Econometrics and Technological Unemployment — Some Questions

My last post, Structural Unemployment: The Economists Just Don’t Get It, generated some interesting comments. Here’s an especially good one that was posted by an irate economist over at Mark Thoma’s blog:

This is the second link I’ve seen to Mr. Ford’s views on labor and technology. It needs to stop. Yes, we need to consider the interaction between the two. We do not, however, need the help of someone whose thinking is as sloppy and self-congratulatory as Ford’s. Lots of work has been done on technology’s influence on labor markets. Work that uses real data. Ford is essentially making the same “technology kills jobs” argument that has been around for centuries. His argument boils down to “this time it’s different” and “people (economists) who don’t see things exactly as I do feel threatened by my powerful view and are to be ignored.”

There is a whiff of Glenn Beck in Ford’s dismissal of other views.

Now, I think that saying “it needs to stop” and then comparing me to Glen Beck is a little over the top. It seems a bit unlikely that my little blog represents an existential threat to the field of economics.

The other points, however, deserve an answer: First, am I just dredging up a tired old argument that’s been around for centuries? And second, have economists in fact done extensive work on this issue—using real data—and have they arrived at a conclusion that puts all of this to rest?

It is obviously true that technology has been advancing for centuries. The fear that machines would create unemployment has indeed come up repeatedly—going back at least as far as the Luddite revolt in 1812.  And, yes, it is true: I am arguing that “this time is different.”

The reason I’m making that argument is that technology—or at least information technology in particular—has clearly been accelerating and will continue to do for some time to come. (* see end note)

Suppose you get in your car and drive for an hour. You start going at 5 mph and then you double your speed every ten minutes. So for the six ten-minute intervals, you would be traveling at 5, 10, 20, 40, 80, and if you and your car are up to it, 160 mph.

Now, you could say “hey,  I just drove for an hour and my speed has been increasing the entire time,” and that would basically be correct. But that doesn’t capture the fact that you’ve covered an extraordinary distance in those last few minutes.  And, the fact that you didn’t get a speeding ticket in the first 50 minutes really might not be such a good predictor of the future.

Among economists and people who work in finance it seems to be almost reflexive to dismiss anyone who says “this time is different.” I think that makes sense where we’re dealing with things like human behaviour or market psychology. If you’re talking about asset bubbles, for example, then it’s most likely true: things will NEVER be different. But I question whether you can apply that to a technological issue. With technology things are ALWAYS different. Impossible things suddenly become possible all the time; that’s the way technology works. And it seems to me that the question of whether machines will someday out-compete the average worker is primarily a technological, not an economic, question.

The second question is whether economists have really studied this issue at length—and by that I mean specifically the potential impact of accelerating technical progress on the worker-machine relationship. I could not find much evidence of such work. In honesty, I  did not do a comprehensive search of the literature, so it’s certainly possible I missed a lot of existing research, and I invite any interested economists to point this out in the comments.

One paper I did find, and I think it is well-regarded, is the one by David H. Autor, Frank Levy and Richard J. Murnane: “The Skill Content of Recent Technological Change: An Empirical Exploration,”  published in The Quarterly Journal of Economics in November 2003. (PDF here). This paper analyzed the impact of computer technology on jobs over the 38 years between 1960 and 1998. 

The paper points out that computers (at least from 1960-1998) were primarily geared toward performing routine and repetitive tasks. It then concludes that computer technology is most likely to substitute for those workers who perform, well, routine and repetitive tasks.

In fairness, the paper does point out (in a footnote) that work on more advanced technologies, such as neural networks, is underway. There is no discussion, however, of the fact that computing power is advancing exponentially and of what this might imply for the future. (It does incorporate falling costs, but I could not find evidence that it gives much consideration to increasing capability. It should be clear to anyone that today’s computers are BOTH cheaper and far more capable than those that existed years ago.).

