I recently wandered down a Google Black Hole on The Skills Gap, hoping to see if economists had come to a consensus on whether it was a real thing or Convenient-sounding Story. While there, I found an interview that Jaron Lanier did for Salon a couple years ago, wherein he presents an interesting argument: The Digital Age is killing the middle class. If we operate from the axiom that democracy depends on a strong middle class, or some other name for a group of people that can, in the aggregate, outvote and outspend the concentrated power and wealth at the top, then one could make the argument — as Lanier does — that the Information Economy is a threat to democracy.
In light of the 2016 Election cycle, which has seen candidates seize upon widespread economic discontentment despite sub-6% unemployment, I think we have to ask: Is he right?
I’m not going to issue a definitive statement — I’m much too cowardly for that — but the argument is something for policymakers to consider as they wrestle with fiscal issues (ha!).
Lanier begins by contrasting Kodak and Instagram. At its height, Kodak employed 140,000 people in presumably middle-class occupations. When The Gram was acquired by Facebook after becoming the premiere medium for rapper feuds, it employed 13. That’s a big difference for companies providing similar value.
But is it a problem? In the strictest, “Invisible Hand”-ed sense of the subject, economics would tell us no, that such creative destruction is inevitable. Not just inevitable: valuable. We’ve freed up 139,987 units of labor (i.e., “people”) to go do something else.
Sure, there will be some “disruption” in the interim, as those displaced labor units acquire new skills and develop new connections that allow them to transition into new occupations, but the net benefit to society is positive: the ex-Kodak employees go on to do something that people still want to pay for, and the other going on 10 billion of us no longer have to spend any money on the benefit Kodak once provided, since Instagram provides it to us for “free.” Moreover, since we’re able to spend our newfound savings on something else, then some other company or industry — maybe designer cupcakes (I mean, what else are we going to Insta?) — is free to sop up the newly available economic resources. Aside from some momentary pain concentrated among owners and employees of Kodak, it’s a net gain for society: Value!
But then again, is value anything other than a social construct? (he asked, pretentiously)
Lanier goes on to argue that a healthy middle class is not a naturally-occurring phenomenon. That it requires a little “artificial help in some way.” Lanier uses the examples of academic tenure and taxicab medallions, but it’s not hard to think of others. Here, I think, is where the argument begins to get interesting. Consider the auditing profession, probably one of the few remaining capital-C Careers with a guaranteed middle-class payout. How much value does it add, really? Oh, certainly, investors get some benefit (they get someone to blame if it turns out management has been lying about its balance sheet). Employees probably get some kind of benefit. The government, I’m sure, has a vested interest in demonstrating that its country’s capital markets are free from artifice (see: GAAP, Chinese). Despite these benefits, it would still seem as though auditing is something of an unnatural proposition for a market economy. The benefits are spread out among a large number of participants who may not want not necessarily want to pay for it themselves, so it’s almost as though the reason auditors get paid is because policy demands they be paid.
And indeed, if you research the history of the auditing profession, you will reach a similar conclusion. It wasn’t until “after the stock market crash of 1929 that auditing became an obligatory process in the United States” (emphasis mine). Before then, only a few big firms thought it was worth it. Imagine thinking like that today. You’d be laughed out of Congress, if only because auditors probably donate healthily to political campaigns.
The point being: The accounting profession “fools” people into accepting an arrangement in which people get paid for generating a bunch of positive externalities, but that no one actually paid for until we developed a system that said, “Companies pay for the audit. The end.” In other words, we’ve arrived at a social contract which allows people to: (1) Be paid; (2) For doing work; (3) That is probably worth paying for; and (4) Is that such a bad thing?
Perhaps during a time of major technological upheaval, it makes sense for the government to at least manage the process of creative destruction so that isn’t so painful. Perhaps “creating” another industry like the audit industry — perhaps one based on managing the negative externalities created by polluting firms, for example — makes sense.
(Of course, for the industry to take hold, it would need to fool people into accepting it as something worth paying for, regardless of whether it is. I’ll pause here for a couple of notes. Note 1: I’m sure there are moral implications of paying people to do something that isn’t valuable. For the time being, I don’t care about those. Note 2: To all one auditor reading this, please know that I appreciate what you do. In this case, you are merely a convenient example for this hack of a writer. I would’ve used law if everyone hadn’t decided to become a lawyer and dilute the potential for a guaranteed middle-class payout.)
As it happens, though, where the argument gets interesting is where it starts to get tricky. The implications of Lanier’s arguments are more difficult to wrap your head around than the argument itself. Certainly, I derive some benefit from my friends’ Facebook statuses or the picture of a cannoli my cousin just Instagrammed (just how much benefit is up for debate). My cousin doesn’t capture any of the economic benefit she created for herself, though — I certainly don’t pay anything for it, and wouldn’t. I suppose that taking Lanier’s argument to its logical extreme, the eminently popular IRS could include a couple of complicated forms asking: (1) How many Instagram “likes” did you receive this fiscal year? (2) How many people read your Tumblr blog? etc. They could then pay you based on the positive externalities the picture of your cat in oversized sunglasses created.
Tongue-in-cheek, of course, but the fact remains: working at Kodak got you a middle-class paycheck and probably a now-bankrupt pension fund. “Working” at Instagram — or at least being a part of the millions of users that make Instagram what it is — nets you precisely nothing aside from enjoyment. There is the obvious distinction that the former is a job the latter is fun. But for Lanier, that distinction doesn’t hold much merit. Jobs have been getting progressively less miserable and more fun for decades now, but until the digital economy rolled around disrupting everything, society “agreed” (as we do with the auditing profession) that our current system is one worth maintaining. As Kodak gives way to Instagram, and more and more economic resources become concentrated among fewer and fewer hands, Lanier’s arguments will take on a special resonance.
If anyone has similar resources, books/articles that present related arguments, etc., I would be interested in hearing about them. I found this line of reasoning cool, even if I haven’t had a chance to think through all the implications, or to seriously poke holes in the argument.