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Automating Ourselves To Unemployment

April 28, 2016

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Automating Ourselves To Unemployment

How shortsighted policies are creating a long-term crisis
Students of Austrian business cycle theory are familiar with the term malinvestment. A malinvestment is any poor use of resources or capital, commonly made in response to bad policy (usually artificially low interest rates and/or unsustainable increases in the monetary supply). The dot-com bubble that popped in 2001? The housing bubble that similarly burst in 2008? Those were classic examples of malinvestment.

With this article, I’d like to introduce a related term: malincentive. While not part of the official economic lexicon, I consider a ‘malincentive’ a useful word to describe any promise of short-term gain whose long-term costs outweigh any immediate benefits enjoyed. The temptation to urinate in one’s pants on a cold winter day to get warm is a (perhaps unnecessarily) graphic example of malincentive. Yes, a momentary relief from the cold can be achieved; but moments later, you’ll have a much larger problem than you did at the outset.

Malincetives and malinvestment go hand-in-hand. In my opinion, the former causes the latter. As humans, we respond remarkably well to incentives. And dumb incentives encourage us to make dumb investments.

In this current era of central planning, malincentives abound. We raced to frack as fast as we could for the quick money, while leaving behind a wake of environmental destruction and creating a supply glut that has killed the economics of shale oil. Our stock exchanges sell unfairly-fast price feeds for great sums to elite Wall Street high-frequency-trading firms, and as a result have destroyed investor trust in our financial markets.  The Federal Reserve keeps interest rates historically low to encourage banks to lend money out, yet instead the banks simply lever up to buy Treasurys thereby pocketing vast amounts of riskless free profit. The list goes on and on.

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Olduvai IV: Courage
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Olduvai II: Exodus
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