“It’s tough to make predictions, especially about the future.” Yogi Berra made this quote famous, though its origins are disputed.
On May 31, we published a note entitled “Jobs for Everyone”(see http://www.cumber.com/jobs-for-everyone/). Many readers replied, and the views were diverse, as you might expect. We thank all those who sent a comment.
Eddie Dawes wrote this reply:
“Your excellent analysis does not address the POTENTIAL very large loss of human jobs due to the automation of jobs due to technology. McKinsey et al have bleak predictions about the future of the human worker. We need to reconcile the current real-world analysis you present with the automation story before the USA can possibly figure out a somewhat optimal way forward. I think the Bernie Sander’s government-supported jobs approach believes the automation story of the future as opposed to the current real-world job statistics that you show. Really enjoy your emails. [Signed] One Confused Retired Engineer. Eddie Dawes”
Thank you, Eddie. You raise a key point.
Do we make a policy now that commits to a path toward a long-term, multi-billion-dollar subsidy of millions of folks at taxpayer expense, based on a forecast? We’ve seen the McKinsey study and others like it. And we know that many strategic policy shifts are made based on opinions and analysis of the future. So your question goes to the heart of “acting based on a forecast.” We would suggest that history is not kind to those who do so.
History tells us that basing policy on forecasts made by political claques with extreme economic views is a particularly misguided and dangerous thing to do. Here are a few examples.
Remember the concern about “peak oil,” the theory of global oil depletion that was first put forward by the Shell Oil research geologist M. King Hubbert in the 1970s? Remember how doomsayers on both the left and the right seized on the theory and influenced policy, so that taxpayer-financed subsidies poured into the energy sector (and are still being poured into energy, since we rarely repeal anything in this nation of ours)?
Remember the 1999 prediction of Dow 36,000 by Jim Glassman and Kevin Hassett. (See https://www.amazon.com/Dow-36-000-Strategy-Profiting/dp/0609806998.) Glassman issued a mea culpa and explained why they were wrong in this 2011 piece in the WSJ: https://www.wsj.com/articles/SB10001424052748703584804576144683264748042. But by 2013 Glassman was back, in a Bloomberg piece, making the case that Dow 36,000 “is now clearly in reach.” (See https://www.bloomberg.com/view/articles/2013-03-07/dow-36-000-is-attainable-again.) Today, Hassett sits in the White House as chief economic adviser to President Trump, while Glassman runs his own consultancy and thinks Trump is taking a big risk linking the bull market to his presidency. “Politically, I just think it’s a gigantic mistake. It doesn’t go straight up” (as published in the Financial Times in "Why Donald Trump needs to read Dow 26,000).
I could go on and on but will end with the following few amusing quotes from history. “When the U.S. government stops wasting our resources by trying to maintain the price of gold, its price will sink… to $6 an ounce rather than the current $35 an ounce.” – Henry Reuss, chairman of the Joint Economic Committee of Congress, November 25, 1967. Note that in 1971 the US stopped buying gold. You may check today’s price for reference.
“In our opinion the data available today do not justify the conclusions that the increase in the frequency of cancer of the lung is the result of cigarette smoking.” – Dr. R. H. Rigdon, director of the Laboratory of Experimental Pathology at the University of Texas, April 14, 1954. And this: “There is growing evidence that smoking has pharmacological… effects that are of real value to smokers.” – Joseph F. Cullman III, president of Philip Morris, Inc., Annual Report to Stockholders, 1962.
One more. And we offer this one in light of the present global negotiations about nuclear weapons, which are key to China-US-Korea policy as well as to US-Iran-Europe-Middle East developments.
Franklin D. Roosevelt, a former assistant secretary of the Navy before he was elected president, said in 1922, “It is highly unlikely that an airplane, or fleet of them, could ever sink a fleet of Navy vessels under battle conditions.” In the Army-Navy Football game program on November 29, 1941, the caption to the photograph of the battleship U.S.S. Arizona read, “It is significant that despite the claims of air enthusiasts, no battleship has yet been sunk by bombs.” Eight days after that football game, the Arizona suffered a direct hit by bombs when the Japanese Air Force attacked Pearl Harbor and sank the battleship, with 1102 casualties.
Nobel Laureate Daniel Kahneman discusses the “planning fallacy” in his seminal work entitled, Thinking Fast and Slow (https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555). His examples of biases and optimistic leanings and emotional delusions are abundant. He stresses how good luck is often viewed as skill and how that assumption leads to error.
Since the focus of Eddie Dawes’ email is the McKinsey forecast study and its use to defend the taxpayer-funded “jobs for everyone” proposal, I want to end this note with an example of government offered by Kahneman in his book. As he notes, “The list of horror stories is endless.”
Here is just one of them:
“In July 1997, the proposed new Scottish Parliament building in Edinburgh was estimated to cost up to 40 million pounds. By June 1999, the budget for the building was 109 million. In April, legislators imposed a 195 million ‘cap on costs’. By November 2001, they demanded an estimate of ‘final cost’, which was set at 241 million. That estimated final cost rose twice in 2002, ending the year at 294.6 million. It rose three times more in 2003, ending the year at 375.8 million by June. The building was finally completed in 2004 at an ultimate cost of roughly 431 million pounds.”
Thank you to Eddie Dawes for opening up the question about forecasting the future and using the forecast to make a policy decision today. It is indeed likely that automation will continue to have a profound effect on jobs. But we think it would be a big mistake to jump aboard the policy bandwagon of “jobs for all” based on the speculative conclusions of the McKinsey study or similar research. To put it another way, we think it is smarter to rely on careful extrapolations of “current real-world job statistics” than on an “automation story of the future” (to borrow Eddie’s language).
We dedicate this closing quote to readers of Sports Illustrated (swimsuit edition or otherwise).
“I think the world is going to blow up in seven years. The public is entitled to a good time during those seven years.” – Henry Luce, publisher of Time, Life, and Fortune, explaining in 1960 why he would publish so unserious a magazine as Sports Illustrated
Readers please note that the world did not end in 1967. Henry Luce did however die in February, 1968.
Special thanks to Christopher Cerf and Victor Navasky for their work The Experts Speak, The Definitive Compendium of Authoritative Misinformation.
