Martin Ford, software CEO and author of a new (bad) book on how automation may destroy our economy, is right about one thing: Among people who work in the field of computer technology, it is fairly routine to speculate about the likelihood that computers will someday approach, or possibly even exceed, human beings in general capability and intelligence. … While technologists are actively thinking about, and writing books about, intelligent machines, the idea that technology will ever truly replace a large fraction of the human workforce and lead to permanent, structural unemployment is, for the majority of economists, almost unthinkable. For mainstream economists, at least in the long run, technological advancement always leads to more prosperity and more jobs.
Either redistribution is necessary, or (at the risk of sounding communist) the people need to directly own (or receive a share of the proceeds from) automation.
That's more or less along the lines of my analysis on the matter, but I find myself wondering, if that is the case, why do countries like Spain an Greece have nearly 50% unemployment for young people? How is it that with this many people, a "sub-market" as you've described doesn't produce itself?
Robotic Nation by Marshall Brain is a fun read and sounds very similar: Rapid progress in AI and robotics may bring about mass unemployment and economic collapse. It is well written, compelling, an thought provoking, and Brain gets many things right until he starts delving into the economics and his arguments seems to go astray.
Well the theory of comparative advantage is a theory of comparative advantage, in other words both members have to be able to produce at least two things. The point of the theory is to address the situation where one party is more productive than the other at everything.
The situation of you only able to produce wheat strikes me as more equivalent to the situation of supporting people who are incapable of supporting themselves. A more realistic comparator to your hypothetical person who can only produce wheat is, say, someone in the post-traumatic amnesia stage of a severe brain injury who can't produce anything. The only answers I have heard for that situation are charity or government provision of a basic income. As a practical matter, I can't think of a single case where a real human being can produce wheat but not anything else.
Jay - Re: "It’s not crazy to think that, overall, this process will result in lasting disadvantage to sellers of labor (most people), with owners of capital and providers of raw materials capturing more of the value of the economy."
Its certainly not crazy to think that it may result in a lasting or growing relative disadvantage to sellers of labor, but if production gets cheaper that relative disadvantage can still be with an absolute advantage as you get a smaller portion of a bigger pie, and your piece still is larger even if its grown only half, or even only a millionth as much as some others.
Also people, esp. over the long term, respond to such changes and incentives in complex ways. Even just in terms of voluntary economics people will learn new ways to be useful to those with wealth. Also you have the possibility for political redistribution.
It's too bad that this blog doesn't have up-voting, so I'm commenting to "up-vote" this. I was laughing and clapping as I read this. Yes, this seems precisely how it is.
1. Utility curves. We know that above (approx) $15K a year, increases in income yield little increase in happiness. So those "luxury" goods are less valuable, meaning producers can't sell them for enough (in aggregate) to make a living.
2. The remarkable efficiency of technology-driven corporate capitalism is also a remarkably efficient pump pushing wealth to the top. With high enough productivity (one person with a computer making everything?), this could overwhelm the price cuts that people down the ladder experience.
3. The massive productivity gains of recent centuries have been accompanied by massive increases in government redistribution. There's not one thriving, prosperous country that doesn't have a mongo huge dose of it.
Is it possible that that redistribution is necessary to maintain aggregate demand so a high-productivity economy can thrive and prosper?
Minimum wage laws and regulations can cause unemployment, but are not the sole cause of unemployment. The requirements of subsistence set an effective minimum wage.
In Victorian England, there was a widely understood principle that the equilibrium wage of the working class was the wage that kept the working population constant (the "Iron Law of Wages"). If pay goes down from that level, malnutrition and disease kills workers. The labor supply therefore falls and wages rise. The reverse takes more time, as children take time to grow.
So far, this insight has not seemed relevant to North America, because the continent has been relatively unpopulated. Of course, the population keeps growing.
Ricardo Law of Comparative Advantage start not working if taxation and regulation rise the costs of hired workers enough.When the cost to do something by themselves become lower than the cost to hire someone else and pay taxes.This is because there is a so high unemplyement in the western world.
Of course most people have access to cheap technology. Still, very few people manage to produce much out of it, and the types of products that can be made with common consumer technology tend not to be worth all that much. There are many bloggers, many fewer bloggers worth reading, and almost nobody who makes a living at blogging.
