Sunday, January 20, 2013

Another 'automation is bad' argument....

I have just stumbled on a new article which is arguing that automation is not a good thing (see ref below and discussion of the article here) and this follows my discussion of Krugman's Luddite point of view some time ago. They discuss robots, but also quite reasonably discuss other forms of substitution for human labour, such as the ability for computers to calculate taxes, and automated toll collection etc. This new article argues that the rise of automation is going to cause an inter-generational wealth gap:

As shown below, in an admittedly highly stylized life-cycle model, the general equilibrium effects of this generational redistribution can transform enhancements in machines into very bad news not just for contemporaneous young generations, but for all future generations. The model treats all young workers as unskilled agents who invest their savings in the acquisition of both skills and machines. When today’s machines get smarter, today’s young workers get poorer and save less. This, in turn, limits their own investment in themselves and in machines. The knock-on effect here is that the economy ends up in all future periods with less human and physical capital, which further depresses the first-period wages of subsequent young generations. Although the skilled wage premium and the return to capital rises, the net impact of smartening up today’s machines is a reduction in the lifetime wellbeing of today’s and tomorrow’s new generations. In short, better machines can spell universal and permanent misery for our progeny unless the government uses generational policy to transform win-lose into win-win.
As a positive in the article, they recognise that the massive increase in labour in places like China and India has been a force that has driven down global wage rates. They also recognise that China is likely to also go down the road of automation, a point I made in my earlier post on the subject.
I can also at least give them credit for the novelty of their approach to the machines are bad argument.

However, the problem with their argument is very simple. It would apply equally to the Luddites, if not more. Indeed, today, capital is probably less concentrated than in 19th century England. So why is it that the industrial revolution created the many benefits that we still enjoy today?

After all, it was not just weaving in the industrial revolution that was impacted by automation, but many industries. In each case of automation, previously skilled work was automated, and also unskilled work, but the result was a revolution that saw long term improvements in standards of living. Modernity is the product of this revolution. The whole point of automation is to drive down costs of production, and this leads to cheaper goods, and cheaper goods means greater affordability, and more goods being available and so forth. Now if we jump back in time to the time of the Luddites, automation was undoubtedly a bad thing for skilled weavers, but also gave cheaper cloth for everyone else. This cloth was made in factories which themselves created a whole raft of new jobs, for example generating employment for skilled and/or semi-skilled engineers, as well as unskilled work in the manufacturers of the machines. As labour was freed as a result of industrialisation, new products could be made and the general stock of products available increased, and the cost of those products fell. In other words, automation destroyed jobs, but also created new jobs, and provided a wider range of products (and services) as lower costs.

There is no real difference here, except that some of the jobs that are being replaced are white collar. However, the idea that a computer can do complex tax calculations is directly equivalent to a skilled weaver doing complex weaving. The nature of the technology makes no difference, and nor does the status of who is being replaced. Indeed, if we read their introduction, we find this:

But what if the Luddites are now getting it right -- not for labor as a whole, but for unskilled labor whose wages are no longer keeping up with the average? Indeed, what if machines are getting so smart, thanks to their microprocessor brains, that they no longer need unskilled labor to operate?

Evidence of this is everywhere. Smart machines now collect our highway tolls, check us out at stores, take our blood pressure, massage our backs, give us directions, answer our phones, print our documents, transmit our messages, rock our babies, read our books, turn on our lights, shine our shoes, guard our homes, fly our planes, write our wills, teach our children, kill our enemies, and the list goes on.

Yes, technology has always been changing. But today’s change is substituting for, not complementing unskilled labor. Yesterday’s horse-drawn coaches were replaced by motorized taxis. But both required a human being with relatively little human-capital investment – a cabbie -- to drive them.

Tomorrow’s cars will drive themselves, picking us up, dropping us off, and returning home all based on a few keystrokes. This will make cabbies yet another profession of the past.
I have put emphasis on a couple of points. Take the example of the frivolous machine that massages our backs. This is a product which replaces a human masseur. That must be a bad thing, right? However, there is now employment in the manufacture of a new machine, and one which makes having an affordable massage available to more people. Automation has allowed this to be achieved, and for those (unlike me) who value a good cheap massage, their life is improved by this becoming affordable. Or take the idea of machines reading our books. For the blind, this constitutes (I guess) a huge potential improvement in their lives, and again, the development of software and manufacture of computers to do this is a source of employment. Sure, braille producers will eventually go out of business, but would we begrudge the availability of the books for the blind due to this loss of employment. In a recent example, Excel software undoubtedly would have led to less employment for the less skilled account clerks, but also would have created greater demand for those who could interpret accounts. Now, some of that interpretation is automated, and this in turn will reduce the need for skilled interpreters of accounts. In neither case did the employment world fall in as a result.

