Response to Robin Hanson: Why he’s wrong about “Economic Growth Given Machine Intelligence”

This is a response to Professor Robin Hanson’s comments on my book The Lights in the Tunnel and on my original post on the economic implications of machine intelligence.

First, I want to stress that I do not believe this is a discussion about a far future, science fiction concept. In my book, I make the point that technology is someday likely to advance to the point where the majority of the routine jobs held by average workers will be automated. That is a lot of jobs—probably most jobs. Two thirds of our population does not have a college degree, and even many college graduates have jobs that can broken down into relatively routine tasks that will be susceptible to software automation algorithms and expert systems. This is something that I think could potentially happen in the next couple of decades.

I am not talking about true machine intelligence. Theoretical physicists would still have jobs. Private sector economists whose jobs consist largely of plugging data into forecasting models and writing formulaic reports might well have to worry.

The point I make in my book is that relentless automation will ultimately result in massive unemployment and extreme and unsustainable income inequality—to the point that mass market production would be numerically undermined because there would simply be two few consumers with viable discretionary incomes. Yes, of course, automation would also make stuff cheaper. Would that make up for the low wages and unemployment? What fraction of total income does the average person spend on manufactured products and services today? You could make shopping at Wal-Mart free, and a great many lower wage workers would still struggle to cover housing and health care costs.

In The Lights in the Tunnel, I argue that we will ultimately have to provide supplementary income to the majority of the population; if we don’t do so, we won’t be able to sustain consumption. That type of scheme, obviously, would have to be supported by some type of taxation, and Hanson, no doubt, finds that highly objectionable.

Dr. Hanson rejects my arguments on the need to support consumers, saying:

Ford’s mass-market theory of production is nothing like standard economic theory. Sure high income inequality might be ethically bad, and threaten political instability, but it does not at all threaten economic collapse – producers can focus on giving the rich what they want, and innovation and growth is just as feasible for elite products as for mass products.

In other words, creative destruction is going to do its thing, and the mass market industries we now have are going to be destroyed and presumably replaced with new industries that focus on producing very high value, customized products targeted at a tiny economic elite—and that’s going to drive the entire economy. That really doesn’t sound like the world I want my children to live in, but leaving that aside, I still wonder if it works in the real world.

It’s very possible that a major breakthrough in an area like machine learning could cause all of this to unfold quite rapidly. Hanson notes this in his paper, saying at one point that machines could go from performing 25% of jobs to 75% within four years. So we are potentially talking about more than half of all the jobs in the economy. Let’s try to imagine an actual scenario:

A major technical breakthrough occurs and is widely publicized. Businesses rapidly deploy the technology and the unemployment rate rises past 15%. Consumer confidence falls to unprecedented levels. Political debates rage on extending unemployment and on revoking the minimum wage. Tax revenues are plunging inline with incomes. As consumer spending falls, businesses either adapt by laying off workers and automating still more jobs, or they fail entirely.

Unemployment climbs to 20%, and the automation of jobs appears relentless. Mortgage defaults are now at an unprecedented level. As job losses mount, at some point, homeowners make a collective and rational calculation: Why keep paying my mortgage? Housing values are plummeting and I’m almost certainly going to lose my job eventually. It’s better to hoard the money; I may never get another job. Besides, if everyone defaults, they can’t evict us all, so there may not even be any consequences. So people stop paying their mortgages, and then, of course, renters quickly see that the same logic applies to them.

How does the financial system and the overall economy survive that in the short run? I may be an economic rube, but I don’t get it. Dr. Hanson says, don’t worry, be happy:

The fraction of production that is given to capital vs. labor depends on the marginal productivity of capital, times the quantity of capital, vs. the marginal productivity of labor, times the quantity of labor. If capital and labor are the only owned factors of production, then if the fraction of income going to labor falls, the fraction of income going to capital must rise. That income flow goes to capital regardless of what assets are used to represent the stock of capital.

Well, ok then. So does that mean all those people will be able to pay their mortgages?

Leaving aside government (which Dr. Hanson surely does not want involved) and exports, production is equal to consumption plus investment, and those are both going to be in free fall, given a scenario like the one above. The primary problem is not with fractions of production—it’s with how much total production is going to occur.

