April 20, 2017
April 14, 2017
Technology and Work part II: Economic Possibilities for our Grandchildren
Continued from Part I
What if this time is different? What if technology and automation create a world where human labor is uneconomical? What if we become so productive that there are too few jobs to go around? I’m pretty skeptical, but what if?
I’ll return to Keynes, in his 1930 essay:
Basically, too little work to go around due to efficient production? Great! Problem solved. This seems to be a fairly radical viewpoint; look at popular writings on automation and work, you would think it is a bad thing that robots could do our work for us. In reality, it would be a historic accomplishment. However, this long run outcome would raise its own, new problems.
As David Autor states in his recent paper:
I still can’t imagine a world where no human labor is needed at all. However, if human labor becomes uneconomical in production, we would have to rely on capital income (the return on ownership of robots for example). But capital ownership is highly concentrated. If we do not change our system in response to the effective elimination of wage income, our society would be split between rich capital owners, and an impoverished class with no ability to earn income beyond working for their own subsistence[2].
In short, in this what-if future, capitalism will cease to be the aggregate utility maximizing system and therefore must be discarded by economists (for the whole point of the science is to find the utility maximizing way to use our resources). Instead we would need to distribute ownership of capital (aka the means of production) among everyone, so that, in our future without scarcity, no one goes wanting.
Inequality would become unjustifiable as well. In 1944, the socialist economist Abba Lerner developed a simple equation of aggregate utility maximization, based on the concept of marginal utility. A poor person gains a greater marginal increase in utility from an additional dollar than a rich person. If you take that dollar from a rich person and give it to a poor person aggregate utility is therefore increased; this will go on until everyone has an equal amount of wealth.
What if this time is different? What if technology and automation create a world where human labor is uneconomical? What if we become so productive that there are too few jobs to go around? I’m pretty skeptical, but what if?
I’ll return to Keynes, in his 1930 essay:
“We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over[1]; that the rapid improvement in the standard of life is now going to slow down…I believe that this is a wildly mistaken interpretation…We forget that in 1929 the physical output was greater than ever before.
…the very rapidity of these changes is…bringing difficult problems to solve…namely…unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses…But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem.”
Basically, too little work to go around due to efficient production? Great! Problem solved. This seems to be a fairly radical viewpoint; look at popular writings on automation and work, you would think it is a bad thing that robots could do our work for us. In reality, it would be a historic accomplishment. However, this long run outcome would raise its own, new problems.
As David Autor states in his recent paper:
“if human labor is indeed rendered superfluous by automation, then our chief economic problem will be one of distribution, not of scarcity…we would have vast aggregate wealth but a serious challenge in determining who owns it and how to share it.”
I still can’t imagine a world where no human labor is needed at all. However, if human labor becomes uneconomical in production, we would have to rely on capital income (the return on ownership of robots for example). But capital ownership is highly concentrated. If we do not change our system in response to the effective elimination of wage income, our society would be split between rich capital owners, and an impoverished class with no ability to earn income beyond working for their own subsistence[2].
In short, in this what-if future, capitalism will cease to be the aggregate utility maximizing system and therefore must be discarded by economists (for the whole point of the science is to find the utility maximizing way to use our resources). Instead we would need to distribute ownership of capital (aka the means of production) among everyone, so that, in our future without scarcity, no one goes wanting.
Inequality would become unjustifiable as well. In 1944, the socialist economist Abba Lerner developed a simple equation of aggregate utility maximization, based on the concept of marginal utility. A poor person gains a greater marginal increase in utility from an additional dollar than a rich person. If you take that dollar from a rich person and give it to a poor person aggregate utility is therefore increased; this will go on until everyone has an equal amount of wealth.
The equation is true in and of itself, but it ignores human behavior and incentives. Nearly all economists regard some level of inequality as necessary to incentive economical behavior. For example, a sector that is producing too little given the demand for its output will have higher profits, enriching its capital owners relative to the rest of the economy but also incentivizing increased production.
