Initial jobless claims have once again exceeded expectations. I’ve been arguing here that the jobs problem is not simply a cyclical, business cycle issue, but is due at least in part to a structural change that is occurring in the economy.
What follows is an excerpt from The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (get the PDF ebook) in which I explain my theory about how the relationship between workers and machines is changing:
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Think of an average worker using an average machine somewhere in the economy. Obviously, in the real world there are millions of workers using millions of different machines. Over time, of course, those machines have gotten far more sophisticated. Imagine a typical machine that is generally representative of all machines in the economy. At one time, that machine might have been a water wheel driving a mill. Then it became something driven by a steam engine. Later, an industrial machine powered by electricity. Today, the machine is probably controlled by a computer or by embedded microprocessors.
As the average machine has gotten more sophisticated, the wages of the worker operating that machine have increased.* As I pointed out in the previous section, more sophisticated machines also make production more efficient and that results in lower prices and, therefore, more money left in consumers’ pockets. Consumers then go out and spend that extra money, and that creates jobs for more workers who are likewise operating machines that keep getting better.
Again, the question we have to ask is: Can this process continue forever? I think the answer is no, and the very unpleasant graph below illustrates this.
The problem, of course, is that machines are going to get more autonomous. You can see this in the graph at the point where the dotted line (conventional wisdom) and the solid line diverge. As more machines begin to run themselves, the value that the average worker adds begins to decline. Remember that we are talking here about average workers. To get the graph above, you might take the distribution of incomes in the United States and then eliminate both the richest and the poorest people. Then graph the average income of the remaining “typical” people (the bulk of consumers) over time. If you were to instead graph Gross Domestic Product (GDP) per capita, you would end up with a similar graph, but the divergence between the dotted and the solid lines would occur somewhat later. This is because the wealthiest people (who own the machines or have high skill levels) would initially benefit from automation and would drag up the average. Recall that we saw this in our tunnel simulation in Chapter 1.
Once the lines diverge, things get very ugly. This is because the basic mechanism that gets purchasing power into the hands of consumers is breaking down. Eventually, unemployment, low wages—and perhaps most importantly—consumer psychology will cause a very severe downturn. As the graph shows, within the context of our current economic rules, the idea of machines being “fully autonomous” is just a theoretical point that could never actually be reached.
Some people might feel that I am being overly simplistic in equating “technological progress” with “machines getting better.” After all, technology is not just physical machines; it is also techniques, processes and distributed knowledge. The reality, however, is that the historical distinction between machines and intellectual capital is blurring. It is now very difficult to separate innovative processes from the advancing information technology that nearly always enables and underlies them. Improved inventory management systems and database marketing are examples of innovative techniques, but they rely heavily on computers. In fact, we can conceivably think of nearly any process or technique as “software”—and, therefore, part of a machine.
If you still have trouble accepting this scenario, you might try asking yourself a couple of questions: (1) Is it possible for a machine to keep getting better forever without eventually becoming autonomous? (2) Even if it is possible, then wouldn’t the machine someday become so sophisticated that its operation would be beyond the ability of the vast majority of average people? And wouldn’t that lead right back to making the machine autonomous?
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* The idea that long-term economic growth is, to a large extent, the result of advancing technology was formalized by economist Robert Solow in 1956. Economists have lots of different theories about how long-term growth and prosperity come about, but nearly all of them agree that technological progress plays a significant role.
Martin Ford 
Machines can grow ever more in programming complexity without ever achieving true autonomy, yes. The difference between humans and machines right now is type of computing, not the number of calculations. Humans can perform nonlinear thinking, while computers can only perform linearly within the confines of an algorithm.
However, computers can be programmed to ‘fake’ some types of nonlinear behavior with a sophisticated enough program (ie: navigation). It’s exposed as linear when something outside their programming chain occurs, like the flash crash.
Whether machines ever become sentient or not is really immaterial; the function that most people have been performing in the economy since the industrial revolution is computation – linear thinking. This is precisely what computers excel at. The other type – creative, non-linear thinking, is still monopolized by humans and is truly infinite. The issue is, and where refutations of the Luddite fallacy err, is that many people cannot perform nonlinear thinking to an economically useful degree.
