Spending billions on answers is all in vain if the question is wrong. Job creation is not the only area where we have been asking terribly wrong questions for way too long.

WARNING: This text contains spoilers regarding The Hitchhiker’s Guide to the Galaxy.

Douglas Adams’s The Hitchhiker’s Guide to the Galaxy is a masterful work of art. But one often only starts seeing the ingenious satirical real world references and philosophical levels in such works, as one grows older. What at first read appears to be just a joke based on mere absurdity turns out to be unfortunately descriptive of the tragicomic world we live in.

A central story in the book is the one where “a race of pan-dimensional beings” decided to find out “the Answer to the Ultimate Question of Life, the Universe and Everything” once and for all. They built a giant computer, called Deep Thought, that ran for millions of years to calculate the Answer for them.

And eventually they got the Answer: “42”. This disappointing discovery led to an even bigger project, the objective of which was to find out what the Question had been in the first place.

Albert Einstein is quoted to have said:

“If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask, for once I knew the proper question, I could solve the problem in less than five minutes.”

An analogous piece of advice comes from Russ Ackoff:

“Doing the wrong thing right is not nearly as good as doing the right thing wrong.” … “The difference between efficiency and effectiveness is the difference between knowledge and wisdom.”

We are currently facing huge global challenges on the economic, social and environmental fronts. Many of these – poverty, climate change, unjust economic inequality, the ageing demographic structure – seem almost impossible to solve.

But what if they seemed impossible only because we were asking the wrong questions? What if we kept our Deep Thoughts crunching numbers to produce better and better 42s, without ever assessing the sanity of the question we were asking them?

This is what the Root Bug hypothesis suggests.

One of the most important wrong questions is how to create and preserve jobs. For decades we have been trying to keep the population full-time employed by any means. Even many environmentally harmful projects and unearned privileges have been justified with this “job creation” excuse. Job creation is a major argument for lobbyists and interest group organizations.

Fittingly, in Adams’s book, the Great On-Turning ceremony at Deep Thought’s main console was interrupted by two philosophers from the Amalgamated Union of Philosophers, Sages, Luminaries and Other Thinking Persons threatening with a national Philosophers’ strike if the computer was not turned off – as they feared that the Answer might put them out of work. In an ironic coincidence, in the real world, the “Retail Means Jobs” campaign of the National Retail Federation emphasizes the 42 million jobs that the retail sector supports.

In today’s world, work is talked about as if it were a commodity or resource that an economy was meant to produce, when essentially work is a cost that an efficiency-oriented economy should aim to minimize and eliminate where possible. The following kinds of analyses are quite typical:

“Fracking Jobs Cost Twice as Much as Green Jobs” … “The most important is the perception that the $100 billion green stimulus program failed to deliver the jobs it promised.”

The question of how to create more work is getting more and more absurd when, simultaneously, burnouts and stress-related mental illnesses are becoming increasingly frequent. If anything, we should be trying to get rid of work, or at least focus on making it more worthwhile.

Some (e.g. Buckminster Fuller, Robert Anton Wilson and Andrew McAfee) have pointed out that a better question would be how to get rid of the need to do paid work to earn a living by distributing income in other ways, such as a citizen’s salary (a.k.a. basic income). But I’d say that that isn’t quite the relevant question either. It is important for people to get to participate in something productive and to feel useful. Also, people need challenges (though nothing says that these challenges need to come from paid work).

In an economy, people essentially produce goods and services for people. Companies are just intermediary organizational forms that arrange the development, production and delivery processes. So if the problems are unemployment and depressions resulting from the self-reinforcing feedback mechanisms of economic insecurity, the relevant question is not how to prevent individual “jobs” from being destroyed or how to create new ones. The relevant question is (1) why supply doesn’t meet demand: Why don’t people get to earn as much as they would really want to spend and invest? In the case of recessionary cycles, we could further specify: why does reduced demand result in an increased mismatch between people’s earning opportunities and their willingness to spend and invest? Why don’t people who want to spend or invest less also choose to earn less?

In a household, a reduction in the total amount of chores does prevent some from participating in the chores at all. The mere idea of involuntary “unchorement” resulting from acquiring a dishwashing machine seems absurd.

Two other good, (non-rhetorical) basic questions we should return to are:

2. What’s the purpose of paid work? Why do we need to pay people for certain activities and not for others? (A question that Fuller and Wilson seem to bypass.)

3. Why does “capital” have a cost, i.e. a profit requirement? Why do people need to be rewarded for owning things or having savings?

And the short answer to both of these questions is: to balance supplied and demanded amounts. That’s the main function of any price in a market economy.

People are paid wages to encourage them to do things they’re not willing to do sufficiently for free. The function of income differences between types of work is to coordinate supply and demand structurally by encouraging people to do more of the kinds of labor that are in deficit.

On the other hand, the function of the return on risk-free capital, the market interest rate, is to keep the momentary aggregate supply and demand for labor in balance by encouraging or discouraging saving and having debt. If people in the economy want to save more than there is need for real investment and there are pressures to lower average nominal wages, then that means that saving is too profitable, i.e. that the real interest rate is too high. And this applies even if the interest rate is already at zero.