But robots do not require such incentives; they can simply be programmed. Ownership of capital could be spread among all humans to do with what they want over their lives. And we could provide a basic income for those who still fuck up. This means humans can take greater risks in life, potentially incentivizing entrepreneurship rather than dependency. The consumption and savings choices of humans will still guide production to respond to human wants in a utility maximizing manner.
In a sense, we would all be rich, but even better. As Keynes put it (back in 1930 again):
But robots do not require such incentives; they can simply be programmed. Ownership of capital could be spread among all humans to do with what they want over their lives. And we could provide a basic income for those who still fuck up. This means humans can take greater risks in life, potentially incentivizing entrepreneurship rather than dependency. The consumption and savings choices of humans will still guide production to respond to human wants in a utility maximizing manner.
In a sense, we would all be rich, but even better. As Keynes put it (back in 1930 again):
“To judge from the behaviour and the achievements of the wealthy classes to-day in any quarter of the world, the outlook is very depressing! For these are, so to speak, our advance guard…they have most of them failed disastrously…to solve the problem which has been set them…
When the accumulation of wealth is no longer of high social importance…We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession…will be recognised for what it is, a somewhat disgusting morbidity…
All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard…
But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.”
April 12, 2017
Technology and Work part I: “The Bogeyman of Automation”
Technology in general, and advances in robotics and computing in particular, have created a lot of buzz and worries about what will happen to those whom[1] depend on wage income. “Maybe this time really is different” is the bare bones summary. Economists who air such views are sure to get a spot-light in our current political environment. But it is a view older than the Luddites. “This time is different” is a great way to get attention now, and look like an idiot in a decade or so, or at least it always has been[2]. Here’s an example of the popular worry about automation:
This is a pretty standard example of today’s worries, particularly the part about today’s new industries being different than in the past (think of the tech sector). Problem is that quote is from Time Magazine in 1961. It’s the same exact “this time is different” argument, except that we have the hindsight to know it was wrong. I vaguely remembered that Keynes wrote on this same subject so I went back and looked. Sure enough, in 1930 Keynes wrote (in an essay titled The Economic Possibilities for our Grandchildren):
It’s the same argument! Only by 1961 we had the hindsight to know it was wrong. Keynes correctly identified it as “only a temporary phase of maladjustment.” Since the 1960s (or 1930s for that matter), against the backdrop of higher productivity and women entering the labor force, employment has continued to grow. The employment-population ratio rose over the rest of the 20th century (it is now back to where it was in the mid-1980s due the recessions of this century and demographic change).
To address such concerns, the Johnson Administration formed a Commission on Technology, Automation, and Economic Progress. They hit the nail on the head:
Technology eliminates some jobs, but compliments others, increasing demand for such labor. And the typical job contains a mix of tasks, some of which are easily automated and others not. More generally, technology increases productivity, which means lower labor cost per unit of output. This will translate into a combination of increased production (because of lower costs), higher real incomes (because of lower real prices), and higher consumption (because of higher real incomes). All of which increase demand for labor. This is why the decline in agricultural employment in the US, from 41% of the labor force in 1900 to 2% by 2000 didn’t result in mass unemployment[3].
A frequent response to this simple, comforting story is that the costs and gains do not accrue evenly. Indeed technological innovation does cause inequality, particularly because cutting edge technologies are most expensive when new. In a recent paper, David Autor presents evidence that such worries are at least over-simplifications. While automation eliminates some low skilled jobs, robots cannot do everything a human can even at the bottom end of the skill distribution. As a result, automation increases the productivity of jobs at all skill levels. The rising incomes that result will cause people to consume more low skilled services.
Autor finds that over time employment increases across the skill spectrum typically have a U shape, though not always. That is, gains have been disproportionately at the ends of the spectrum[4]. However, because lower skilled jobs have lower barriers to entry (such as educational or licensing requirements), an increase in wages due to higher demand causes an increase in the quantity of labor supplied, subduing wage gains vs jobs with higher barriers to entry. Autor theorizes that middle skilled jobs have not seen as rapid growth because technological improvements are allowing automation to creep further up the skill ladder.
