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Robots will not create a workless world

    “…Most of us will have less and less money to buy the dazzling array of products and services spawned by blockbuster technologies - because those same technologies will be supplanting our jobs and driving down our pay.” –  Robert Reicher (March 16, 2015).

    The latest industrial revolution is afoot. Artificial intelligence (AI) is its defining ingredient.  Some think it will bring superabundance. Some think it will bring lasting job losses and lower pay. Some think it will bring both. Neither outcome is plausible.

    Former world chess champion Garry Kasparov has a new book out called Deep Thinking. Losing to the computer “Deep Blue” gave Kasparov a close encounter with a member of the race of “intelligent machines.” Despite this experience he tends to see promise rather than threat in their growing power. I do too, but not quite in the same way. This is what he wrote in the Wall Street Journal (April 14, 2017) in an essay adapted from his book:

    Machines that replace physical labour have allowed us to focus more on what makes us human: our minds. Intelligent machines will continue that process, taking over more menial aspects of cognition and elevating our mental lives towards creativity, curiosity, beauty and joy.

    After leaving school in the northwest of England, my second and third jobs were at factories producing, respectively, biscuits and cars. Most of those employed where on the factory floor. It is fair to say from my experience that they had generally left school at the first opportunity. Let us suppose for a moment that robots took over their jobs. My guess is that they would want another factory job rather than the delights of poetry readings and philosophical meanderings. In saying this, I am not in the least putting these working people down. I would feel exactly the same way.

    It is instructive to take a backward leap to 1930 and to John Maynard Keynes looking forward to a bountiful future of superabundance in his essay “Economic Possibilities for Our Grandchildren.” He predicted:

    We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us to pluck the hour of the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

    Notice the similarity. Neither Kasparov nor Keynes is talking about most people. They are talking about themselves and people like them. I suggest, without rancour, that most people would not welcome a future of enforced idleness and leisure, however much opportunity it gave for mental contemplation.

    Fortunately, this brave new world of idleness and leisure is a chimera. It will never come to pass. The latest round of automation and technological upheaval will not result in a land of plenty co-existing with entrenched unemployment. As Keynes’ prediction proved to be wide of the mark, so will be Kasparov’s. Free market economics and human nature are the keys to understanding the effect of yet another industrial revolution, since the first began in the second half of the eighteenth century.

    The fourth revolution

    Klaus Schwab, the execute chairman of the World Economic Forum, neatly puts the latest industrial revolution into historical context. (“The Fourth Industrial Revolution,” Foreign Affairs, December 2015). He captions the first revolution as steam power mechanising production; the second as electric power facilitating mass production; and the third as electronics and information technology automating production. Obviously there was a lot more to each of these revolutions and different historians frame and time them somewhat differently. But, for my purpose, this not so much matters. It is the fourth that matters.

     The fourth industrial revolution, already underway, Schwab describes as the digital revolution. He sees “artificial intelligence, robotics, the internet of things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing ... disrupting almost every industry in every country.” He, along with others, sees this revolution bringing profound breakthroughs and at a pace without historical precedent.

    The belief that superabundance will become the new normal is a utopian fantasy.

    This latest industrial revolution might possibly turn out to be more profound and fast-moving than earlier revolutions. Accordingly, it might turn out to be more disruptive and cause more transitory unemployment. However, there is no basis for believing that it will result in permanently higher levels of unemployment, nor in enduringly depressed incomes. Free-market capitalism will see to that. Nor is it remotely likely to produce an oversupply of material riches. An unholy appetite for worldly goods will see to that.

    Economics is one of those subject areas where trees constantly obscure the woods. This is why noted economists can become obsessed with income and wealth inequality as a meaningful measure of economic health when, in fact, they have no idea what level of inequality is ideal or how to achieve it. A national economy is a large complex and dynamic system. Modesty is the best policy when it comes to assessing our ability to comprehend such systems; never mind to control and manipulate them.

    There is no short cut to desirable outcomes. One thing usually leads to one or more unintended and unexpected consequences. What we can do is to take a large step back and envision the forces at work. When you do that for a free-market economy, you see forces of supply and demand.

