In part 3 of this series I argued that the changes in employment are the main driver behind the massive rise in inequality in the US.  That inevitably brings out a number of responses for how to address inequality, none of which I believe will actually work.  At the end of that post I already showed a graph that debunks the notion that this can be solved through better education (at least of the traditional variety).  Similarly we now have calls for better labor organizing and higher minimum wages. Unions played an important role during industrialization so why not now? As even Robert Reich concedes, if there are too many people without a job it becomes very hard to organize those who have one. And even though I am sympathetic to an increased minimum wage as a short term measure, in the long run it will only hasten the demise of jobs as machines do not qualify (ditto for healthcare).

What all of these old solutions have in common is that they are premised on the continued growth of traditional jobs. If we want to make progress we first have to abandon that notion and have to think about a world in which there are fewer and fewer traditional jobs. Here then are three proposed solutions aimed at such a world:

1. Encourage and support the creation of new marketplaces that support micro-entrepreneurship, such as Etsy, Airbnb, Taskrabbit, Kitchensurfing, Sidecar, Skillshare and Shapeways to name just a few (including several USV investments).

2. Stimulate demand in areas of the economy that are mispriced or underpriced and hold significant employment potential for instance by taxing carbon and problematic food ingredients and providing prizes for space exploration and medical innovation.

3. Take measures aimed directly at inequality and its consequences, such as unbundling healthcare from employment and changing the tax code to affect some level of redistribution.

Each of these will eventually get its own detailed treatment in a separate blog post.  But for now I want to provide some more justification for each and more importantly point out how they work together given the changes in employment.

Micro-entrepreneurship is exciting because it allows people to earn an income often with minimal need for capital. Many (but not all) of these marketplaces are aimed at providing unique products or experiences or otherwise ad hoc tasks that will not easily be substituted by machines any time soon. So from a regulatory perspective we should be encouraging the growth of these marketplaces and the creation of new ones. Instead, we are seeing a fair bit of hasty action, such as the cease and desist orders against Lyft and Sidecar, that could harm the development of these marketplaces.

The second part of the approach is likely to be more controversial. But I firmly believe that it is the central role of government to deal with externalities. And we have a bunch that are not properly addressed today that could create significant net new employment. When people protest a carbon tax by pointing to jobs that would go away they fail to point to the new jobs that would get created. In fact, a carbon tax would mostly hit industries that are heavily substituting machines for humans whereas it would benefit efforts such as reforestation that are labor intensive. The same goes for processed foods compared to local farming and farm-to-table. I strongly favor approaches such as taxes and prizes where the government just sets the framework and lets private activity unfold over having this activity be part of the government itself. In fact, this is a strong complement to the micro-entrepreneurship. For instance, taxing highly processed foods while simultaneously fostering farm-to-table marketplaces (e.g. Farmigo and Good Eggs) will push economic activity from capital intensive to labor intensive which is what we need. Similarly, posting prizes for medical innovation and space exploration will help foster collaboration in emerging research networks such as Research Gate.

Some of the likely criticism of both of these recommendations is that people cannot earn enough money via micro-entrepreneurship and that taxing carbon and processed foods will make staples more expensive thus compounding the inequality problem. Which is exactly why we need to attack inequality and its consequences more directly. In fact all indirect approaches which make labor more expensive are the exact opposite of what we need in a world which is substituting away from labor. Direct approaches aimed at making healthcare accessible and affordable (one of the major issues with inequality) and redistribution through the tax code don’t have that problem.

The goal for today’s post was to get these three pillars of what I think of as the “new new deal” out there. I will provide more meat on each of these in subsequent posts.  But I want to address one other immediate question as to how we can afford all of this. Leaving aside for a moment that we cannot afford the alternative, which ultimately heads towards massive social unrest, I am proposing new revenue sources for government.  I also believe that by shifting more activity into new and emerging marketplaces we can actually reduce some costly government programs. In fact, re-inventing how we tax and allocate budgets to avoid the silliness that is the Washington’s fiscal cliff could and should be a fourth component.

What I am most hoping for with this post is to move the debate past the old solutions and past the old divisions towards a different set of approaches that do not fall along existing party lines.  All of the proposals above really are aimed at moving us away from the hierarchical organization of production which is dominated by a substitution of capital for labor towards a peer economy and society.