Are there other papers that focus on how accelerating technology will likely alter the way that machines can be substituted for workers in the future? Perhaps, but I haven’t found them.

A more general question is: Why is there not more discussion of this issue among economists? I see little or nothing in the blogosphere and even less in academic journals. Take a look at the contents of recent issues of The Quarterly Journal of Economics. I can find nothing regarding this issue, but a number of subjects that might almost be considered “freakonomics.”

The thing is that I think this is an important question. If, as I have suggested, some component of the employment out there is technological unemployment, and if that will in fact worsen over time, then the implications are pretty dire. Increasing structural unemployment would clearly spawn even more cyclical unemployment as spending falls—risking a deflationary spiral.

Consider the impact on entitlements. The already disturbing projections for Medicare and Social Security must surely incorporate some assumptions regarding unemployment levels and payroll tax receipts. What if those assumptions are optimistic?

Likewise, I think economists would agree that the best way for developed countries to get their debt burdens under control is to maximize economic growth.  If we got into a situation where unemployment not only remained high but actually increased over time, the impact on consumer confidence would be highly negative. Then where would GDP growth come from?

It seems to me that, from the point of view of a skeptical economist, this issue should be treated almost like the possibility of something like nuclear terrorism: Hopefully, the probability of its actual occurence is very low, but the consequences of such an occurence are so dire that it has to be given some attention.

So, again, I wonder why this issue is ignored by most economists. There are a few exceptions, of course. Greg Clark at UC Davis had his article  in the Washington Post. And Robin Hason at GMU wrote a paper on the subject of machine intelligence. I don’t agree with Hanson’s conclusions, but clearly he understands the implications of exponential progress.

Why not more interest in this subject? Perhaps:  (A)  Conclusive research has really been done, and I’ve missed it. or (B) Economists think this level of technology is science fiction and just dismiss it. or (C) Maybe economists just accept what they learn in grad school and genuinely don’t feel there’s any need to do any research into this area. Maybe something like this is so far out of the mainstream as to be a “career killer” (sort of like cold fusion research). 

Another issue may be the seemingly complete dominance of econometrics within the economics profession. Anything that strays from being based on rigorous analysis of hard data is likely to be regarded as speculative fluff, and that probably makes it very difficult to do work in this area. The problem is that the available data is often years or even decades old.

If any real economists drop by, please do leave your thoughts in the comments.


 * Just a brief note on the acceleration I’m talking about (which is generally expressed as “Moore’s Law”). There is some debate about how long this can continue. However, I don’t think we have to worry that Moore’s Law is in imminent danger of falling apart because if it were, that would be reflected in Intel’s market valuation, since their whole product line would quickly get commoditized.

Here’s what I wrote in The Lights in the Tunnel (Free PDF — looks great on your iPhone) regarding the future of Moore’s Law:

How confident can we be that Moore’s Law will continue to be sustainable in the coming years and decades? Evidence suggests that it is likely to hold true for the foreseeable future. At some point, current technologies will run into a fundamental limit as the transistors on computer chips are reduced in size until they approach the size of individual molecules or atoms. However, by that time, completely new technologies may be available. As this book was being written, Stanford University announced that scientists there had managed to encode the letters “S” and “U” within the interference patterns of quantum electron waves.  In other words, they were able to encode digital information within particles smaller than atoms. Advances such as this may well form the foundation of future information technologies in the area of quantum computing; this will take computer engineering into the realm of individual atoms and even subatomic particles.

Even if such breakthroughs don’t arrive in time, and integrated circuit fabrication technology does eventually hit a physical limit, it seems very likely that the focus would simply shift from building faster individual processors to instead linking large numbers of inexpensive, commoditized processors together in parallel architectures. As we’ll see in the next section, this is already happening to a significant degree, but if Moore’s Law eventually runs out of steam, parallel processing may well become the primary focus for building more capable computers.