So the inevitable march of technology will not hit everyone equally, but it isn’t eliminating low skilled jobs opportunities generally. Some will lose while a majority benefit on net. The Luddites advocated destroying and banning technologies that threatened their livelihoods. Or, put another way, reducing the economy’s productive capacity, thus impoverishing wider society, in order to protect one class of labor from adjustment and competition. Surely there are better ways of helping the minority who lose out due to automation.
As Herbert Simon, a great economist and Nobel laureate, put it in the 1960s, “the world’s problems in this generation and the next are problems of scarcity, not of intolerable abundance. The bogeyman of automation consumes worrying capacity that should be saved for real problems.”
Part II
“The number of jobs lost to more efficient machines is only part of the problem…automation may prevent the economy from creating enough new jobs… But automation is beginning to move in and eliminate office jobs too… In the past, new industries hired far more people than those they put out of business. But this is not true of many of today’s new industries… Today’s new industries have comparatively few jobs.”
This is a pretty standard example of today’s worries, particularly the part about today’s new industries being different than in the past (think of the tech sector). Problem is that quote is from Time Magazine in 1961. It’s the same exact “this time is different” argument, except that we have the hindsight to know it was wrong. I vaguely remembered that Keynes wrote on this same subject so I went back and looked. Sure enough, in 1930 Keynes wrote (in an essay titled The Economic Possibilities for our Grandchildren):
“[I]n our own lifetimes…we may be able to perform all the operations of agriculture, mining, and manufacture with a quarter of the human effort to which we have been accustomed… the very rapidity of these changes is…bringing difficult problems to solve…namely…unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses.”
It’s the same argument! Only by 1961 we had the hindsight to know it was wrong. Keynes correctly identified it as “only a temporary phase of maladjustment.” Since the 1960s (or 1930s for that matter), against the backdrop of higher productivity and women entering the labor force, employment has continued to grow. The employment-population ratio rose over the rest of the 20th century (it is now back to where it was in the mid-1980s due the recessions of this century and demographic change).
To address such concerns, the Johnson Administration formed a Commission on Technology, Automation, and Economic Progress. They hit the nail on the head:
“Thus technological change…is an important determinant of the precise places, industries, and people affected by unemployment. But the general level of demand for goods and services is by far the most important factor determining how many are affected…and how hard it is…to find jobs. The basic fact is that technology eliminates jobs, not work”.
Technology eliminates some jobs, but compliments others, increasing demand for such labor. And the typical job contains a mix of tasks, some of which are easily automated and others not. More generally, technology increases productivity, which means lower labor cost per unit of output. This will translate into a combination of increased production (because of lower costs), higher real incomes (because of lower real prices), and higher consumption (because of higher real incomes). All of which increase demand for labor. This is why the decline in agricultural employment in the US, from 41% of the labor force in 1900 to 2% by 2000 didn’t result in mass unemployment[3].
A frequent response to this simple, comforting story is that the costs and gains do not accrue evenly. Indeed technological innovation does cause inequality, particularly because cutting edge technologies are most expensive when new. In a recent paper, David Autor presents evidence that such worries are at least over-simplifications. While automation eliminates some low skilled jobs, robots cannot do everything a human can even at the bottom end of the skill distribution. As a result, automation increases the productivity of jobs at all skill levels. The rising incomes that result will cause people to consume more low skilled services.
Autor finds that over time employment increases across the skill spectrum typically have a U shape, though not always. That is, gains have been disproportionately at the ends of the spectrum[4]. However, because lower skilled jobs have lower barriers to entry (such as educational or licensing requirements), an increase in wages due to higher demand causes an increase in the quantity of labor supplied, subduing wage gains vs jobs with higher barriers to entry. Autor theorizes that middle skilled jobs have not seen as rapid growth because technological improvements are allowing automation to creep further up the skill ladder.
So the inevitable march of technology will not hit everyone equally, but it isn’t eliminating low skilled jobs opportunities generally. Some will lose while a majority benefit on net. The Luddites advocated destroying and banning technologies that threatened their livelihoods. Or, put another way, reducing the economy’s productive capacity, thus impoverishing wider society, in order to protect one class of labor from adjustment and competition. Surely there are better ways of helping the minority who lose out due to automation.
