People Futures

I don't know if the title does justice to what I am about to say. The other two I considered were "Investing in people" and "Partial Slavery".  "FDI in people" was another contender. I am not going to talk about future of people in the sense we usually do, but instead the "future" here refers to ones used in financial markets.

Labor doesn't have a future. Again I mean in the financial sense of the term to avoid any Marxist connotation. The question is what if it did? Let's say any person could sell upto "49%" stake in himself subject to investment. Just to simplify implementation, lets say income tax of the person will be used by government to pay dividends to the "share holders" and in case of death of the person, they automatically get assets of the person (bank balance, property, etc) in proportion to their shares. Further assume that these shares are traded on a stock market so that other people/corporations can trade them.

Now that we have defined the model, lets try to see if it helps us in any ways.

Obviously anyone who made investment in Amitabh Bachchan or Sachin Tendulkar or Shah Rukh Khan would be making tons of money. In theory at least some investments could be handsome.

Consider education. Let's say the retirement fund of a teacher is exclusively or at least heavily influenced by the future income tax of the students he teaches. May be even his salary. Does this gives a teacher an incentive to educate the children to best of his abilities?

Consider education again. Does an industry benefits by investing in students which will be part of its labor force tomorrow? May be industry doesn't realizes this, someone else with money does.

Consider sports other than cricket in India. If their is any possibility of someone winning a medal in Olympics and possibly signing up for brand endorsements, would someone invest in players of these games?

I don't know what would this all really mean. But I do know that people are the future of any possible future we have. May be if that future is invest-able,  some people might invest in it. If nothing else, it gives us some measure of "human capital" vs "other capital" so that at least we are clear on what we as a generation believe is the "future".  May be this brings some reality (funny that speculation is what I propose as real?)  to the over simplified model of people as commodity.

Simple solution for unemployment

There is lot of literature on the subject with many ifs and buts.  Most of it points to stimulus to revive the economy. Because I am not an economist, I don't have much say on their effectiveness.

But I do have a very simple solution to the problem.  Declare Friday as a holiday. 

How does this works? We first need to understand the reasons for unemployment.

• Companies decide to reduce production and hence need less labor.
• Companies don't need more people. So the students coming out of college don't get any jobs.
• New methods of productions increase efficiency and require less people. 

Now lets assume government  declares Friday as a  holiday.

Good things that can happen:

• Companies only have 4 days to produce whatever they were producing in five days. 
• They need to employ more people (about 20%) to meet their weekly targets. 
• They might need to invest more in infrastructure to ensure that they can have working space/ machines etc for 20% more people.
• They might even decide to pay less per person from existing salaries, but they do need to invest in infrastructure and hire more people. Less paying jobs is infinitely more better than no job.

Bad things that can happen:

• They might ask people to work more hours per day. But labor regulations and bonus for extra work might not have linear cost structure. 
• They might reduce production further and increase prices. 

I can't completely predict what will happen, but if unemployment is caused by "excess labor", then this could be simple and cost effective way for governments to artificially reduce "excess labor" from the market. BTW instead of Friday, Monday will work too. Or if possible to enforce, 20% less working hours per week per person would also yield the same result. Actually government doesn't even needs to implement it, just declare it. Assuming 40 working hours per person, government can just announce that every 2.5% increase in unemployment will result in 1 hour less working hours per week. I am sure companies will optimize everything to find out what gives them optimal results. Who knows within a decade or two we will all work couple of hours a week ;)

Capitalism - The missing piece

Capitalism always reminds me of Darwin's theory of natural selection. Companies that don't make profit, die. Nothing emotional about it, that is supposed to be good for the economy and people. What about labor, specifically unemployed labor? If we assume the capitalism's answer is "they die",  capitalism starts to make complete sense. Death of poor unemployed labor lowers the labor supply, results in better wages for those alive.  That could be the capitalistic way of creating equilibrium. In countries without any welfare policies, with no access to land to cultivate or forests to hunt, the only choice capitalism leaves for unemployed labor is death and for a good reason. It creates equilibrium and better wages.

I understand the horror of what I said above, but if you accept it for a moment, you will see the beauty of capitalistic equilibrium equation. Nothing else is required. It will be a well functioning system, killing or producing people in relation to demand is all that it asks for, to be in perpetual balance. The more people are rendered useless because they contribute negatively to the equation of maximization of profit, more people need to die to maintain the economic balance. I guess that is what Atlas Shrugged was all about. Using the term "division of labor"  somehow presumes that their exists labor opportunity for everyone. Unemployment is logically absurd if capitalism is about division of labor.

The problem then is not that government is doing less, the problem is government is meddling around too much in this laissez faire economy. Left to its own design, it would solve the unemployment, poverty and other stupid social problems faced by society.  The invisible hand does seem to believe in removal of poor as a way of removal of poverty. Except for the issues of the morality of killing people and the biological problem of 16-21 years of waiting period before those born can be made into labor, the capitalism indeed works as described.

Of course this is not at all true. It is just a commentary on a mental walk on the roads of capitalism with "poor die" goggles. The good part is, it makes sense. The bad part is it is horrible. The reality on the other hand doesn't makes sense and is horrible too.

 Here is an alternative way of achieving Economic Equilibrium which doesn't requires killing poor.