Even if the historical doubling pace of Moore’s Law does someday prove to be unsustainable, there is no reason to believe that progress would halt or even become linear in nature. If the pace fell off so that doubling took four years (or even longer) rather than the current two years, that would still be an exponential progression that would bring about staggering future gains in computing power.

38 thoughts on “Econometrics and Technological Unemployment — Some Questions

  1. “In fairness, the paper does point out (in a footnote) that work on more advanced technologies, such as neural networks, is underway. There is no discussion, however, of the fact that computing power is advancing exponentially and of what this might imply for the future.”

    Personally I think it’s highly unlikely that digital computers will ever be able to mirror human cognition. It’s a matter of quality, not quantity. Digital computers are very good at performing logical operations in a series, but cannot deal with information outside of the algorithm they’re using. This won’t change even with several orders of magnitude more transistors than there are neurons in a human brain (this comparison also ignores everything else that happens in the brain and vastly oversimplifies neurons). The difference is qualitative, not quantitative. We may one day create an AI, but I don’t think it will be digital.

    However, computers hardly need to be able to emulate human cognition. Most functions in the economy are either linear or can be made linear. A sophisticated computer program can ‘fake’ non-linearity if the variables involved are understood well enough (ie: the 2004 and 2005 DARPA Grand Challenges). Thus, the remaining jobs will involve non-routine problem solving and human interaction (demand is likely constrained in this one on the lower end), highly abstract tasks. The market will likely expand much further into these to take advantage of the excess labor; unfortunately, a significant percentage of the population is not capable and will never be of performing these tasks. Long term, the problem is for these people.

  2. A quick search of this site indicates that David F. Noble has never been mentioned here. His book “Forces of Production: A Social History of Industrial Automation” brings up a lot of themes that you touch on, and likewise does not display the same optimism as mainstream economists.

    The book is mostly about the history of computer numerically controlled machine tools and their social and technical effects in American manufacturing (especially aerospace) after WW II.

    Early in the book, starting on page 60, there is a very interesting digression discussing the impact of computer control on oil refineries and chemical plants. Automation started to be introduced in a big way in the early 1960s. At first automatic controls just complemented workers, but replaced them as technical improvements continued. Over the period of a few years productivity went up 250% in the sector while employment went down 30%. One plant studied lost almost half of its workers in the span of a few years, and about half of those could not find replacement jobs; they entered the “long term unemployed” category. And that was back in the golden postwar growth years!

    Unions fought workforce reductions, but had little leverage. High-profile strikes taught companies that highly automated plants could run at nearly full capacity even during a strike: all those union employees were redundant. Strikes actually accelerated automation.

    The struggle around computer numerically controlled machine tools, the larger drama of the book, doesn’t show managers and owners beating production workers so quickly or neatly. However, the book was written in the mid 1980s, and with hindsight we can see that CNC tools trounced manual machine tools and their operators in the long run, at least in rich nations. I honestly don’t know what level of automation is common in Chinese metalworking.

    There is a caveat about this book: Noble is clearly sympathetic to the workers and hostile to the managers and owners who worked to tame and displace them with automation. He has a slightly schizophrenic way of expressing this sympathy, though. He criticizes automation both for being ineffective (pioneering projects were often far more expensive and less productive than the traditional labor-heavy processes they displaced) and for being too effective, leaving experienced workers with no future and concentrating gains at the top. Obviously those expensive pioneer efforts weren’t as senseless as Noble tries to make out, since in the long run they produced such highly profitable worker displacement.

    I think if you looked up and elaborated on the automation Noble describes, it would be instructive for skeptics who want historically grounded evidence. Automation meant productivity went up, profits up, employment down, and a large portion of shed workers could not just take up new jobs. It all happened within living memory in the United States.

  3. Machines are *good* for the economy. Just look at Japan and South Korea. More machines means more work gets done. The more capable the machines, the more work they can do, and the more work gets done. Comparing the economic effect of automation with nuclear terrorism is unwarranted. It just isn’t supported by the evidence.