I would also point out that you don’t actually need many people to sustain a large economy. Capital can create its own demand; indeed, for most of human history land was far more valuable than labor, to the point of labor paying the land owners. The problems of automation are more social than economic.
Whether or not machines become autonomous, their increasing abilities will certainly replace many of the tasks that are now done by humans. The conventional reassurance – almost always given by people who have tenured jobs – is that economic growth will create new opportunities for employment. It will – but only for the very few people who have the exceptional skills that are needed to do the complex work that machines may still be unable to do. That leaves out all of us ordinary folks. Kurt Vonnegut’s novel Player Piano was a prescient forecast of that future.
http://en.wikipedia.org/wiki/Player_Piano
The solution, of course, is to allow most of us to become rentier consumers who can spend more of our time doing as we would choose and less of it doing work that newer machines could do better, cheaper and faster. That was the dream of 19th century socialists like H.G. Wells. There is nothing inherently wrong with the dream; the problem is that socialism is the worst possible means of realizing it. Increased machine productivity can only happen if people are free to invent and own their inventions and profit from them. Then, how do us ordinary people get our share of the money? By maintaining the current overall 30% rate of taxation on actual private incomes (using GDP figures is useless because GDP calculations treat government transfers as if they were actual increases in net wealth to the society) and then dividing it up among the owners of the country. This sounds absurd; but the numbers actually work out. We already know they do for the people who are already impoverished because their skills and abilities have no market value. As many people have observed, the financial problem of poverty in America could be solved tomorrow if all the money now spent on “helping the poor” through compulsory education and other “programs” (sic) were distributed in equal per capita amounts to the poor and their helpers. It would be an enormous pay raise for the poor and a terrible pay cut for the helpers; but its net effect would clearly be positive compared to what we have now – a system where almost all the money goes to the helpers and not the helped and the war against poverty and productivity is allowed to go on forever.
that really good thanks admin
Great graph. I put together some related stuff on Wikipedia under “Jobless Recovery”, but it got mostly deleted as being outside mainstream economic theology, so I put it here:
“Beyond a Jobless Recovery: A heterodox perspective on 21st century economics”
http://knol.google.com/k/paul-d-fernhout/beyond-a-jobless-recovery/38e2u3s23jer/2
In particular, it mentions both how there are reasons for rising efficiency and also how there are reasons for limited demand (Maslow’s Hierarchy of Needs and Reduce, Reuse, Recycle). I outline four possible major ways to deal with the required socio-economic changes implied by what your graph is about (a basic income, a gift economy, resource-based planning, and/or local subsistence using advanced technology) along with many small ones. Maybe there are some ideas there you might like to integrate into your approach? I feel it is important that more people understand these issues, but it is hard to get past ideological filters. I’m not sure how best to do that, and I am glad to see you are having some success at that (along with some others like Marshall Brain). Here is a related mainstream article on how most economists are out of touch and inbred; but the main solution they propose is more study of history — which is a good idea, but not enough to think through discontinuities like on your graph:
http://www.nytimes.com/2010/07/04/business/economy/04econ.htm?pagewanted=all
The structural change posited: less need for human workers… if it comes to pass, will require an entirely new rethink of the old fashioned Capitalist/Communist 20th century duality. This is a social phenomena.
Two possible pathways are:
Unconditional Basic Income
and
Societal Scale Decision-making.
both can be google-ed and relationships between them explored.
Beyond those two of a basic income and what you call “Societal Scale Decision-making”, there are two other big ones, a gift economy, and stronger local communities that can produce more for themselves at the subsistence level (like with 3D printing and solar panels).
Likely we will see a mix of all four going forward. I talk about all four here:
http://knol.google.com/k/paul-d-fernhout/beyond-a-jobless-recovery#Four_long%282D%29term_heterodox_alternatives
BTW, I generally call “Societal Scale Decision-making” instead “Democratic Resource-Based Planning”, but I like your terminology too, which emphasizes a different aspect.