Monthly Archives: February 2020

Income inequality = skill gap

For everyone except the top 0.01% of earners, “income inequality” is actually skill inequality.  To see why, consider two thought experiments.

  1. Suppose the US labor market starts in equilibrium with 10m skilled jobs done by 10m skilled workers, and 30m unskilled jobs done by 30m unskilled workers. Suddenly, we figure out how to train 10m unskilled to become skilled. We now have “too many” skilled, and “too few” unskilled, for the available jobs.  From Econ 101, what must happen to skilled and unskilled salaries?  Obviously, they get closer to each other.  Income inequality goes down.
  2. Suppose the US is in equilibrium with 30m unskilled jobs done by 30m unskilled workers. Then we bring in 10m unskilled immigrants. The new arrivals can perform only unskilled work, but they demand work of various skill levels (doctors, lawyers etc). Thus, even if the new arrivals’ overall impact on the labor market is exactly neutral, they will create a shortage of skilled workers, and a surfeit of unskilled.  Thus the price of unskilled work must fall, and for skilled work must rise.  Income inequality goes up, unless you can do #1 above — train lots of unskilled to become skilled.

This argues that immigration policy and education policy are inextricably linked.  Unless you are able to train unskilled workers, you must not admit more unskilled workers, or you will end up with rising inequality and political instability.


The end of industrial warfare?

Cyber warfare and decapitation strikes may signal the sunset of industrial warfare.

If a cyberattack can shut down a country’s infrastructure — disabling its power plants, refineries and ports, for example — then war starts to resemble a nation-scale ransomware attack.

If small, self-guided drones can kill key military or political leaders, then war starts to resemble a nation-scale decapitation duel.

You think war means blowing stuff up and shooting people, because that’s been true for centuries.  But that’s not the goal;  it’s just the means.  The goal is to force another country to do your bidding.  War, in the most general sense, is “the continuation of diplomacy by other means,” as Clausewitz put it.  

The industrial model was expensive. You had to devote much of your manufacturing base to making explosive widgets;  hiring semi-skilled labor, aka soldiers, to operate those explosive widgets;  and then using them to blow up your opponent’s soldiers and factories until they cried uncle.

If you can instead force another country to do your bidding without spending trillions, without firing a shot, then of course you will. If these new modes of warfare work, they will replace the old model.

This will upset some assumptions.  Under the old industrial model, it was a big advantage in warfare to have more people, more factories, and less constitutional democracy (those pesky voters always want to stop fighting).

But to win a decapitation duel, for example, you no longer need lots of soldiers or widget factories.  Instead, you need a constitutional republic, a political system that is sufficiently codified to continue functioning even when its leaders are repeatedly killed off by surprise drone attacks.  By contrast, autocracies in general, and cults of personality in particular, are highly vulnerable to this sort of warfare.