    1. I agree absolutely that technology has historically been good. I just think there is a point at which that will reverse–and it is the point at which machines approach autonomy, and therefore, the value of labor begins to decrease rather than increase.

      Also, I’m certainly not equating automation with nuclear terrorism. I’m not against technology at all (I make my living from technology.) My point was that we need to take this issue seriously and that economists ought to look into it. If the problem is real, the solution is NOT to halt techology–but to adapt our system to the new reality.

      1. I can’t remember when exactly, but really for the past six months or so Matt Yglesias has been proposing a simple and easy solution to the unemployment problem. Raise taxes, and pay unemployed people to do useful things. I understand your point that relatively unskilled work is better done by machines, but I do wonder if there won’t remain some socially useful things where having a relationship to another human being isn’t an indispensable part of the tasks’ utility. Child rearing comes to mind, as does education(not for delivering content, but rather for motivating and monitoring progress and time on task). Obviously, we will need a whole lot more police officers. Considering the immense displacement, why not raise taxes to pay for more and better preschool and prenatal care for the have-nots, if only as a crime prevention measure. I guess the point that I am making is that the one thing I see remaining available and socially useful to average workers are that they still have a vast advantage over computers in terms of human emotions/relationships. The average worker can do very beneficial work provide human care for other human beings, and if they are employed to do that work it will lead to less crime, better health, better educational attainment, etc. for the vast majority of the population. However, the private sector isn’t going to pay for it unless it is forced to by the government. So, if technology really is going the way you suggest it is, it still may lead to significant increases in wealth and broad based prosperity if we take intelligent action.

  4. As I have previously explained, I think it is a mis-analysis.

    You raise the issue that machines will not act as consumers – so substuting them for humans will result in lack of demand. And yet they guzzle oil and require spare parts just like any other creature. Machines *do* consume goods and materials – creating consumer demand and stimulating the economy.

    By all means, wonder what the out-of-work humans will do – but complaining about the economy suffering – on the grounds that there will be less consumption – makes zero sense, and economists can see that.

    There are other negative economic effects associated with unemployed humans besides lack of consumption – e.g. welfare payments – but that probably won’t cause that much of an economic drain – relative to the total size of the economy. Also, any unmodified humans still knocking around could be given “make-work” jobs – to keep them away from social security and allow them to still contribute a little.

    1. When I say “consume” I mean in the economic sense. Consumption means buying something and paying for it.

      Suppose you own a toy robot. It uses batteries. YOU buy the batteries so YOU are doing the consuming in the economic sense, not the toy robot. If you don’t have a job or some other income you won’t be able to buy batteries for your robot.

      Suppose General Motors owns an industrial robot. As you say, it requires energy, maintenance, etc. All that is NOT consumption. It is an input used in producing cars. Consumption occurs when someone BUYS A CAR. If no one is buying cars, GM will shut the robot down.

      The same is true of the steel used to build cars. When GM buys steel that does NOT get added to the government’s GDP figures. The value of the steel gets added in only when A CAR IS SOLD. Then it becomes part of personal consumption (which is about 70% of GDP). If the government included both the value of the steel and the full value of the car, it would be double counting the value of the steel. Again, this makes sense because if no one is buying cars, GM won’t buy steel.

      Business inputs are NOT consumption because they are used to produce (and add value to) some other product or service. That product or service might get sold to another business as an another input….but ultimately, somewhere down the line a human being (or a government) buys (consumes) the END PRODUCT.

      Machines do NOT act as this type of END CONSUMER. In order to perform that function, machines would need to be intelligent and probably sentient. They would need bank accounts and incomes so they could purchase products or services independently. That, obviously, is science fiction for the foreseeable future.