As Herbert Simon, a great economist and Nobel laureate, put it in the 1960s, “the world’s problems in this generation and the next are problems of scarcity, not of intolerable abundance. The bogeyman of automation consumes worrying capacity that should be saved for real problems.”
Part II
April 3, 2017
This week in “Duh” / Airing Grievances about the Occupy Movement
Micah White is some guy who was involved in getting the Occupy Wall Street fad up and running in 2011; other activists say the movement had no such founders. Anyway, in a shocking turn of events (six years later) White stated that the movement failed because it got caught up in the spectacle of its protests and didn’t get any closer to power or change much of anything.
Duh.
Duh.
This is a news story?
Sorry I’m not sorry, but even as someone with sympathy for and common ground with the movement, that was painfully obvious in real time. You mean camping in a park didn’t change our system? The whole movement got bogged down in an argument over whether people should be allowed to squat in a city park if they have a grievance. Basically they lost sight of the objective in an argument over tactics and eschewed “the system” in favor of ideological purity too much to have that wider impact. Maybe it just took this long for someone to interview White about this but I wish I could have met him six years ago and saved him the trouble.
Now White advocates running for office, which is laudable[1]. There needs to be some basic level of participation in our constitutional system in order to effectively advance any cause. But now he’s over large protest movements, saying he’s learned they are ineffective. So, because Occupy failed, all mass protest must be ineffective? This is a great way to dodge any responsibility for Occupy’s failure: the movement failed because it was impossible to succeed, not because of its own choices. History is full of examples of mass protest initiating significant, sometimes massive, change. Shit, just look at the Tea Party.
White, speaking for himself of course, had a lot of nice things to say about Trump in the same interview (also bad things, he’s no Trump supporter, just to be fair[2]). He’s an excerpt:
I don’t want to put words in the guy’s mouth[3] but it sounds like his disagreements with Trump are based on different political goals and not over the means Trump advocates to achieve them. If so, what an asshole. And he loves when Trump threatened violence if he didn't get his way? What an asshole. Anyway, White has a new book out called The End Of Protest: A New Playbook For Revolution. Based on what I’ve heard from him so far I’d say read it and do the opposite. Actually, just don’t read it.
Sorry I’m not sorry, but even as someone with sympathy for and common ground with the movement, that was painfully obvious in real time. You mean camping in a park didn’t change our system? The whole movement got bogged down in an argument over whether people should be allowed to squat in a city park if they have a grievance. Basically they lost sight of the objective in an argument over tactics and eschewed “the system” in favor of ideological purity too much to have that wider impact. Maybe it just took this long for someone to interview White about this but I wish I could have met him six years ago and saved him the trouble.
Now White advocates running for office, which is laudable[1]. There needs to be some basic level of participation in our constitutional system in order to effectively advance any cause. But now he’s over large protest movements, saying he’s learned they are ineffective. So, because Occupy failed, all mass protest must be ineffective? This is a great way to dodge any responsibility for Occupy’s failure: the movement failed because it was impossible to succeed, not because of its own choices. History is full of examples of mass protest initiating significant, sometimes massive, change. Shit, just look at the Tea Party.
White, speaking for himself of course, had a lot of nice things to say about Trump in the same interview (also bad things, he’s no Trump supporter, just to be fair[2]). He’s an excerpt:
“Donald Trump proves that it's possible for an outsider to win elections in America. So I celebrate him for that. I love his spirit. I love things that he said during the debates. I love his anti-establishmentism. I love that he says things like, before the election he said, ‘If I don't win the primary there's going to be riots in the streets.’ I love that. And I love Steve Bannon's Leninist spirit. I love all that stuff.”
I don’t want to put words in the guy’s mouth[3] but it sounds like his disagreements with Trump are based on different political goals and not over the means Trump advocates to achieve them. If so, what an asshole. And he loves when Trump threatened violence if he didn't get his way? What an asshole. Anyway, White has a new book out called The End Of Protest: A New Playbook For Revolution. Based on what I’ve heard from him so far I’d say read it and do the opposite. Actually, just don’t read it.
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