Robert Shiller's Inequality Confusion Is a Catastrophe for Economists

Economist Robert Shiller predicted in a recent New York Times piece that economic inequality "could become a nightmare in the decades ahead." He believes that the very economic evolution that has always led to higher living standards for all "could lead us into a world in which basic work with decent pay becomes impossible to find." Shiller cites the proliferation of robots to allegedly bolster the previous statement. Shiller's limp arguments are a reminder of why we should approach the musings of economists in much same way we do the projections of palm readers.

To see why Shiller is promoting know-nothingness and alarmism over serious thought, readers need only consider Henry Ford, the late Steve Jobs, and computer entrepreneur Michael Dell. Each grew extraordinarily rich not by harming the poor and middle classes, but by virtue of turning luxuries once solely enjoyed by the rich (the automobile, a smartphone that is realistically a supercomputer, and the personal computer itself) into common goods accessible to all. Inequality isn't a catastrophe, rather when it's on the rise the lifestyle gap between rich and poor is in decline. By definition.

That's the case because as the history of wealth in the world reveals quite plainly, individuals grow rich mostly insofar as their innovations make all income classes better off. They can only grow wealthy - and highly unequal - to the extent that they're able to fulfill the needs of the majority that is not rich. Assuming a world defined by a lack of "decent pay," there would be no chance for entrepreneurs to grow rich in the first place due to a customer base lacking funds to spend.  Assuming the "nightmare" of joblessness and/or low pay for the masses that Shiller naively predicts, inequality will shrink simply because there will be no major market for the innovative to produce for. 

This speaks crucially to the rise of the "robot." Producers don't produce just to sit on their innovations, or to warehouse the goods and services that spring from their innovations. They only do so to once again serve the needs of a growing market. The rise of the robot presumes not a life of joblessness for everyone not rich, but in fact the opposite of what Shiller predicts. Robots and other labor saving devices signal a well-employed and well paid workforce of the future that will be able to purchase more and more of the world's plenty at lower and lower prices. Future, and much greater inequality will spring from entrepreneurs and businesses serving the needs of everyone at prices that we'll marvel at. The more that inequality increases in the future, the more certain the sign that the needs of all workers will be served. Stated simply, the lowest earners of the future will enjoy living standards and access to all manner of goods and services that will render the lifestyles of today's "1 percenters" austere by comparison.

Thinking about "robots" in an historical sense, the tractor, automobile, computer, ATM and internet were all "robots" of an earlier time. All were labor-saving devices that made redundant certain jobs only to lead to the voluminous creation of new forms of work. The U.S. and the rest of the developed world plainly gained from these labor-saving devices, and as evidenced by the abundant prosperity that exists in the developed world, these advances hardly put everyone in breadlines. Quite the opposite. It's only in the underdeveloped parts of the world bereft of what will eventually be described as primitive robots that individuals suffer en masse. In that case, the rise of robots capable of saving us from all manner of historical forms of toil signals abundant job creation, not a life of poverty presumed by Shiller.

Implicit in Shiller's unserious and comically failed attempt to draw a picture of what's ahead is that the nature of work is static. In reality, the work of today doesn't predict the work of the future any more than the work of 150 years ago (half of all Americans worked on farms) predicted the work of today. Shiller is an economist for what that's worth, but whatever his profession he can't possibly know the kinds of jobs the innovators of today and tomorrow who operate in the profits-and-losses sphere will create in the decades and centuries ahead. Rest assured that if the economy is protected from the faux insights of people like Shiller, the nature of work will evolve beautifully thanks to ever more advanced robots freeing us from simple toil in favor of work that more and more of us love, and that powers our productivity in ways that will make today's work seem rather pedestrian by comparison.  Robots and surging inequality signal more and more people working at rising rates of productivity such that they can access more and more of the goods and services created by the innovative and economically unequal.

Notable about Shiller's baseless attack on inequality is that he never explained why it's harmful for the individuals who comprise what we call the economy to pursue the career paths that make them most unequal relative to their peers.  If inequality is good for the individual (presumably Shiller thinks himself better than most economists, just as the most famous astrologers think themselves superior to their sign-reading peers), it's by extension good for the economy. Reducing all of this to the absurd, if a scientist or doctor comes up with a cure for cancer that renders it yesterday's killer, will any readers clamor for the fix to be buried as a way of slowing the growth of inequality? It's a question worth asking simply because the entrepreneurs who cure cancer will grow exceedingly rich for doing just that.

Along the lines of the above, Ford died very rich, Jobs died worth billions, and Dell is worth tens of billions. Would any reader say he wished all three had been layabouts? Inequality would surely be smaller today as a result. More realistically, most of us would prefer to live in a world defined by hundreds of entrepreneurs possessing not just the skills of each business visionary listed, but also one defined by abundant capital that would be directed toward these kinds of innovators. This is important simply because Shiller desires higher taxes on wealth creation that would not only penalize the Fords, Jobs, and Dells of tomorrow, but that would also penalize investment in these types of people. Shiller cites polls to make his argument in favor of wealth taxes. Missed by Shiller is that "democracy," to paraphrase Benjamin Franklin, is two wolves and one lamb voting on what's for lunch. Thankfully the rich, and yes, very unequal United States is a constitutionally limited republic, as opposed to a mob and poll-driven democracy pined for by redistributionists like Shiller.

Looking ahead, let's hope Shiller's right about one thing: that robots and inequality soar in the coming decades and centuries. If so, readers can rest assured that such an outcome will gift an increasingly employed and productive workforce with staggering abundance, health, and wellbeing. That same outcome will properly expose Shiller's alarmist reasoning as pointless, and completely backwards.