exceptions: the best people in different fields will continue to do well, but a large number of people will have difficulties. This will be a long term trend of wage equilazation around the world.
The cost of living will have to go down in the US, or the goverment will most likely have to make payouts to unemployed people if the goverment wants to keep people housed and fed. Growing income gaps between the rich and poor will continue as they have in the recent past. Businesses will be able to get more work done for less money as a result of outsourcing and efficiencies.
Should the cost of living fail to decrease at a fast enough rate, the goverment will have to increase taxes to pay for the less fortunate. Some factors effecting this are crop yields, fuel prices and land prices. Crop yields will have to increase or more farms will have to be built. This seems like a stretch in the US as most farmers are old and not many new ones have been started. Also, as a result of outsourcing labor, incomes will start going up outside of the US which means those countries may start buying our food in larger quantities. This puts upward pressure on food prices in the United States.
Balancing the budget in the future will create challenges in public policy in the future. If 20% unemployment becomes the norm in the future, instead of offering tax credits for having children, maybe offering tax credits for not having children would be more fiscally responsible. Government money for scholarships and grants will have to be more carefully scrutinized in the future. Loaning or giving money to fields where there are few jobs will have to be carefully scrutinized.
Blindly encouraging every high school student to go to college regardless of the job outlook will have to be have to be changed to fit the environment and to preserve capital.
The cost of a college education needs to go down as well. Outsourcing and the labor market will eventually lower education costs. Internet based, online courses will play a large part in this process.
The outsourcing phenomenon may last for 50yrs or more if the current laws stay in place. As the wages of countries outside of the US slowly move upwards, it will become less profitable to continue outsourcing. Poor fiscal and monetary policy will also help to keep jobs in the US as the dollar gets weaker compared to counties such as China.
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