Thursday, February 17, 2011

Defending Andy Kessler

Andy Kessler, a former Hedge Fund manager with a new book called "Eat People And Other Unapologetic Rules for Game-Changing Entrepreneurs," has a piece in today’s (Thursday, February 17th, 2011) Wall Street Journal that does an excellent job of assessing today’s changing job market.

He begins by noting that we are in the midst of yet another “jobless recovery,” the 2nd within this past decade. He opens by opining, “So where the heck are all the jobs? Eight-hundred billion in stimulus and $2 trillion in dollar-printing and all we got were a lousy 36,000 jobs last month.”

As he states that number isn’t enough to keep up with population growth.

While there are a number of factors (Sarbannes-Oxley crafted by the Bush administration after bringing so many Corporate crooks to justice back in the summer of 2001 has been an albatross around business’s neck – killing jobs in the process), Kessler focuses on what he sees as the primary cause – technology killing off more and more service jobs.

Opponents argue that, “As a hedge Fund manager, Kessler doesn’t understand the value of those service jobs and the cost of job loss to people.”

That’s utter nonsense; (1) neither business nor government exists to create jobs for people and (2) service jobs are always going to vulnerable, whether it’s the guy shuffling product from one side of a store to another or the Radiologist charging high fees for reading scans that computers can break down in seconds.

In Andrew Kessler’s view the economy is broken down this way: There are two types of workers in our economy: creators and servers. Creators are the ones driving productivity—writing code, designing chips, creating drugs, running search engines. Servers, on the other hand, service these creators (and other servers) by building homes, providing food, offering legal advice, and working at the Department of Motor Vehicles. Many servers will be replaced by machines, by computers and by changes in how business operates.”

In the “war over globalization” we’ve seen the initial backlash against the erosion of the service sector, but the charge that “globalization and technology are ‘stealing jobs’ and destroying our economy is a false one.”

With the global economy now permanently ensconced, once it is no longer practical to produce a specific product in one place (ie. the industrialized West) it will no longer be produced there, and will be produced in cheaper locales.

Same with technology - innovators aren’t looking to “kill off jobs,” they’re looking to provide their consumers (business and government) with more efficient (less worker-driven) means of conducting their business.

Ultimately the world needs and will reward more innovators and will life will be tougher and tougher for service-sector workers.

As Kessler concludes, “Like it or not, we are at the beginning of a decades-long trend. Beyond the demise of toll takers and stock traders, watch enrollment dwindle in law schools and medical schools. Watch the divergence in stock performance between companies that actually create and those that are in transition—just look at Apple, Netflix and Google over the last five years as compared to retailers and media.

“But be warned that this economy is incredibly dynamic, and there is no quick fix for job creation when so much technology-driven job destruction is taking place. Fortunately, history shows that labor-saving machines haven't decreased overall employment even when they have made certain jobs obsolete. Ultimately the economic growth created by new jobs always overwhelms the drag from jobs destroyed—if policy makers let it happen.”

Innovation is tied to productivity and productivity is intrinsically tied to economic growth. America’s shifting demographics (more Baby Boomers retiring and the number of women in the workforce leveling off) real GDP growth will be expected to drop from its historic average of 3.3% per year to prevent that (and to prevent the next generation from seeing slower gains in their standard of living than their parents and grandparents did) productivity must be increased to 2.3% per year, a rate we haven’t achieved since the 1960s!

Yes, a LOT of existing service sector jobs are going to go away in order to create the new jobs of tomorrow. As is always the case, the most dynamic and flexible workers will probably transition the easiest, while the most rigid and intractable will have the hardest time adjusting to the new realities.

SEE Andy Kessler's WSJ article:

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