Automation and Inequality

Over the past few month I have become increasingly concerned about rising levels of automation in the US and world economies.  In my opinion it is becoming obvious that human labor will become progressively worthless from an economic standpoint.  At some point in the near future it is clear that almost all tasks of economic value will be done better by a machine than a human.

Some will argue that this will never happen because even though increasing automation will replace some jobs, advancing technology will always create more new tasks than it destroys.  Clearly this is what has happened in the past.  But I have come to suspect that there are good reasons why this probably won’t continue in the future.

Productive work typically involves some combination of physical labor (moving stuff around) and intelligent direction.  Until recently, most machines were really only good at helping us move stuff around.  Humans were still needed to figure out how to move all of that stuff around in a productive manner.

This meant that as machines began making it possible to increase the total amount of goods and services being produced by augmenting human strength, the value of intelligent human effort increased along with it.  This was because every new machine always required intelligent human operators in a relatively fixed ratio and those operators needed to be paid for their efforts.  (Note: the role of “human operator” refers to both those directly operating the machines and all the behind the scenes support staff like bookkeepers and engineers that were needed to keep the machines running.)

But this appears to have started changing about 30 years ago when computers began to be used in the production process as shown below.

fredgraph

This chart  shows the ratio between all compensation paid to employees (mostly wages) and GDP (a measure of the value of all goods and services produced in the US during a year – currently about $18.5 trillion).  You will notice that from 1948 to about 1975, the relative value of employee compensation remained fairly constant at roughly 50% of GDP.  Then it started a slow decline and currently stands at about 43% of GDP.  Assuming my hypotheses is correct, the relative value of employee compensation should continue falling and eventually begin approaching 0% of GDP as intelligent machines like self-driving trucks quickly push humans operators out of the way.

Btw, who pocketed the 7% of GDP that is no longer being used to pay workers?   Need you ask?

saezzucman2014fig1

What is even more concerning is that fact that in most cases today the decision on how our machines are used is made solely by the owners of those machines.  Until recently this hasn’t been much of a problem because this decision has always been subject to a very significant check.  Since all machines required some form of intelligent human operator, workers always had a say in how they were used.  This was because a significant part of a machines output needed to be used to pay workers.  By necessity the output of any machine had to be shared between the owner of a machine and the people hired to operate that machine.

Those workers of course subsequently used that compensation to trade for the output of other machines run by other workers.  This meant that at least some of the output of our economic system had to be dedicated to the needs and desires of workers as well as the needs and desires of machine owners.

But what happens when humans are no longer required to operate the machines?  What is to stop machine owners from using their machines anyway they wish?  If you don’t need to pay anyone, why produce anything at all for the masses?  Since you will no longer be paying those workers any longer, they likely won’t have any money to spend anyway.  Why not just redirect the machines to create things you and your fellow machine owners want and desire?  Why bother creating houses, cars or other products for the mass of former workers?  Since you own the machines, why not use them instead to build super yachts or mansions on Mars?

If I am correct, at some point soon the value of wages received by all workers will start falling below the total value of the goods and services needed to sustain those workers.  This will likely happen because of a combination of rising unemployment, increasing competition with new intelligent machines driving existing wages lower, and rising costs for basic necessities as machine owners divert more and more resources toward their own desires.  Needless to say the results of this happening are likely to be catastrophic for all but the wealthy.

But this doesn’t have to happen.  There is no reason ownership of the machines needs to concentrate solely into the hands of an economic elite.  This ownership could just as easily be distributed in some way to everyone.

For better or worse I suspect that over the next decade or two we will be increasingly asked to choose the type of post-work future we would like to see.  One alternative could be an abundant Star Trek like future  where everyone’s physical needs are met by a massive, solar powered, automated network of machines (although probably minus the warp drive and transporter, at least for now).  The other extreme, where for whatever reason we currently seem to be headed, is a Galt’s Gulch for the wealthy few who will increasingly redirect the worlds resources toward their own desires.

Note that unlike the past this choice is no longer being driven by the question of fairness. If my analysis is correct, it is now a survival question.  And like it or not, the only way I see to make this choice is through our political process.  If we wish to survive, somehow we will need to come together and figure this one out.

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