  5. That kind of analysis seems to be causing confusion – but let’s embrace it, for the sake of argument.

    With that perspective, the consumption is done by the humans and consumers in the robot companies (and associated organisations). Their consumption becomes truly enormous – since they have to build, fuel and maintain their army of robot helpers. Unemployed humans consume less – but robot-company CEO expenditure goes totally through the roof. They buy things on behalf of their army of machine minions. The effect is no different from if the machines had their own bank accounts. The demands for resources by the machines gets fulfilled just the same. They consume – by proxy – but the economic effects are the same – no matter who is signing the cheques.

    Focussing on the decreased consumption by the unemployed humans – and neglecting the massively increased consumption by those “feeding” the robots – does not produce a very useful model of the economy when there are lots of robots around. Most of the demands for space, matter and energy are being ignored.

    1. I guess I still didn’t get explain it clearly. When you say “robot-company CEO expenditure goes totally through the roof” I guess you mean either expenditures by businesses that use robots and/or expenditures by businesses that build robots. That is NOT end consumption, and without end consumption, the entire economy falls apart.

      Businesses that use robots in production do so to produce something else which they then sell at a profit. There has to be someone out there with income to buy whatever they are producing. At the end of the line, that is either a person or a government. As I said, if no one is buying cars then GM will shut its robots down. And it won’t be buying any new robots so companies that produce robots will be out of luck as well.

      All the value produced by the economy is ultimately consumed by either individual human beings or governments. Anything purchased by a business is either an input that somehow adds value to whatever product/service the business is selling, or it is an investment intended to position the business for the future. But investment will only happen if the business anticipates consumer demand in the future.

      Imagine an extreme case of a fully automated economy. No one has a job or an income. No one can buy anything. All the machines would end up getting shut down, and warehouses would be full of consumer products that no one could buy.

      There has to be a mechanism to get income into the hands of consumers (people) and right now, for the vast majority of people, that mechanism is wages. How many people with trust funds do you know? No consumers (people who buy stuff) —> No economy.

  6. You are on to something, as far as it goes, but you could enrich your thoughts by looking deeper into history. For instance: While discredited by the fiasco of communism, Karl Marx offers surprisingly valid insight into our current situation and the precipitous slide into oligarchy that we are now experiencing. This time may not be so different from serfdom and feudalism. Get familiar with the discourse of modernity, beginning with the tragedy of development, Goethe’s Faust.

    Recommended: Marshall Berman, All That Is Solid Melts Into Air: The Experience of Modernity, New York, 1982. (Currently in print as a Penguin Book.)

  7. Introducing a corporation apparently just gives you yet another point to lose track of the balance sheet – and mislay all the expenditure on gas, oil and spare parts that would not be taking place were it not for the machines 😦 So: imagine a self-employed individual whose organisation consists of him and lots of machines.

    You are claiming that he is not a consumer *either* – despite having an income, bank account and chequebook? What about the CEO of a bookstore? or a corner shop? They are not “consumers” either – in your model?

    IMO, it is much better to simply model consumption as being something that an agent does when they take in low-entropy resources and spits out high-entropy waste. Then it becomes *abundantly* clear that humans, machines and corporations all act as consumers. You do not need to be a person with a bank account to consume.

    The robot fuel and parts count. They create a demand for a good or service that did not exist before. Add up all the purchases being made instead (ignoring who is making them) – to understand where the demand for goods in the economy is *actually* coming from – and then you will see that corporations and machines can account for purchases just as well as humans can – without the “sci-fi” of robots with incomes and bank accounts. Corporations have incomes and bank accounts – and it isn’t sci-fi at all.

  8. @Tim Tyler

    My understanding of the system you are saying consists of a few humans and a lot of machines. While this may be a great economy for all of the robots and the few people involved. Most of the economy in your scenario will consist of fulfilling the needs of machines and not people. What are the rest of the humans going to do? I have some bias… I don’t just want just a functioning economy, I want a functioning economy for humans.