The important point is that in the introduction to the paper there is a whole list of new consumer goods and devices that were previously unimagined and that directly or indirectly result from the technology of automation. Who could have imagined a mobile phone 50 years ago (notwithstanding science fiction), but here they are. As technology improves further, other unimagined devices, services and consumer products of all kind will become available, whilst existing products will become cheaper and more widely available. New skills will be in demand. For example, as result of relative affluence in some countries, more people can afford to eat out, and this generates new demand for labour that is skilled, semi-skilled or unskilled. It allows for new leisure pursuits to be developed such as bungi-jumping. All of this is contingent upon the expansion of productive capacity, and automation does exactly this.

Just as the stock of types of goods increased and cost of goods fell in the industrial revolution, so the same will happen today, as exemplified in the examples the authors give. It really is no different. Where once there were skilled hand loom weavers, there were then other skilled and unskilled jobs that were created in their stead. This net increase in the availability of types of goods and reduction in the cost of producing goods can only be a good thing. However, automation of any kind sees a short term cost to those who are replaced.

The real difference today is nothing to do with automation, but is to do with something the authors themselves highlighted. There is indeed the question of the supply of labour in the world, and competition is particularly intense between unskilled labour. However, there is also intensifying competition in the middle as countries such as China seek to expand their higher education and increase the supply of graduates. This is nothing to do with automation, and everything to do with the supply of labour. As such, they are correct when they suggest that new Western workers face a challenging future, but are wrong about the reasons. I am genuinely puzzled at the revival of Luddism, and the rather odd justification for it. Is it simply fear of change? Comments welcomed.

Note: I realised I forgot a key point in the post just after hitting publish. What the authors are mistaken on is that they see automation as creating income inequality. What is actually taking place is greater income equality in which income is being redistributed to places like India and China, whilst income inequality within countries increases due to the oversupply of labour overall. Capital wins in a situation of an oversupply of labour as labour is unable to bargain for a greater share of profits. It really is very simple. Their claims of greater income inequality only stands up if looking within a country, not if looking between countries.

Sachs, J. D. and L. J. Kotlikoff (2012). Smart Machines and Long-Term Misery, National Bureau of Economic Research.


  1. As with the previous post on this subject, I'm not 100% non-Luddite, in that I can imagine the free market following an apparently logical path that eventually leads to a catastrophic screw-up when something disruptive comes along. Only someone with a pure faith in the infallibility of the free market would regard this as impossible. (And they would have to temporarily hold at bay any doubts they have that we don't have a free market - if we don't have a free market, why should not any outcome, including the worst fears of the Luddites not come to pass?)

    Opposing technological progress would, of course, be pointless and counter-productive, but I could imagine situations where attempting to anticipate change might be helpful. Who can say which butterfly's wing eventually leads to WW1, 2 or 3?

  2. Agreed on the free market being questionable, but we might instead discuss degrees of freedom.

    There is potential for 'screw-ups' in the sense of what you say about the butterfly wings, but I am not sure how these can be ameliorated. As it is, WW 3 is looking like a possibility, albeit still an extremely unlikely one. The current Japanese and Chinese shenanigans over disputed islands is getting ever more tense, but I suspect that madness will not prevail, at least not yet. At present, it is more a worry of accidents and spiralling out of control.

    This is, in part, the butterfly you discuss, as the rapid advance of globalisation is, in part, due to technology, and that has brought us to the point of a rising and angry new power, bearing a historical chip on its shoulder. However, this is a tenuous linkage, and what might have been done to avert this - without the benefit of hindsight of course?

  3. I think there is a potential serious problem at some time in the not too distant future when (if?) machines become very intelligent and almost all tasks can be automated. It will never be profitable in that circumstance to employ humans instead of machines that can do the same tasks more cheaply and more accurately, and most people will be unemployed. People will then have very low incomes and the economy will cease to function since they will not be providing the demand that makes production worthwhile.

    There is an analogy with the USA at the beginning of the 1800s. Industry did not develop as well in the slave states as it did in the free states, at least partly because in the slave states the poor whites had no way of earning a good living: all the unskilled and much of the skilled manual work was more cheaply done by slaves, whose income was so low it had no impact on the economy, and therefore provided no incentive for the development of mass production.