    The force of supply consists of large numbers of businesses of all shapes and sizes producing and selling a vast array of different goods and services. The force of demand consists of large numbers of businesses and individuals buying a vast array of different goods and services. Market prices, responding to shortages and gluts, are constantly working at bringing individual product supplies and demands into alignment. This alignment is akin to gravity. It is pervasive and reasserts its dominance no matter how the economic system is buffeted. That is how markets work. And we can be confident of them always working that way.

    There is something else about markets which, though self-evident, is profoundly important when it comes to assessing the effect of technological changes on employment. A business can’t make a product (including by using a robot) and sell it at profit without someone being inclined to own it and having sufficient wherewithal to buy it. Let me generalise this self-evident proposition.

    Those who accumulate great monetary wealth from supplying good and services (“rich capitalists”) succeed only because many people enjoy the goods and services (the material riches) supplied. Only by enriching their customers with tangible goods and services do capitalists build their bank balances. So, when you see a rich capitalist, unseen are many satisfied customers all of whom have had the wherewithal to purchase the goods and services in question. There are no rich capitalists (cronies and crooks apart) sans satisfied customers. This proposition is a vital amulet to ward off the misguided notion, often propagated by socialist-leaning economists, that technological breakthroughs primarily benefit the rich. This school-boy error stems from mistaking monetary wealth for material wealth.

    So much for the way free-market capitalism works. How about human beings? How do they work? Specifically, do they have an abiding and relevant characteristic shaping their economic lives? I suggest that they do. On the whole, human beings are insatiable. They always want more goods and services than they are able to afford. While ascetics at one extreme and billionaires at the other may not fit this mould, all but this tiny minority of the seven billion-plus people on earth distinctly do. As ultimately unsatisfying as it is, materialism is a pervasive fact of this earthly life.

    This well-based assumption about the materialistic nature of human beings informed the classical economists before Keynes. However, it appears to have played no influential role in Keynes’ thinking. As a result he placed demand deficiency at the centre of his economics and thereby led macroeconomic policy astray. We will be equally led astray by implicitly assuming demand deficiency when predicting the fallout from the latest in the sequence of industrial revolutions. Put free-market forces together with human nature, and the narrative of plentiful idleness crumbles away.

    Scarcity will not turn into superabundance

    Take the vehicle manufacturing industry. It is highly automated and becoming more so, even if Mercedes-Benz reportedly kicked robots off one of its assembly lines because they were not adaptable enough. The trends aren’t promising for that particular occupation. The question to be asked is that if all vehicle manufacturers sack their assembly-line workers, who is going to be able to afford to buy their cars? There are plenty of other industries employing people. Yes, but they too are automating and sacking workers.

    Put free-market forces together with human nature, and the narrative of plentiful idleness crumbles away.

    There is an internal contradiction. It is simply not possible for most industries to automate, sack their workers, and sell their products. There would be an insufficient number of customers with the means to buy them. A number of economists, such as Robert Reicher, have proposed consideration of a “universal basic income” – provided by taxpayers – to compensate those who can’t find reasonably paid employment in this emerging automated world of plenty. Switzerland had a referendum on this kind of proposal last June, which was soundly (and wisely) defeated. The belief that superabundance will become the new normal is a utopian fantasy.

    Consider onerous levels of government debt among advanced countries, at the same time as they are struggling to fund and resource welfare and health programs. Consider the wealthy United States having more than 40 million people on food stamps. Consider that more than 20 per cent of people in Spain, for example, are reportedly living in poverty. It is ridiculous on its face to think we are anywhere close to superabundance. There is a yawning disconnect between those who see robots making more things than we could ever use and the real world of want – including, incidentally, the Third World of want.

    Superabundance is unachievable in this earthly realm. Poverty to one degree or another will always be around. “For you have the poor with you always,” Jesus said (Matthew 26:11). This truth is borne out by the existence of ingrained poverty within all wealthy nations. But, poverty aside, people will never be satisfied with what they have, even those living well in the West. Witness ever-growing credit card debt.