  9. The disagreement here concerns the health of a robot-dominated economy.

    The blog’s author apparently thinks that – with lots of unemployed humans, the economy will suffer or collapse – due to lack of spending by human “consumers” – while I am inclined to think it will probably be doing better than ever – due to the highly-efficicent machine workers doing a good job of digging up atoms, and creating energy and value.

    The fate of unemployed humans seems to be mostly a different issue to me. *Possibly* sufficiently large numbers of unemployed humans might (probably if they don’t get enough welfare) result in political changes that impact the economy – e.g. by creating disruption and warfare – but again, that seems to be quite a different situation from the one being modelled.

    1. “*Possibly* sufficiently large numbers of unemployed humans might (probably if they don’t get enough welfare) result in political changes that impact the economy”

      This is what concerns me. If you’re bright enough, you’ll have avenues of employment that robots can’t compete with. It’s the large percentage of humans that can’t perform creative tasks at an economically useful level that concerns me. Even if they do get welfare, most of the fruits of the economy will be off limits to them and they will not take it lightly. Even if they did, idleness in a population can be extremely dangerous.

  10. Having worked with computers for 30 years, I can see both truth (valid predictions) as well as incorrect conclusions in your work (and I have read through the lightstunnel.pdf).

    For example, Moore’s law permits more powerful software to execute faster. And that has resulted in excellent robotic advances. I think you underestimate the ability for robots to, for example, drive trucks. Within a decade there is no real reason why we could not have autopiloted trucks using GPS, radar, sonar, and lasers for environmental sensing to keep on the road even more safely than with human drivers.

    However, what you are overlooking is COMPLEXITY. As the software has become more sophisticated, it is combined in more ways with more different software. Data sets growth into the terabyte range, message routing, data transformation, complex event processing, policy based service call access authorizations, the list goes on and grows every day. And while software is good at pattern recognition and rules based decision making — it sucks at handling unexpected complexity.

    So what does this mean? Yes, many jobs ARE going to go kaput! And many of these jobs are knowledge worker jobs. But there is and will be great growth in REAL knowledge worker work — navigating through and managing the ever increasing complexity. And much of this complexity is driven by human nature.

    For example, organized crime and spy organizations are now the primary driver behind the need for cyber security. Not hackers. The number of computer viruses is down — the script kiddies and crackers are bored. But trojans and worms are up — creating slave bot nets that can be used to attack the infrastructure of nation states — or just extort corporations to pay off the criminals before “bad things” happen to their corporate network. And that is TODAY.

    Now for tomorrow — how about this: people will wear glasses that appear to project screens floating in the air above and in front of them. As they walk down the street these “augmented reality” views will give information — good restaurant down 2 blocks on the right, avoid that alley there have been 2 muggings in the past week, your washing machine wants you to know that electric rates have just dropped in the current 15 minute window and would you approve it starting a cycle? And so on. Meanwhile the cops will have “cop world” augmented glasses that run face matching looking for crooks and terrorists, automatically running license plates, and so on. Other professions will have their own “profession world” perspectives.

    And all that will drive jobs. Jobs that don’t exist today.

    1. I think you raise valid points. However, surely the jobs you are talking about will require high skill levels–and there will not necessarily be that many of them. If today we have X knowledge workers to actually do all the work, but tomorrow those jobs will be automated, sucked into the cloud, etc. then we might need Y people to manage complexity as you say. I’m pretty sure that Y < X. And the Y jobs will require a lot of education and training, which is great if you can get into MIT. But what about the other 140 millon (and growing) people in the workforce? Remember the problem is not just about unemployment–it is about consumption. If AVERAGE people have no income, who will buy products and services? How will all those people pay their mortgages?

  11. Okay, @ Tim Tyler and Econfuture

    You are both missing a rather crucial fact of technological progress. Cost.

    Tim is correct that more resources will be used by those individuals who run the machines, what he misses is that those machines will be owned by many many more individuals than they are now.