    At some point we are going to have to find a way of giving people money for doing nothing.

    I am not claiming to know much about this: I got these ideas from reading “The lights in the tunnel” by Martin Ford.

    1. I think you are perhaps missing one of the points of the post. When the Luddites were smashing machines, they were undoubtedly seeing the machines as a replacement for humans. And the machines were replacements. Today, computers are replacing people in new areas, and it is identical. Just because the job now might be white collar makes no difference.

      I recently read an (somewhat over-excited) article in Forbes about the driverless car. It will (eventually) see the end of many jobs e.g. taxi drivers is an obvious example. In this case, people will lose jobs, but just as in the past, new jobs in new areas will emerge to fill the gaps. Just because we cannot see what those jobs are now, does not mean they will not exist. It is the same situation as for the Luddites. They could not see that the industrial revolution would lead to the creation of new industries, of new products. For example, the car was eventually invented and led to the creation of jobs such as mechanics. The same thing will happen again now. The difference now, as I pointed out in the post, is that this change is taking place with a glut of labour in the world market.

      For example, the relatively new business of assembly of mobile phones etc. went to China. It was not long ago that this industry did not exist, but it has arisen and continues to develop on the back of the same technology that creates automation. The same technology that is destroying jobs is creating new jobs; just in the 'wrong' place from a 'developed world' perspective.

      Slavery is not really a comparison. I am not sure how the economic distortion of labour is illustrative of anything to do with automation. The only comparison is that the free states shows that, when competing with very cheap labour, the solution is in automation with resulting productivity improvements. This competition with cheap labour is comparable, though not the same as today, with the rise of the emerging markets in some industries.

      As a note, I have not read the book you mention, so cannot comment on the book's argument.

    2. The point about slavery damaging the economy was to try to make clearer that our modern societies are dependent on large numbers of people making many small purchases of goods and services. If the people do not have any income there will be no industry, no matter how cheaply the automated factories can produce goods. The factories will produce nothing if there is no one to buy their output.

      It is right that my hypothesis was that computers and highly automated factories could produce almost everything and provide almost every service, and perhaps did not take sufficient account of employment that cannot be done by machines. I think these might be mainly in the entertainment and leisure industries. You could probably make robots that could play football better than humans, but people would probably not be much interested in watching them playing, or you could make a robotic music group which would have a novelty value for a while but eventually people would move back to listening to humans. There will be a continuing demand for actors in theatres (but will there be a continuing need for human actors in film?), and certainly a continuing demand for playwrights and screenwriters. And then there is the sex industry...

      So there will be a continuing employment in these professions. But we can’t all make our living by playing professional football or making music or acting, etc. because all these activities require an audience which is not just other professional footballers, musicians, or actors. No one would pay to watch me play football, make music, or act (but maybe you are thinking I could make a pathetically small income from fantasy writing). For the Luddites to be wrong new types of employment, perhaps in industries not even conceived of, have to become available. I don’t think there is any guarantee that will happen: all we can say is that it has always happened in the past.

  4. I've read you for a long time since before your hiatus but I can't tell if you're being naive, blind, or just unbelievably optimistic on this topic.

    A machine replaces 1000 people's work. How many jobs are created by doing so? One machine technician. A few more jobs in a machine factory, which however is also being automated at the same time for exactly the same reason. And indeed the exigencies of capital will seek to AVOID creating new jobs, using mechanical labour first, and if there are human workers who remain necessary then forcing them to work longer hours for lower pay - I'm not imagining it, we've experienced it on our own backs. The TREND is in one direction, and is hugely unbalanced against the worker. Pardon the workers for thinking that's bad, but of course the holders of capital are the ones who shape public opinion!

    If this is going to happen, then there needs to be a GIANT SAFETY NET to protect workers. It should not be disastrous to be unemployed then, because so much is now done by robots. But instead the welfare state is carefully being dismantled everywhere at the same time as it becomes impossible for those outside the top 1-5% to live decently. Coincidence or conspiracy? Again, who benefits from this and who shapes public opinion about it?

    Do you remember the Grapes of Wrath? When 100 farmers are kicked off the land and replaced by one man on a tractor? 500 people reduced to poverty and homelessness, replaced by one job... so you're saying none of that matters because magically lots of other jobs are created building tractors (in a similarly automated process, though - it affects everything remember). Suffering and destruction are just collateral damage - you've become the emotionless homo economicus with no heart or soul.