Finally, as Hanson says, “Sure high income inequality might be ethically bad, and [might] threaten political instability.” That’s not something that we can simply dismiss. All of this, if it happens, is going to happen in the real world—where economics cannot be divorced from political and social ramifications. Income Inequality is already at a historically extreme level, and there is little reason to believe the progression won’t continue relentlessly. Bruce Judson has a new book out called It Could Happen Here: America on the Brink, which suggests that the possibility of revolution is not unthinkable if the trend continues. That’s something worth thinking about. No one who has enjoyed any measure of success under our current system would look forward to a world without free markets or where basic property rights were threatened.

Update: Prof. Hanson responded by adding this to his post:

Yes, a sudden unanticipated change would be disruptive, but no disruption does not imply falling production. Ford needs to learn some economics, or listen to some economists.

Well, we’ve been having a pretty good disruption lately.  Production has not fallen? Here’s a graph of real v. potential GDP from the Federal Reserve Board of San Francisco. Look’s to me like production fell…


Source: Economist’s View/FRBSF


23 thoughts on “Response to Robin Hanson: Why he’s wrong about “Economic Growth Given Machine Intelligence”

  1. I think Marx and marxists developed this analysis through the labour theory of value over one hundred years ago. Marx was in his way one of the the first technology futurists and foresaw the changing relationship between Man and Machine and what this would mean for the social structure of society. In short, Capitalism is an historical mode of production based on a certain level of development of technology. Articial intelligence, biotechnology, nanotechnology, robotics etc. are creating the basis for a new social order. However, technology alone does not accomplish this. Social struggle does.

    “…producers can focus on giving the rich what they want, and innovation and growth is just as feasible for elite products as for mass products.”

    Is this the best that the Professor has to offer us? Does Professor Hanson think that the displaced will just sit back and allow this state of affairs? He must be dreaming!

    “..Computers and robots will be economically significant but not paradigm-shifting.”

    Digital technology has not been paradigm shifting? Isn’t this the technological basis of globalisation?

  2. It is important to note however that automation might not be a non-stop continuous trend:

    “One of the things that Marx draws attention to in Vol. III of Capital is that particular inefficiency of the capitalist mode of production which is caused by capitalists’ reluctance to install superior machinery. No surplus value is extracted from constant capital itself—this dead labour embodied in means of production. The fixed portion of it, represented by plant and machinery, is imparted to the commodities, little by little, as these items wear out. Even under the pressure of competition, therefore, the capitalist tries to extract the last penny of value out of his fixed capital before replacing it.

    What improved machinery must do for the capitalist, if it is to justify its cost, is to increase the productivity of his workers (his rate of extraction of surplus value from them) to give a rate of profit equal to, or above, the average. The greater the outlay on fixed capital, however, the more dependent such profitability is upon the continuing buoyancy of the economy. But, of course, capitalism is incorrigibly cyclical and unpredictable. Expensive machinery lying idle in a slump represents growing losses for capital, to be set against the profits made in better times. In slumps, too, the real price of labour power is driven down—as we have seen in the first half of the 1980s. This makes more labour-intensive processes relatively cheaper and more profitable, offsetting the advantages of capital-intensive methods. Moreover, labour can be dismissed with a week’s notice. Machinery can not.

    These considerations have made capital particularly slow to introduce automation, especially when wages are low, because automation is a highly capital-intensive way of using machinery.”

    Therefore, falling wages will constrain the extent to which businesses will automate, as labour becomes cheaper than machinery.

    1. I agree with you, Marx made an excellent analysis of capitalism and technological change. That’s something prof.Hanson and other neoliberal economists can’t because their starting point of view is misplaced and therefore the end product, well, delusional.

      Unless Hanson suggests that machines will be ‘new workers’ and that humans are bound to extinction (as horses in his story) in machine labor oriented society.

  3. Kudos on the book. Your statements of the problems resonate strongly with me. The space of possible solutions is where I think more analysis is needed. May need more market-, less government-, driven options. Perhaps something along the lines of the Binary Economics of Louis Kelso, Robert Ashford, and Rodney Shakespeare?