    Econ is right that machines will invade and displace more and more workers, reducing the availability of jobs as more and more jobs become automated, reducing the “purchasing power” of the consumer. What he misses is that even that reduction in purchasing power will not affect the fact that such reduced “wages” will still purchase far more than they do currently.

    Why? Because automation is only a part of the technological developments underway, and because the primary result of extensive automation is cost reduction.

    Let’s use a prime piece of “consumer” technology, the iPhone, as an example.

    This device combines how many functions? Radio, phone, VCR, computer, calculator, organizer, and how many hundreds of thousands of other apps might exist now or in the future?

    Bought individually, as little as ten years ago, you would have easily paid several hundred thousand dollars for a Stereo, TV, VCR, etc and all the various media CDs, Video Tapes, etc.

    Thats a MASSIVE drop in price over just a decade, because improved technology allowed the merge of function, a drop in manufacturing cost, consolidation of media formats, etc.

    At the same time, the iPhone has spread the tools of production to the masses, enabling them to make movies, produce content, and so on, effectively giving more people the ability to produce various “products” themselves, despite the ongoing efforts by the big media industries to prevent them.

    Over the next few years, we will be able to not only change what electronics are made out of, switching to the cheap, abundant, and and far more useful element carbon, in the form of graphene and CNT nanocomputers, but we will be changing HOW we make them as well, switching from hyper expensive, bulky, specialized machines that only corporations can afford, to cheap, flexible, and high volume printers. with Graphene chips and 3d printers, that iPhone likely drop in price while gaining in features to as great an extent as the iPhone is so much cheaper than an apartment full of the individual electronics that it replaced.

    Are jobs threatened by automation. Yes. Will many jobs simply cease to exist? Yes. Will the economy collapse? That really depends on your definitions of what the economy is. If it’s the modern world of corporate monopolies, where cash alone is king, then yes, the economy is going to collapse. Automation will destroy the basis of that economy of scarcity, and the greater the automation, the more extensive it becomes, the faster that will happen.

    But it’s not “The End”, it’s just a transition away from an economy based on rarity and material goods to one based on abundance and non-material wealth. In the short run, yes, us “little guys” will be out of work, we’ll have hard times, and it’s going to suck hardcore.

    But the real victims are the corporations, because automation and abundance will kill them. The more they automate to try and keep production high, and costs low, the more they will reduce the “consumer base” and thus, the more they will have to reduce costs further and sell products for less while offering more and more “value” for the ever diminishing flow of “cash”. It’s a vicious cycle, and there is no way out of it. We’ve come much to far past the tipping point.

    By the time it’s done, no “material” resource will retain any “value” and we will have transitioned to a “non-material” system of “wealth” building through human creativity and knowledge creation.

    And that iPhone? It will be printed like a sheet of paper, with about the same negligible “cost”

    The other side of the coin is how that technological development is going to affect our social organizations. Because Econ raises a valid point about the loss of “knowledge” workers, and how those who have “jobs” will need far higher levels of education. What is overlooked, I think, is that the increasing ability of computers to replace “knowledge workers” includes one very important category of them… Teachers.

    Education is going to be dramatically altered by the advent of cheap “practical” VR and limited Narrow AI “assistants”. Right now, the education system is geared towards cranking out “worker drones” for an industrial age that no longer exists. It’s little wonder that the system is breaking down. With the advent of ever smarter “Digital Assistants” that can not only enable people to access and organize all the various data available on the net, but by tailoring themselves to individuals, they will become “personal tutors” able to help their owners learn about any subject to any level of depth by using the means most effective for that individual. This will lead to much more of the human populace being able to not only contribute to the “knowledge creation” process, but act as a great social “equalizer” by eliminating the “information gap” that exists along side the “wealth gap”

    In the short run, I see all of Econfuture’s concerns as quite valid, but I also see that it is a single part of a vastly more complex whole, in which I already see “error correcting” processes working, albeit much more slowly than I could wish. There is much we could do to alleviate the suffering of the common populace that will be caused by the death of the corporate system.