The profit requirements of risk-bearing credit and real investments also include required compensation for the risks involved – a risk premium. But the profit requirements of all equity investments are affected by the risk-free return on deposits. The zero lower bound of interest rates is hence like a minimum wage for capital.

Nominal interest rates cannot be dropped negative, because cash always yields a zero nominal return. Lower rates on accounts would cause a bank run: clients withdrawing their cash. So for negative rates we need to either (1) eliminate cash or (2) to adopt a higher target inflation rate to allow negative rates to drop lower.

But in addition to this zero lower bound of interest rates that prevents keeping aggregate supply and demand in balance, there is a small game theoretical issue, which we might call “the Consumer’s Dilemma”: Few people have a realistic opportunity to work less, even if one had little need for the additional income. Of course, working shorter weeks is very inefficient in some professions (e.g. top management, consulting and relation-oriented sales). But people in such professions could reduce their medium-term income by taking longer holidays or sabbaticals between positions. In practice, the trouble is that, currently, any unemployment – voluntary or involuntary – results in a significant risk of long-term unemployment. There is no guarantee of getting back into the labor market, and it is easy to be stamped a failure, especially as a result of being fired. To get over this dilemma, we’d need to make sure that one’s chances of getting back on the labor market are improved with any time spent without income. In our current labor markets, the situation is quite the opposite. We have created a marginalization machine. Labor taxation could be turned into an incentive for employers to share earning opportunities.

But even better ways of increasing personal choice in how much to work and eliminating risks of long-term unemployment can be developed when we start putting our efforts into answering these relevant questions – instead of pouring billions into job creation efforts and opposing environmental regulations in desperate attempts to preserve existing jobs.

There are also a number of other global issues where we are focused on fairly irrelevant question:

–       Economic security: Especially labor unions are focused on limiting companies’ ability to adjust to market situations and strategy changes by restricting labor reductions. But short-term changes are not relevant in terms of economic security – long-term cumulative earning opportunities are. The relevant question is not how to prevent change. The relevant questions are (1) why labor is reduced as whole people and (2) why losing one’s job results in such a significant risk of long-term unemployment.

–       Income differences between professions: Currently, the political left tries to reduce income differences with higher tax progression and transfer payments. But the function of income differences between types of work is to balance the supply and demand between these types of work: Higher pay is meant to attract more employees to a sector or profession from lower-paying sectors and professions. Hence, the relevant question is, what prevents people currently in low-paying jobs from moving to labor markets with higher wages?

–       The income share of capital: Currently, the political left is trying to raise (nominal) wages in attempts to lower profits companies are making and to impose transfer payments through e.g. higher capital income taxes. But these do not lower the profit requirements of investmentsand hence, under fair competition, they are ineffective at reducing profits made in the long run. The profit requirements of capital are determined by the risk-free investment option. The relevant question is, how to (1) remove the minimum wage of capital (the zero lower bound of interest rates), (2) the current direct subsidy to risk-free credit (the free deposit insurance) and (3) the possibility to reap unfair profits through monopolies.

–       Poverty: Currently, people concerned with poverty are mainly campaigning for more foreign development aid and charity. But foreign development aid sums (total or as percentages of GDP) are irrelevant as long as rich countries’ first focus is maintaining their own current account surpluses. For developing countries to be able to get rid of their foreign debt burdens and for local capital to accumulate, the relevant question is how to get the current account balances of developing countries positive and, hence, those of developed countries negative. If we want living standards to rise in developing countries, the relevant question is how to give their citizens access to education that would increase labor productivity locally and allow them to compete over types of work with a higher market price.

–       Climate change risks: Currently, the focus is on trying to push down annual carbon (and other greenhouse gas) emissions. However, annual carbon emissions are not relevant in terms of long-term global warming potential – long-term cumulative carbon emissions are much more so. If we want to mitigate climate change risks, we need to get fossil fuels permanently out of use as soon as possible. This could easily be done with continuously and predictably rising carbon taxes. And the most relevant question – as with any other obvious solutions to environmental challenges – is why such taxes cannot be implemented. Unsurprisingly, we run, again, into the trinity of “jobs”, “growth” and “competitiveness.”

–       Demographic shift: Currently, many governments are trying to prevent the “dependency ratio” from rising and their pension schemes from going bankrupt by raising the official retirement age. The relevant questions would be, why people are so eager to retire early. Why don’t/can’t they, instead, take time off earlier in their careers? And if we see the retirement system as a savings or insurance scheme, why shouldn’t the interest rate help balance pension liabilities just like all other saving and credit relations?

–       Financial sector instability: Currently, governments are trying to impose stricter and stricter (and very expensive) regulations on banks to try to keep them from collapsing and disrupting the rest of the economy. But the relevant questions to ask would be: (1) why is it so profitable for banks to be overleveraged and hover on the brink of bankruptcy, and (2) why is our real economy so fragile that it cannot endure the bankruptcy of a large bank? In a market economy, processes and structures evolve by old organizational forms being destroyed and abandoned when new, better forms replace them. No person should be dependent on an individual company and no profit-seeking corporation should be allowed to be “too big to fail”.

The book Fixing the Root Bug asks these relevant questions and many more. It also gives some initial, interesting answers. You surely have your own that are even better. Let us know, at rootbug.org .

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