    I hope the book gets the attention it deserves. Maybe some economists will open their minds to it. (I hear many are receptive to new ideas given how their world has been rocked!) I (another non-economist techie) also have the sense that Robin Hanson has been saying “don’t worry, be happy” about the economic future, and I find that position inexplicable.

    1. I’m a very late discoverer of this discussion, but want to thank you for mentioning Kelso et al and Binary Economics. As a grad student ten to 25 years ago, I put a lot of thought into Ford’s concerns, and hoped increased sharing of ownership by businesses with employees could help fend off Ford’s worst-case scenario. Unfortunately, employee ownership is still a marginal phenomenon, although this could’ve been different if we had gotten serious about this 35 to 50 years ago when Kelso’s ideas were first seriously considered. As a result, I’m not as optimistic as I used to be. Let’s hope I’m wrong.

  4. Your ‘throwaway comment’ about theoretical physicists was interesting to me as an experimental physics grad student. Theoretical physics really isn’t currently tied to any real world production that will accrue soon enough for it to be of any interest to business, therefore, the work is generally paid for by governments and people just curious to know, and done by people who probably could earn more elsewhere but who are simply interested in the work and get personal fulfillment by doing it. This also goes for me and the other experimental students, except for the very small percentage who go into industry. So in a way, we are already on the other side of the transition and *that* is why theoretical physics jobs are secure, not because they are *actually* indispensable to the modern economy…

    1. Theoretical physics is secure only until introduction AI in physics. After that… are you prepared to double your intelligence in physics every two years? (You obviously don’t have a chance to compete with AI in information processing or mathematics)

      In my opinion, virtual jobs like science, teaching, government… will go away very quickly after certain treshold. In reality, we can see it even now – at least in e-government and distance teaching.

      1. I don’t think humanity will ever be ready to give life, let alone work, to a true artificial intelligence. We aren’t morally mature enough to handle the responsibility that comes with creating a self-aware tool that will eventually display more and more characteristics associated with personhood. You’re flipping our social order on it’s head enough by cutting out the role of the lowly-skilled in our society, can you imagine what social order would emerge with the onset of true AI?

  5. Congratulations on the ‘Lights in the Tunnel’ book. A considered piece on a topic rarely discussed by mainstream economists. In some respects, I am reminded of Marshall Brain’s piece entitled ‘Robotic Nation’. Brain envisages a society where labour is progressively replaced by automation and mass unemployment ensues. In his story, this is no bad thing as government provides a living wage to all, sufficient to support a reasonable lifestyle. To my mind this isn’t achievable outside of a Social Credit system of the type proposed by Major Douglas, or taxation of the mega wealthy at rates approaching 100%.
    JW Johnston mentions the work of Kelso and there’s surely some hope of avoiding mass social dislocation IF ownership of the means of production (increasingly, capital) can be distributed as widely as possible. Currently, however, the trend in Australia and elsewhere is towards the accumulation of wealth at the top.
    Enlightened policy would encourage and favour employee ownership of productive enterprise, but unfortunately there’s very little interest in the concept politically.

  6. I think books like this get a negative rap from futurists because its implications may be cause fir big governments to scake back on heavy technology yet the issue is not regression but about societal policy. Martin fords approach is more practical than hansons

  7. Hi,

    I made some comments on this post. They showed up as “Awaiting moderation”…but they never got posted. Should I resubmit (as well as I can remember)?


  8. Hi,

    These are the comments I made earlier. I dropped the “http://” in case that was the problem. The http could be added to follow the links.



    I’m very late to this particular discussion, but I’ve read, thought, and written a lot about this subject for quite awhile. See:

    I think Robin Hanson is right…the world per-capita (per *carbon-based- human*) economic growth will increase dramatically.

    I think you’re right that economic inequality will rise (the global GINI coefficient will rise).
    In the long term (meaning 3+ decades) the wealthiest could be taxed such that everyone would have what we would now consider to be a very comfortable life:

  9. If the displaced, i.e., those disadvantaged because their skills are fulfilled by automation, become a majority or at least a significant proportion of the voting public, will this not eventually lead to a fairer distribution of the windfall that automation brings?

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