8 Jul 2022

Degrees, Money and the Future

For a long time, it was politically incorrect to protest the huge increase in university/college attendance across developed nations in Europe and North America. University attendance went from approximately 14% in the 1970s to over 40% today. Tony Blair famously wanted 50% of youngsters to attend university. A degree was lauded as a springboard to socio-economic mobility, and graduates were supposed to boost GDP growth and tax revenues by taking up high-skilled jobs.

But the reality is turning the dream into a nightmare. The sad truth is that the number of graduates exceeds the number of graduate jobs, and many graduates—particularly from some of the humanities and social sciences—end up under-employed. Furthermore, the burden of college debt acts like a vice on the economy. It doesn’t matter whether the debt is private debt (like in the US) or public debt (like in most European countries). Most obviously, debt harms consumption. It has knock-on social effects on fertility and demographics; young people burdened with debt start a family later (or don’t start it at all), and struggle to afford a house. Moreover, from a macroeconomic perspective, the loans are dangerous, since a lot of them are bad—that is to say, many debtors won’t repay the full amount, or the interest, or repay within the expected maturity period.

The hard truth, that young people, parents, and policymakers don’t want to hear, is that high-skilled, university-level jobs make up at best 20% of the available jobs. I am also highly skeptical that this will increase in the future. The percentage may increase, but only because the total number of jobs will decrease as more jobs are destroyed by automation (high-skilled jobs are much more resistant to the effect of automation). The jobs that require a degree are highly technical and/or vocational: medicine, pharma, nursing, dentistry; programming; engineering; data science; and so on.

Automation, AI and the post-scarcity economy are things that have been discussed elsewhere in more detail than I will go into here. The long and short of it is: we are heading towards are a post-scarcity economy. We are not there yet, and the process will take time. Also, let me be clear that a post-scarcity economy does not mean the end of scarcity; some goods and services will remain scarce, but the majority will be available in abundance. To give you an idea: food, energy and consumer goods will be abundant. Heck, they are already pretty abundant right now. Have you ever seen a shortage of nails? Nails, like many other goods, can be mass-produced for a very low price, and they require almost no human input in their creation. Other things will remain more scarce, especially things that require a lot of high-skill human labour.

That’s the key, the salient point of this little essay: labour. Historically, we have regarded labour, work, as something valuable and worthy. An entire religion, Protestantism, revolves around the value of work. Work means steady payment; a livelihood. But labour is inherently tied to scarcity. Humans have to labour because things are scarce: food, shelter, medicine and so on. So what happens when all the work is done by robots and software? Let’s assume that everything could be done by robots or computers, just for the purposes of this thought experiment.

Ideally, we would live in a utopia; humanity would never want for anything. In reality, the barrier lying between us and this utopian vision is capitalism. We admire capitalism because it has worked well for the last two centuries or so—with government regulation and the managing of natural monopolies, of course. Adam Smith was more or less right. He was misunderstood by the braying free market neoliberals; Adam Smith never argued that the “invisible hand” would make markets self-regulating in general (only if a very specific set of criteria were fulfilled). A mixed market+command economy is the way to go. This is something that France, the UK, Scandinavia and Germany understood, but which the US and Soviet Union did not.

Unfortunately, I think the economic model of the past century may no longer function in this post-scarcity future, because it is still predicated on the idea of renumeration for labour. To put it bluntly: in the future, many, perhaps most, of the population will be unemployed. They will be unemployed for no other reason than that they will have nothing to do.

I believe that we will need a Universal Basic Income at some point in the not-too-distant future. Moreover, I think a successful economic model of the future will still have capitalism (i.e. capital, companies, competition etc.) but in a far more diminished way. Capitalism will be limited to areas of rapid innovation, scarcity, and high differentiation. Everything else will be administrated by organs of the state, be it local, regional or national governments. Money will still exist, so this will be socialism, not communism. The state already administers 40–50% of the economy measured by GDP, so this should not be a big pill to swallow (newsflash, Americans). Why will it be adminstered by the state, you ask?

This leads onto the next point. Capitalism is unstable and destructive. It creates a small number of winners and a large number of losers. (Sorry, right-wing Americans.) In the future, this tendency will be exaggerated until society will fray apart. An industrial reserve army of the unemployed—an army of losers—will be created. There are only three possible scenarios. One, capitalism tries to maintain itself through coercion. Two, socialism prevails. Or three, massive social unrest results in anarchy, and the post-scarcity economy is destroyed, bringing us back to the status quo ante… by which I mean something before 1770: the medieval world. This scenario seems more likely in third world countries that are politically unstable.

Let’s go back to square one, and the original point of this essay. More university degrees will not lead to better pay or employment. There are powerful economic and technological forces at play that are leading us to a world with high unemployment. Instead of creating more debt and broken dreams, policymakers need to focus on managing the transition to a post-scarcity economy based on UBI, the provision of basic goods, and reduced inequality.

What does this look like, in practical terms? Well, it won’t be a world of perfect equality. I don’t believe such a thing is possible or even desirable—and I say this as a staunch socialist. Natural inequality is the reality of the world we live in. Some humans are smarter than others, or more talented, or hardworking; they should be rewarded. So the economic situation will look like this. Everyone will be guaranteed a basic income of, say, 2000 euro a month. They can earn extra by participating in the labour market when possible. Some people will earn high salaries, like 3K, 4K, 5K a month because they do something difficult (and they will pay taxes on their income). And there will be a few millionaires or billionaires, but fewer than there are today. The state’s revenues will shift from being predominantly taxation funded to being funded more by the sale of goods, e.g. food and housing. This is because there won’t be enough taxpayers to fund public goods like healthcare and (obviously) UBI itself otherwise.

Money is hard to understand for the layperson. Money is not scarce; it can be created at will. But scarce things do have a higher price. This is why creating more money causes inflation: there is more money, but the number of goods does not increase.

How can the state fund UBI? It’s not through taxation: you can tax UBI, but since that money comes from the government, there is no mathematical way to fund UBI with itself. Rather, the state can simply print money and ensure that the supply of goods (which it controls) matches up. The state will also tax corporations that make large amounts of money through the sale of goods and services. This system will ensure that basic goods are provided, but also that people have disposable income to spend on more whimsical things—art, fine dining, holidays, whatever—at their discretion. Remember that this will not be a truly post-scarcity society, just a “mostly” post-scarcity one. Provided that the money supply is managed sensibly, this system will work very well.

Now that I think about it, this system could already be partially implemented in the world we live in today, since we are already approaching post-scarcity in some ways. But to accomplish this, we have to have political awareness. We cannot allow our politicians to further the interests of the rich, and pull the wool over our eyes. People are not unemployed because they are lazy, or because they don’t have a degree, or because they don’t know how to code. Only 1% of the population knows how to code, and demand is at most 2 or 3%. People are unemployed because of technological growth.

Some people will not like what I am saying about degrees. Humanities people in particular think that humanities degrees are being devalued in favour of STEM. But actually my argument has nothing to do with funding one or the other. It is true that humanities degrees do not pay as well as (most) STEM degrees, so that is a good argument to avoid going into debt for one. But I would very much be in favour of subsiding degrees so that the best humanities students can study for free. The real problem—which I want you, the reader, to understand—is when we make 1 in 2 youngsters get a degree just for the sake of it. Believe me, all those psychology students (psychology is one of the most popular majors) don’t really want to be doing a degree; they just want to party. Them getting a degree, however, prejudices bright students who are genuinely interested in learning. It strains financial resources and devalues the worth of a degree.

Thanks for reading this far. If you have some thoughts to share, please comment below.

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