    The jobs you say will magically turn up? Yeah, good luck with that. Your (honest?) faith is touching. You're talking like a politician there, to be frank. They've been building castles in the air about the service economy, knowledge economy, tech jobs, Silicon Roundabout, everyone can be Mark Zuckerberg making millions from their bedroom, you know? All hugely exaggerated piffle to anyone who lives in the real world.

    Rest assured most of us are utterly terrified, as what has happened since the 1990s has now become very clear since the crash (including clarified by some of your good analyses).

    Have you spoken to anyone under 25 lately? Us normal people, especially the young, have no prospects and no future. Revolt or suicide are the options. And we saw how the Occupy Wall Street 'revolts' had absolutely ZERO effect on the feudalism that crushes us and will crush us further. If you're not in the elite, you're nothing, and will have nothing. The rich man in his castle, the poor man at his gate, God made them high and lowly, and ordered their estate.

    "I'm sure something will turn up" is no future. "Shut up while the 1% squeeze you" is not a social contract.

    1. This is a highly emotive comment.

      I am very much aware of how hard things are for many people. I visited an occupy site, and it was very clear why the people were not listened to, if my experience was anything to go by; when given their account of their objectives, reasoning etc. it became clear that there were no coherent ideas.

      As a note, If you read deeper into the blog, you will find that there is a cold logic in what I say. You will also find answers to some of your points. For example, if you read my first ever post, you will find that one of the things that I did was to say that the service economy was an illusion.

      My solutions are hard, but that is because you can not wish away several billion people who have now joined the world economy, and are competing increasingly in areas which were the 'territory' of the developed world.

  5. Is there any inherent reason why the free market should automatically lead to prosperity and jobs-a-plenty as a result of technological progress? That sounds like a belief that the free market has a purpose, like believing that evolution has a purpose because we have made some observations about its progress so far, and retro-fitted a narrative to it. If we are not naive enough to believe that the free market has a purpose, then surely any outcome is possible, just as evolution can lead to humans, super-humans or merely a world populated by cockroaches - after a nuclear war!

  6. Mark,
    In my book a country where a society as “civilized “or “advanced” or “sophisticated” that can be or could be is living on borrowing time and is distant to fail unless it can feed his own population…
    British islands and well as the EU can no longer sustain feeding their own population without trades! (I am not even speaking about energy resources…)
    We have to face the facts of the hardest reality…I am not pessimistic or a doomsday follower, just realistic… It is not long ago… from the last European famine in Ireland, not even 200 years ago.
    Kindest Regards,

  7. Once we can build a machine that is more capable than a human being in any area, and cheaper to operate than a human being is to employ, why should new emerging jobs be filled by human beings?

    I don't see such a machine as being terribly far away, and as time passes and we approach that point, progressively fewer humans will have the ability to prove more attractive to employ than a machine is to purchase.

  8. Would it be where we are going ???

    The reality of technological unemployment...

  9. I visited a relative in a magnificent new hospital in a long-since redundant northern town the other day. It exists, it has more staff than patients it seems, has the latest technology, and so on. Presumably the builders were paid, the suppliers of the bricks and concrete, the machines that go 'ping!', all were paid. The staff are paid every month, and the patients happily pay their taxes and take their state-of-the-art medical treatment when they need it. Of course a large proportion of the patients are not net contributors to the economy, but the rest of us are inwardly glad that we don't have to worry about that fact.

    Despite this apparent huge drain on our incomes we UK citizens do OK: we only work 38 hours a week, and have cash to splash on all kinds of rubbish. The rest of the world apparently sees us as a safe haven for its investments, and is happy to exchange its real goods for our pieces of paper. Our own unemployment rate is very low, and the jobless are still not on the breadline. It's hard to see where the flaw in this system is!

    If you take the strict accountancy view, then the UK is on the road to ruin. But everyone else in the world can't wait to invest in Britain, or sell us their goods. They are happy. The goods exist. In fact if the Chinese wanted to have a rest, they could stop making the cheap goods that they sell to us, and our lives might even be improved, too, but they don't want to. They would feel as though life was worthless if they didn't have jobs to go to, aspirations to fulfil, servicing the needs of the West.

    Were the global economy's books ever balanced, on a strict accountancy basis? I don't think so. It was always a case of perpetual expansion apparently swallowing the nominal debts. And this expansion was always due to unlimited resources, particularly energy. We are still in the phase where energy is almost free, and if you believe the Americans over their shale oil, it's going to get even cheaper. Is there really anything to worry about?


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