    The automation of existing production will do what it has always done. It will create the conditions for the development of new products, for new demands, and for new, different and well-paying jobs to emerge. This is the only way that capitalists will be able to sell their products after automating their production processes. It will happen more or less synchronously. It can’t happen otherwise. It is simply impossible to tell now what new products and jobs will arise, as it was at any point in the past. Who predicted the development and growth of smart phones?

    It is not only fundamental economic forces and human nature which should make us sceptical of fears that the current industrial revolution will cause intractable mass unemployment. Experience should, too. None of the past revolutions has left permanent unemployment in its wake, notwithstanding the fear of “machine breakers” in the late eighteenth century.

    The market creates harmony and balance

    Recent historical experience is instructive. Workforce participation has risen since the end of the Second World War, despite increasing automation. In the United States, the participation rate was less than 60 percent in the 1950s compared with well in excess of 60 per cent in more recent years. Participation has similarly risen in, say, the UK and in Australia since the 1970s. It is true that underneath these numbers is rising participation by women against falling full-time participation by men. But the plain fact is that overall workforce participation has risen rather than fallen, as have real hourly wages, over the past 50 to 60 years of profound labour-saving technological changes.

    There have been a large number of technological changes since the first industrial revolution began in Britain around 250 years ago. If these had cumulatively dampened employment, very few people would now be employed. Moreover, it is the new norm that families with children require two incomes in order to pay the bills and live comfortably. This is hardly consistent with a trend towards sated wants and increased leisure.

    In the latest industrial revolution, there is nothing to fear but fear itself - and inept and interfering governments.

    Artificial intelligence, robotics, 3-D printing, nanotechnology, biotechnology, and the like, are disruptive technological changes. People stress about them with some cause. Such changes always result in unemployment in some areas, for some time. An exacerbating factor this time around is that we have more onerous regulatory regimes in place across labour and product markets than in past eras. These reduce market flexibility, which allows wages to fall; some businesses to downsize, and others to develop and expand, free of costly and time-consuming obstacles. Such flexibility mitigates the effect of technological change in generating transitory unemployment.

    It is certainly possible that the latest industrial revolution will produce more dislocation than experienced in the past. But it is essential to take account of unrequited human wants and the symbiotic relationship between those making products and those buying them.

    There are more than seven billion people in the world, very few of whom have all that they want. We have a system of capitalism that generates a balance between supply and demand – and which critically depends on sufficient numbers of people being employed, and being paid enough, to purchase goods or services. The system simply will not work for any length of time if there is an imbalance between automated production churning out vast quantities of products and a growing army of unemployed who can’t afford to buy them. It simply can’t and doesn’t work that way. Temporary imbalances can exist and produce recessions. But, left alone, these are part of a process of the economic system moving back into alignment.

    Long-term mass unemployment is not a technological phenomenon, neither is it an economic one. It is a political one. Get the politics right on trade deals, on regulations and on taxes and technological change and, yes, even robotics, potentially benefits almost everyone. Contemplating nature, à la Kasparov and Keynes, is not one of the benefits, though there’s nothing wrong with doing that. The benefits come in the form of a range of different jobs and of increased supply and variety of goods and services – for the rich, the not-so rich, and the poor. In the latest industrial revolution, there is nothing to fear but fear itself - and, I would add, inept and interfering governments.

    (Photo credit: Steve Jurvetson. This photo has been cropped. CC BY 2.0.)

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    Peter was CEO of Australian Payments Clearing Association Limited for 14 years. Beginning in 2005, he consulted on payments matters. Before that he was chief economist at the State Bank Victoria; economic adviser to the Australian Bankers’ Association; and headed the department responsible for monetary policy in the public service of Papua, New Guinea. He has a first class honours degree in economics (University of Western Australia) and a Ph.D. (University of Adelaide). He tutored part-time and full-time for five years at the Universities of Western Australia and Adelaide. He has published in professional journals on economics and payments matters, including a number of articles on Keynesian monetary theory, and has spoken at a large number of economics and payments conferences and seminars within Australia and overseas. Retired, he blogs and writes regularly for Quadrant and authored the book Bad Economics, published by Connor Court in 2012.