Bullish on Innovation, Not so Bullish on Jobs

Buffett just appeared on the cover of Professional Builder magazine (hat tip to Steve Jordon at Omaha World Herald for picking this one up). The reason is that MiTek is buying Simpad, a computer design company that sells software for 3C-CAD (three-dimensional computer-aided design) and BIM (building information modeling).  What he said (as always) has implications for the economy.

According to OWH [translation supplied in italics as per usual], "In a book on Simpad that the company distributed to top U.S. home builders late last year, Buffett advised, 'The home-building industry, like others, will find ways to reduce costs [and cut jobs] through technology. I also see the current environment as an important opportunity for leading builders to retool their businesses [by permanently replacing labor with technology to enhance productivity] and to prepare for the up-cycle ahead.”

Here we have it squarely: the contradiction between innovation and creating jobs. Those who mindlessly cite "innovation" as the solution for our employment problems are not thinking clearly.  One definition of capitalism is that it is the process of converting labor into products. In pursuit of productivity, labor has been displaced by technology since man discovered fire. Over time this builds a higher living standard for everyone ... except for those who represent the highest labor costs, the low hanging fruit to be cut. Which happens right now to be a fairly big number of people in the United States.

I am full-square behind innovation. We need it desperately. We need a better educated workforce, fewer legal obstacles to innovation, a technological assist (broadband as a utility), more visas for immigrants, all kinds of things. These are needed to help the U.S. stay competitive as all kinds of service jobs are displaced in an outpouring of, yes, technological innovation assisted by the Internet. The innovation is going to take place whether we participate in it or not - we had better share some of the gains.

The frailty of the service economy was masked for a time by a bubble of financial leverage, but with the bubble bursting the underlying trend is revealed. If you wonder why the Fed is so frantic to reinflate the economy, consider that unsustainable financial leverage kept a lot of otherwise redundant people employed. (In that sense, what's good for individuals is not necessarily good for mankind and vice versa.) Innovation will create new opportunities faster for people whose old niche is being destroyed. It is the only panacea that we've got, but we should still be realistic about what will happen as we innovate our way out of our competitiveness trough. You are talking about enormous upheaval along the way.

Back to Buffett. I continue to maintain that his "I'm bullish on America" mantra has to be interpreted through this long lens of capitalism, which he understands quite well. He is never going to say anything pessimistic about the future of the U.S. in public; he wants to be associated with positive things that make people feel good. It's like a Coca-Cola commercial. While it may well be true that "your children and grandchildren will live better than you" the part that gets skipped is the chaotic conditions it may take to get there.

So the question I would like to hear him address at the annual meeting is: What are we going to do about jobs? Especially white-collar jobs?

No wiggle room for buzz words like "innovation" or irrelevant statements about how "over time the manufacturing base will be restored [because the dollar will be trashed and our costs will become competitive]" ... the stuff that is being heard everywhere these days. Innovation is not going to help displaced 50 year old news reporters, or 45 year old lawyers who are about to replace their own student loans with their kids' college tuition bills and who are watching law firms go bankrupt left and right. It's insulting to wave the word "innovation" at people like this as if it were an antibiotic against unemployment.

I would really like to hear the Buffett opinion. He's probably got something interesting to say if anyone can pin him down and squelch the peace-and-harmony version in favor of something meaningful.