The automation debate is flaring up again! Having a candidate like Bernie Sanders talking about labor in ways that have been neglected for years has put globalization back in the forefront. And it seems that those who work on AI risk are looking at the problem closely again. In line with the tradition of Malthus, Keynes, and many others, I’m seeing predictions that robots will steal our jobs. Or work for us, if you’re an optimist.
Here’s the thing. We already had an automation revolution. It was in the 1800s. Machines took human jobs. People jammed their wooden shoes into the machines. Machines still took their jobs.
And then they got other jobs.
In the jargon of economists, automation puts deflationary pressure on consumer prices. The only reason to automate is to make production cheaper because if you have to pay more for automation than you are for labor* you will stick with labor. This means that in a reasonably competitive environment, workers (and everyone else) end up paying less because of automation.
Workers end up needing less in wages—in such an economy, keeping the amount you are paid in wages constant is actually like a raise since things are getting cheaper. In Great Britain, between 1800 and 1900 prices fell so that a pound of goods was worth .68 pounds. Part of this** was the industrial revolution making production cheaper. That wages rose during this time is a testament to the relationship between capital and labor being linked, not antagonistic.
This means that robots work themselves out of jobs. By putting downward pressure on prices, they make it less attractive to hire robots and stick with inferior meat-humans. The very thing that makes automation attractive limits itself.
Now, here comes some important qualifiers.
First, this can be hugely disruptive. “Oh, yeah, things got cheaper during the 1800s” smooths over the century that eroded the peerage and European social order, set the stage for WWI, saw colonialism peak, was riddled with socialist and anarchist agitation, and saw abject poverty move from the country to arguably worse slums. While I stand by my sanguine analysis that automation is probably going to continue to be self-limiting overall, we will need policies designed to smooth the waters.
Second, this assumes that the cost of capital will remain high. I do not believe that AI advances are the main threat to labor. Software will plausibly chip away at some margins, but it is the hardware that is likely to be the limiting factor. Durable materials—plastic, metal, silicone, etc.—are probably going to increase in price as demand for them continues to rise. There is a scarcity of raw material and they are relatively difficult to work with. Innovations on that front, I believe, would do more to make capital attractive and squeeze out labor. We’ve seen a lot of progress, but things like Moore’s “Law” are breaking down. At any rate, this would not completely overcome the benefits of downward pressure on prices.
The history of labor and capital so far has not suggested that capital is especially detrimental to labor. The age of capital accumulation—the 17th century to present—have seen labor’s general improvement. (Those who would point to the faltering middle class in America miss the larger picture; Americans have lost at the margins to labor else where. See the first qualification above.)
I boldly predict that centuries of precedent will largely hold.
*Provided you get the same output. I mean, obviously, it can make sense to move to machines if they do better, and even worse, but that just adds qualifications without clarity.
**Here there be dragons. There is wide consensus what I wrote is true. There is no consensus on what fraction of that decline was from capital. It’s complicated.
Proof of Burden 
A much more nuanced approach is required when considering the effects of automation in the workplace. You stated that “robots work themselves out of jobs” with the downward pressure on prices. This deflationary phenomenon can be observed, but it is not immediate. It is also dependent on which/how many companies make this transition to more AI, which industries, etc. That said, AI also aids in providing services, not only tangible products. Let’s look at a more specific example.
Cashiers. We’ve seen many grocers put automatic check-out lines in their stores, but let’s focus on fast food cashiers. Many fast food workers have fought for wage raises. $15 or so. Now, some really enjoy the human interaction of such encounters. Some millenials do not. Unless the hamburglar CEOs determine that prices must be lowered because they no longer have to pay cashiers $15/hr, I do not believe that there would be the same deflationary pressure. Of course, there are start-up costs, learning curves, potential tech issues, etc, but when optimized, the McDonalds and Burger Kings of the world can use AI to connect customers with their product. I would be surprised if fast food prices began to drop with these changes.
I guess another example could be drivers–truck drivers, Uber drivers, and even pilots. Again, another service being provided, moving people from Point A to Point B. I do not see deflationary pressure here, or how price reductions could be contributed forward to customers. I appreciate this post you made. It’s a fun topic, and I’ve read a little bit about UBI, have interest in robotics/automation. But you seem to be a techno-skeptic, not a techno-optimist.
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I certainly don’t think it will be sum-zero—I say as much above.
But in the macro, consider what mass unemployment would do to the demand for goods. It would plummet. That would limit the demand for capital and thereby reduce the demand for automation and AI in the first place. (Most of the recessions in the last 100 years have been the other way around, with a fall in demand for capital driving a fall in demand for labor and ultimately consumption, but it is instructive nonetheless.) My guess is that the market will regulate on whole and deflationary pressures will prevent that kind of dramatic correction, but even if I’m wrong about the process, demand for AI will be largely limiting in aggregate.
Your cashier and Uber examples are both instructive. What will those people buy once out of work? Because it is consumers who ultimately pay [the owners of] robots, it would be a surprising result in aggregate if robots displaced most labor without a massive takeover first. (At that point, I think it is fair to say that a piece about the economic consequences of that would be missing the point.)