The few who have access to large-scale capital will, of course, resist being pulled down into the common fray with every tool at their disposal (think RIAA, think MicroSoft), with greater or lesser success.
My understanding of a "cheap-labor" economy looks much like India, Argentina, or Russia. It is true that such societies have little effective demand, and that therefore there is little incentive to invest (excluding foreign markets from consideration). It would be inaccurate to say that "all production stops", but economic growth is slow and demand is heavily skewed toward providing for the rich. I don't see anything unrealistic about this model.
I enjoy the physical as much as the next guy. The question is not whether machines can feel as we do, but whether they can work as we do (face it, your boss does not care much about your feelings, as long as they don't get in the way of your work). For more and more people, the answer seems to be Yes.
Evolution, properly understood, is far more prone to producing cockroaches than supermen.
"A bigger challenge than automation will be the increase in human population VS a finite planet."
Every new idea makes the concept of finiteness invalid. A single idea from one individual created the green revolution that continues to feed the world. More brains means a better world. Demographic armageddon is approaching for much of old europe it is approaching for Russia and China. Low fertility rates mean less future prosperity.
You cannot bootstrap the future without incentives for investment.
I don't think you get the point of my argument. If you accept the tight relationship of forecasts of future demand and current investment then if forecasts show a drop in demand from permanent unemployment then the investment won't be made in the first place. The whole 'end of work' argument collapses in on itself. It is illogical. It also flies in the face of our experience through history. If the 'end of work' argument were true as stated then we would become Luddites as we would smash the technology and kill the robots. It would be an act of self-preservation. What happens is that as firms compete with each other, prices fall just as they did for textile manufacture when the automated loom was widely adopted in 18th century England. There the Luddites were responding to falling prices not automation but they were all former textile workers. In the 'end of work' scenario, production has to fall. If just good-enough AI allows a firm's labor pool to shrink to almost zero then human labor no longer determines how much output can be profitably produced and shifts to how much AI can be added until its costs, rather than human labor's wage rate, equal the firm's marginal product. But the firm still faces the same market and must adjust production and this determines additional investment in AI. But in this scenario all firms have the same endowments and have no comparative advantage because just good-enough AI is driving all of the firms. If this is ubiquitous then all production stops because nothing is profitable anymore which gets us back to whether the 'end of work' scenario will never happen.
But what is the directionality of cultural and economic evolution? Just as biological evolution does not move backwards neither does cultural or economic evolution. As in Bronowski's barbed arrow of time, the barb prevents backsliding, we ratchet forward in a process called stratified stability. Application of these ideas to economics is not new; Schumpeter's creative destruction and Veblen's ideas are context specific in what drives economic evolution. In our lifetime we have seen the big established firms in almost every industry be toppled by nimble smaller firms. What drives that destruction but innovation? A large firm might try to adopt the new technology but it has a customer base mismatch that doesn't support investment so the decisions made by management might seem rational and profit maximizing but they are not. The disposable digital camera is one example where it will threaten the established firms selling the newly designated non-disposable digital cameras. The established GPS firms like Garmin are currently threatened by ubiquitous GPS tech on mobile devices. The list goes on and on. When computer technology was entering the office environment we didn't see an increase in output but when networking was added we saw an explosion in productivity, one technology leveraging another. Therefore, we have two complimentary processes in economic evolution, creative destruction and complimentary leveraging. How might a superior technology that could supplant all or most of human labor evolve? It certainly wouldn't evolve through some kind of sudden scenario that the 'end of work' crowd thinks. To be successful and not discourage further investment it would have to evolve in a distributed process where all humans become the owners. Just as you and I own our own skill and its corresponding earning potential, we would begin to own this new technology. We are already purchasing robots of all kinds and gadgets of all kinds that have degrees of usefulness in performing human tasks. Don't you think that the gradual distribution of technological capability will continue where each of us will become the owners of increasingly powerful technology? How does just good enough AI fit in to this scenario? I would say one it is first a niche market say in factory automation and the emergent flexible factory. At first it is expensive but the price point falls. It also simultaneously finds its way into decision support from finance to healthcare. It also finds its way into the home and everyday life. It immediately leverages both computer and networking technology but just good-enough AI cannot leverage its real abilities without advanced robotics, it must be able to move about. Once it reaches this level then ownership of the means of production becomes universal. What new jobs will there be for humans? Your guess is as good as mine is. However, to assume that there will be mass unemployment from a technological innovation is to fall back on an argument that productivity improvements will not free up purchasing power for other consumption. Those improvements increase aggregate demand and encourage more investment.
