The Economics of Technological Advances

Recently I saw a Youtube clip of Congressman Jesse Jackson Jr. of Illinois, in which he claimed that the Apple’s iPad will be the cause of future unemployment.

His claim was that people will no longer buy actual books and everything will be downloaded onto e-readers. This is supposed to destroy the publishing industry and the insinuation is that the federal government should do something to stop this atrocity. I believe that this is another instance of a politician not staying awake in their economics class while they were in college.

In Chapter 7 of Henry Hazlitt’s book, Economics in One Lesson, titled the “Curse of Machinery”, Hazlitt gives examples how machinery has actually increased jobs not cause the unemployment plague many politicians claim. Hazlitt’s gives the example of Arkright’s invention of cotton spinning machinery in 1760. It was predicted the machinery would put English textile workers out of work. What really happened was that the textile industry grew exponentially over the next two and a half decades moving from 7,900 to 320,000 cotton spinners and weavers. From my and Hazilett’s calculations, that is an increase of 4,200% over the 27-year period. How is this possible you ask?

Technology helps reduce or even eliminate the barriers of entry for new businesses. Creating more competitive economies of scale and increasing competition. The increase in competition breeds efficiency and reduces prices for the end user. The solution isn’t the government pumping money into the paper industry or even the publishing industry. The government’s job is to let the free market alone and let it run its course.

If an industry is dying, there’s probably a good reason for it. So let it die. As Danny DeVito’s character, Larry the Liquidator, said in the 1991 film Other People’s Money, “I bet you there was a time where dozens of companies were making buggy whips and I bet the last company that was around was the one that made the best ***damn buggy whip you ever saw”.

The problem with Congressman Jackson’s view of the iPad and technology in general is that he is looking very narrowly at a very big picture. He only sees the displacement of book publishers and paper manufactures. The problem with the “old technology” of books is that it’s becoming obsolete. However, if publishers are moving from paper to electronic media, this will create new jobs. The need for graphic designers, web managers and web security people become crucial in the ever complex world of electronic publishing.

Congressman Jackson isn’t seeing that the production of iPads means the potential opportunity to create new jobs and sustain existing ones. Apple employs about 35,000 people. Many of those people work in Apple’s retail stores. There are many other companies that are in business to create the cool apps that the iPad offers. Not to mention that with such apps like the credit card processing app that allows businesses to be more mobile and reach and conduct business with their customers.

(If you have the opportunity, come the Agora Financial Investment Symposium and you will see Laissez Faire Books process your book purchases — yep you guessed it — with an iPad and a credit card app.)

One of the arguments is that we need to employee American manufacture workers in order to build what we create. My question is simple: Why?

Manufacturing labor is cheaper overseas and companies like Apple want to keep costs down. In order to keep the cost down they need to work oversees. Why not produce in the U.S. you ask. Well one reason is that labor unions have made it too expensive for businesses to do business in the U.S. for example the steel and automotive industry.

Unless, the automotive industry is from overseas that find right to work states like Tennessee and Kentucky. These states are benefiting from the Japanese car manufacturers setting up their non-union plants and employing a large amount of automobile workers. I wonder if Japanese say we need to bring our jobs back to Japan.

In the early 1990s Agora Publishing sent publications via print and the then cutting edge technology of facsimile (faxing). The company was about 40 people strong at that time.

In the mid-‘90s came the realization that the internet was going to have a huge and negative impact on the newsletter business if the new technology wasn’t embraced. Bill Bonner reached out to our customers and asked them what they thought about getting their newsletters via the internet. The response was resounding yes.

Now Agora and all her affiliates employee close to 1,000 people. That is a 2,500% increase over the last 15-years. A big reason for the increase is that we need web teams and information technology people to ensure that your e-letters get to you. Now that we don’t have to spend as much on print we can now employee additional editors that bring you more content more quickly.

Does technology make some jobs obsolete? The answer is an obvious yes. So let us have a moment of silence for the milkman, the cobbler, and the town crier but let us celebrate the grocer, the staff at Footlocker, and the talking heads like those on Fox News and MSNBC.

More often than not technology actually increases jobs. You want manufacturing jobs to come back to America, then talk to the unions and let them know that $70 an hour may be a bit high for someone to put tires on the new Camaros.

Shawn Lyttle
for Whiskey & Gunpowder

P.S.: Oh yeah, one last thing. Before we start playing taps for the paper industry let us realize that in this writer’s opinion we will find the lost city of Atlantis before we move to a completely paperless society. I know first hand that there are many bibliomaniacs that still walk amongst us and that despite whatever cool e-reader you give them, it will still not replace that feel of a good book.

You want to check out some good books, then go to

April 20, 2011

The Daily Reckoning