But I also think it is very misleading just to look at micro examples. Singular sectors often do one thing in isolation and other things when the macroeconomy moves. And to date, new technology has decimated parts of the labor market only to push prices down and see it reborn elsewhere.
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I do not see the government allowing mass unemployment to have the results you describe above. Something like a Universal Basic Income will be necessary to support citizens who do not have job skills to find work and be productive in this new economy. There will be a large learning curve for people, especially those who do not have the knowledge, skills, and abilities to contribute immediately. Say a truck driver who is forced out of a job–what are the chances that he or she is versed in data science, computer programming, or analytics? Automation will certainly remove a need for some jobs, but it will also create them.
Following what I just wrote above, I believe that people will continue to find a way to buy things. There may be a period of time in which people are displaced, out of work, and do not have the aforementioned government support, but ultimately, some program will be in place that allows people to continue participating in the economy.
It raises another question though–does all this automation lead to a post-capitalistic society? If people are only able to buy hamburgers and fly on planes because of government support, is it really capitalism? What is it? I’m not sure, but this transition will be rapid, and it will require a significant amount of support from the public sector, protecting people who are not able to contribute to the economy in any way. People who are not able to provide for their families. This mass displacement will change the lives of many people, but some might say for the better. Should humanity be used to drive trucks, make burgers, and handle customers in a retail setting? Some might say that the human mind is capable of so much more. Maybe this is more of a liberation than anything, allowing us to reach more of our God-given potential?
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I feel as though you may be talking past m point, or, perhaps, I am reading past yours. Let me pose my point as a question.
Where will the money for rapid capitalization and transition to AI come from?
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The capital necessary for this transition to AI will come from large cap companies and leaders in the private sector. These people with the financial means to develop, test, and optimize AI will be industry leaders and change the face of our economy. Companies like Apple, Google, Microsoft, Facebook, GE, and Wal-Mart have the financial means to do so, and can be seen as first movers in this area.
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We have to deal with scale here, however. If “large cap companies” start to take out debt in economy changing amount, the interest rates will rise. Depending on what the Fed does, that is either self-limiting or (if the Fed supplies the capital to banks) we will see a bubble/bust. If those companies don’t move the interest rate significantly, this is an—interesting, important, and limited—story about how people in those sectors are out of work. Without a boost to the consumption class, increases in capital are unsustainable. AI is no exception.
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I don’t see interest rates rising as a result of anything large cap companies do with respect to investment in AI. Commodity prices and housing prices will determine interest rates more than anything, as well as the general state of the economy. I agree that the consumption class will need support, and that will likely be done by the government. A universal basic income, or something similar, would help achieve that.
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The interest rate is the price of capital. A large increase in demand would almost certainly cause an increase in price. It would be a remarkable finding if we found anything else.
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Another thought that is tangentially related to this topic — many of the jobs in the future do not exist today. The education and experiences that we receive will ideally be able to translate into some of these new jobs, many of which are tech-focused. Doctors will become much more involved with technology, using sensors and apps to monitor patient’s vitals 24/7, and they will also work in tandem with technology to perform surgeries. Maybe Medical Technologist would be a better title than Doctor in the future. Some new schools are focusing more on this overlap, specifically the joint venture at Champaign-Urbana at the University of Illinois with the Carle Group.
But again, to that end, there will be a generation of doctors, and more generally employees, that are unable to work with technology so fluidly. That’s what you were writing about, how technology will displace a large number of workers, demand for products will decrease, prices will fall, and profits will decline. I believe that a system will be implemented that helps maintain consumption levels and provides displaced workers with support. Then, as the education system is changed to accommodate for these broader changes in the economy (teaching more computer science in primary/secondary schools, etc) a new generation of workers will fill the niche that has been created in the economy.
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Many of the jobs of the past do not exist today either. But what we saw through the first automation revolution was people adapted. (Individual persons, and at times communities, in many cases did not; I packed a lot into the paragraph about smoothing the waters.) They went back to school or got on the job training. High structural unemployment, like all unemployment, is going to be a drag on investment and thus a drag on automation.
I confess to not having yet grappled with the full implications of the UBI, but since you are intent on skipping to its need without proving it, I will say a few words. I am not convinced of its need for /macroeconomic/ health. You can follow my argument, which you misrepresent, to see why. I do not argue that, “technology will displace a large number of workers, demand for products will decrease, prices will fall, and profits will decline.” I argue that firms will remain limited in their ability to drive up unemployment.
Your idea that firms can simply replace a large fraction of the productive economy on credit without raising the interest rate is preposterous. It requires us to double or triple investment in a short period, something that has never been done. Even under favorable assumptions, the interest rate would be in the double-digits. The displacement of jobs will take a slower path. While this might be disruptive and unfortunate for those in the path of creative destruction, experience tells us that most people will get jobs that actually allow them to purchase more than they could before. But even presuming lasting unemployment, that will decrease the savings (and thereby lending) available to buy the capital to automate.
Our financial system is itself a technology designed to avoid wasteful, unsustainable investment. (It is, to say the least, imperfect; I could see automation happening and getting routed in a recession.) Of all the arguments for UBI, that we face high unemployment without it is not one that I see as convincing. Robots will work themselves out of jobs until they buy things—until they actually become laborers.
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