If you believe in the human world of flesh and eventual mortality of family and community of cooperation of joy of laughter of sorrow of regret of conscience of reading of eating of tasting and savoring of fishing of sailing of exploring of children of birth of belief then you will see that it is not possible to reduce all of human experience to information because without the elaborate feedbacks of our physicality we would not have the sense of who we are we would not have that specific information in the first place. If we were to give that up or believed we could evolution would end.
Remember, innovation is always slower in implementation that us technologist expect. In the case of information and software, the change can be rapid -- there are no physical assets involved. In the case of intelligent automation of jobs, there are physical assets involved with far more material often devoted to his effectors (arms, sensors, tools, etc.) that to his "brain" or control system. These assets are neither free nor can be instantly produced.
For pure information type jobs, dealing with a speaking machine won't be any different that dealing with a bureaucrat -- no compassion, reason or intelligence required. The rate of spread of this class of automation will be slowed by the power function nature of answers to questions as the complexity increases (they will take over very dumb jobs, but people in India will still be cheaper for more complex questions like why my software is crashing). This shift will also be gradual and not cause more than minor adjustments while increasing the total human wealth.
Therefore, the rate of change will continue as in the past. Functions will slowly be changed from human to automated systems, just like toasters replaced holding a piece of bread over a stove. All the more steady state (invalid in the long run) assumptions of economics about market penetration, utility optimization, etc. will remain true.
A bigger challenge than automation will be the increase in human population VS a finite planet.
It sounds as though you are talking about relinquishment.
Relinquishment is an option on paper, but those that try it tend to get marginalised and out-competed by those that embrace technology. Maybe a powerful world government could enforce it - but we would need one of them first - and large governments are not known for their rejection of technology.
My vote for the second disjunct (sans parenthetical qualification).
Either redistribution is necessary, or (at the risk of sounding communist) the people need to directly own (or receive a share of the proceeds from) automation.
That's more or less along the lines of my analysis on the matter, but I find myself wondering, if that is the case, why do countries like Spain an Greece have nearly 50% unemployment for young people? How is it that with this many people, a "sub-market" as you've described doesn't produce itself?
Robotic Nation by Marshall Brain is a fun read and sounds very similar: Rapid progress in AI and robotics may bring about mass unemployment and economic collapse. It is well written, compelling, an thought provoking, and Brain gets many things right until he starts delving into the economics and his arguments seems to go astray.
Well the theory of comparative advantage is a theory of comparative advantage, in other words both members have to be able to produce at least two things. The point of the theory is to address the situation where one party is more productive than the other at everything.
The situation of you only able to produce wheat strikes me as more equivalent to the situation of supporting people who are incapable of supporting themselves. A more realistic comparator to your hypothetical person who can only produce wheat is, say, someone in the post-traumatic amnesia stage of a severe brain injury who can't produce anything. The only answers I have heard for that situation are charity or government provision of a basic income. As a practical matter, I can't think of a single case where a real human being can produce wheat but not anything else.
Jay - Re: "It’s not crazy to think that, overall, this process will result in lasting disadvantage to sellers of labor (most people), with owners of capital and providers of raw materials capturing more of the value of the economy."
Its certainly not crazy to think that it may result in a lasting or growing relative disadvantage to sellers of labor, but if production gets cheaper that relative disadvantage can still be with an absolute advantage as you get a smaller portion of a bigger pie, and your piece still is larger even if its grown only half, or even only a millionth as much as some others.
Also people, esp. over the long term, respond to such changes and incentives in complex ways. Even just in terms of voluntary economics people will learn new ways to be useful to those with wealth. Also you have the possibility for political redistribution.
It's too bad that this blog doesn't have up-voting, so I'm commenting to "up-vote" this. I was laughing and clapping as I read this. Yes, this seems precisely how it is.
I thin Robin ignores three things:
1. Utility curves. We know that above (approx) $15K a year, increases in income yield little increase in happiness. So those "luxury" goods are less valuable, meaning producers can't sell them for enough (in aggregate) to make a living.
2. The remarkable efficiency of technology-driven corporate capitalism is also a remarkably efficient pump pushing wealth to the top. With high enough productivity (one person with a computer making everything?), this could overwhelm the price cuts that people down the ladder experience.
3. The massive productivity gains of recent centuries have been accompanied by massive increases in government redistribution. There's not one thriving, prosperous country that doesn't have a mongo huge dose of it.
Is it possible that that redistribution is necessary to maintain aggregate demand so a high-productivity economy can thrive and prosper?
Why Prosperity Requires a Welfare State
Minimum wage laws and regulations can cause unemployment, but are not the sole cause of unemployment. The requirements of subsistence set an effective minimum wage.
In Victorian England, there was a widely understood principle that the equilibrium wage of the working class was the wage that kept the working population constant (the "Iron Law of Wages"). If pay goes down from that level, malnutrition and disease kills workers. The labor supply therefore falls and wages rise. The reverse takes more time, as children take time to grow.
So far, this insight has not seemed relevant to North America, because the continent has been relatively unpopulated. Of course, the population keeps growing.
Ricardo Law of Comparative Advantage start not working if taxation and regulation rise the costs of hired workers enough.When the cost to do something by themselves become lower than the cost to hire someone else and pay taxes.This is because there is a so high unemplyement in the western world.
Steven,
Of course most people have access to cheap technology. Still, very few people manage to produce much out of it, and the types of products that can be made with common consumer technology tend not to be worth all that much. There are many bloggers, many fewer bloggers worth reading, and almost nobody who makes a living at blogging.
The few who have access to large-scale capital will, of course, resist being pulled down into the common fray with every tool at their disposal (think RIAA, think MicroSoft), with greater or lesser success.
My understanding of a "cheap-labor" economy looks much like India, Argentina, or Russia. It is true that such societies have little effective demand, and that therefore there is little incentive to invest (excluding foreign markets from consideration). It would be inaccurate to say that "all production stops", but economic growth is slow and demand is heavily skewed toward providing for the rich. I don't see anything unrealistic about this model.
I enjoy the physical as much as the next guy. The question is not whether machines can feel as we do, but whether they can work as we do (face it, your boss does not care much about your feelings, as long as they don't get in the way of your work). For more and more people, the answer seems to be Yes.
Evolution, properly understood, is far more prone to producing cockroaches than supermen.
Jay: Can't you wear clothes from Goodwill, learn some slang, and leave your degree off your resume?
"A bigger challenge than automation will be the increase in human population VS a finite planet."
Every new idea makes the concept of finiteness invalid. A single idea from one individual created the green revolution that continues to feed the world. More brains means a better world. Demographic armageddon is approaching for much of old europe it is approaching for Russia and China. Low fertility rates mean less future prosperity.
Jay,
You cannot bootstrap the future without incentives for investment.
I don't think you get the point of my argument. If you accept the tight relationship of forecasts of future demand and current investment then if forecasts show a drop in demand from permanent unemployment then the investment won't be made in the first place. The whole 'end of work' argument collapses in on itself. It is illogical. It also flies in the face of our experience through history. If the 'end of work' argument were true as stated then we would become Luddites as we would smash the technology and kill the robots. It would be an act of self-preservation. What happens is that as firms compete with each other, prices fall just as they did for textile manufacture when the automated loom was widely adopted in 18th century England. There the Luddites were responding to falling prices not automation but they were all former textile workers. In the 'end of work' scenario, production has to fall. If just good-enough AI allows a firm's labor pool to shrink to almost zero then human labor no longer determines how much output can be profitably produced and shifts to how much AI can be added until its costs, rather than human labor's wage rate, equal the firm's marginal product. But the firm still faces the same market and must adjust production and this determines additional investment in AI. But in this scenario all firms have the same endowments and have no comparative advantage because just good-enough AI is driving all of the firms. If this is ubiquitous then all production stops because nothing is profitable anymore which gets us back to whether the 'end of work' scenario will never happen.
But what is the directionality of cultural and economic evolution? Just as biological evolution does not move backwards neither does cultural or economic evolution. As in Bronowski's barbed arrow of time, the barb prevents backsliding, we ratchet forward in a process called stratified stability. Application of these ideas to economics is not new; Schumpeter's creative destruction and Veblen's ideas are context specific in what drives economic evolution. In our lifetime we have seen the big established firms in almost every industry be toppled by nimble smaller firms. What drives that destruction but innovation? A large firm might try to adopt the new technology but it has a customer base mismatch that doesn't support investment so the decisions made by management might seem rational and profit maximizing but they are not. The disposable digital camera is one example where it will threaten the established firms selling the newly designated non-disposable digital cameras. The established GPS firms like Garmin are currently threatened by ubiquitous GPS tech on mobile devices. The list goes on and on. When computer technology was entering the office environment we didn't see an increase in output but when networking was added we saw an explosion in productivity, one technology leveraging another. Therefore, we have two complimentary processes in economic evolution, creative destruction and complimentary leveraging. How might a superior technology that could supplant all or most of human labor evolve? It certainly wouldn't evolve through some kind of sudden scenario that the 'end of work' crowd thinks. To be successful and not discourage further investment it would have to evolve in a distributed process where all humans become the owners. Just as you and I own our own skill and its corresponding earning potential, we would begin to own this new technology. We are already purchasing robots of all kinds and gadgets of all kinds that have degrees of usefulness in performing human tasks. Don't you think that the gradual distribution of technological capability will continue where each of us will become the owners of increasingly powerful technology? How does just good enough AI fit in to this scenario? I would say one it is first a niche market say in factory automation and the emergent flexible factory. At first it is expensive but the price point falls. It also simultaneously finds its way into decision support from finance to healthcare. It also finds its way into the home and everyday life. It immediately leverages both computer and networking technology but just good-enough AI cannot leverage its real abilities without advanced robotics, it must be able to move about. Once it reaches this level then ownership of the means of production becomes universal. What new jobs will there be for humans? Your guess is as good as mine is. However, to assume that there will be mass unemployment from a technological innovation is to fall back on an argument that productivity improvements will not free up purchasing power for other consumption. Those improvements increase aggregate demand and encourage more investment.
If you believe in the human world of flesh and eventual mortality of family and community of cooperation of joy of laughter of sorrow of regret of conscience of reading of eating of tasting and savoring of fishing of sailing of exploring of children of birth of belief then you will see that it is not possible to reduce all of human experience to information because without the elaborate feedbacks of our physicality we would not have the sense of who we are we would not have that specific information in the first place. If we were to give that up or believed we could evolution would end.
Remember, innovation is always slower in implementation that us technologist expect. In the case of information and software, the change can be rapid -- there are no physical assets involved. In the case of intelligent automation of jobs, there are physical assets involved with far more material often devoted to his effectors (arms, sensors, tools, etc.) that to his "brain" or control system. These assets are neither free nor can be instantly produced.
For pure information type jobs, dealing with a speaking machine won't be any different that dealing with a bureaucrat -- no compassion, reason or intelligence required. The rate of spread of this class of automation will be slowed by the power function nature of answers to questions as the complexity increases (they will take over very dumb jobs, but people in India will still be cheaper for more complex questions like why my software is crashing). This shift will also be gradual and not cause more than minor adjustments while increasing the total human wealth.
Therefore, the rate of change will continue as in the past. Functions will slowly be changed from human to automated systems, just like toasters replaced holding a piece of bread over a stove. All the more steady state (invalid in the long run) assumptions of economics about market penetration, utility optimization, etc. will remain true.
A bigger challenge than automation will be the increase in human population VS a finite planet.
It sounds as though you are talking about relinquishment.
Relinquishment is an option on paper, but those that try it tend to get marginalised and out-competed by those that embrace technology. Maybe a powerful world government could enforce it - but we would need one of them first - and large governments are not known for their rejection of technology.