    1. I think you raise some valid points. However, all this stuff about how automation will make everything cheap so it won’t matter if you have no job or a very low wage is, I think, overdone. We have a word for stuff getting cheaper: Deflation. The big problem with deflation is that DEBTS do not deflate.

      So your income will deflate (maybe to zero), the stuff at WalMart will deflate, but your mortgage payment will NOT delate. It will take some very disruptive changes before health care costs would deflate. So the average consumer is going to get caught between falling income and fixed costs that do not fall. I had a post on this here:

      1. Agreed, but again, those are signs of the collapse of the “material scarcity” economy that has held sway for the majority of human history.

        Is it a crisis? That depends on if your goal is to “save the system that exists” or if it is to “help humanity adapt to a new system”

        Debt is a product of “material scarcity”. Those “fixed costs” are not actually fixed but depend on a complex interplay of various actors. The cost of the materials needed to manufacture your home is determined by what materials you use, where they came from, how much the people acquiring the materials were paid, how much profit the various middle men tacked on between the source and you, etc. Your “mortgage” payment is not just paying the cost of your home, but paying the bank it’s profits for allowing you to use it’s resources as well.

        These “FIXED COSTS” are in most cases completely arbitrary, and not tied in any way to the actual “material value” used to create a device. They are the amount of “Profit” that various people along the path demand for each step that occurs between the source and the final consumer.

        So, what happens to all those “middle men” if there are no “steps” in the supply chain? What fixed costs are there if the “source” is directly connected to the “consumer”?

        You are right, a lot of “fixed costs” won’t change. People will desperately try to cling on to the old concepts of scarcity, and continue to try and make the “system work” long after it’s broken beyond repair.

        And a lot of people will suffer. And the worse it gets, the the more effort will go into trying to “make it work” by trying to find more and more ways to compete for fewer and fewer “dollars” per consumer, because the only way to “profit” has always required the masses. As you yourself pointed out, the money flows from the many to the few, and without the many the few cannot provide enough of a “market” to survive, so more and more “wealth” will be poured into making things cheaper to soak up ever more of that vanishing “profit”

        And that is a circle of diminishing returns that will force an evolution from a economy based on “material wealth”, because every material item will be driven down in value relentlessly, while “non-Material wealth” will gain in value in direct proportion.

        Which indicates that while we may indeed be facing a period of “economic chaos” as the current economic paradigm collapses, the result will not be the “Economic Armageddon”, but is instead a phase transition between scarcity and abundance.

        Which basically means that I agree with just about every point that you make, but you make those points as someone who is “seeking to preserve the system as is” while I am looking at them from the point of view of someone who is “watching the system evolve into a new system”

  12. Actually, the economic analysis is pretty robust to whether machines are owned by many or few humans.

    Just as it is robust to whether the machines are liberated (and buy their own fuel and parts) or are enslaved (and have their fuel and parts bought for them by humans).

    So, such issues – which are contingent on political factors – are pretty irrelevant to the issue of the health of the economy – *unless* we are talking about things like damage due to disruption.

    1. Tim,

      You’re still not getting my point. If the machines are liberated, they are sentient…that’s science fiction so I don’t think we can consider it as a serious economic issue.

      If the machines are enslaved they are used by business in production. They are used to create and add value to other products and services that need to be sold at a profit. Somewhere down the line that other product or service has to be purchased by A HUMAN. The human has to have the means to do so….ie an income. MACHINES ARE NOT CONSUMERS.

      GDP = C + G + I + X

      Take away all the human consumers (because they have no income) and C goes to nearly zero. You then have no economy, because G, I and X are ultimately also dependent on consumer spending.

      The only other way it could work would be if everyone is self employed and uses machines to produce stuff which they successfully sell to others. Some people could succeed at that, but surely not everyone or even most people. All those other people have to have an income or they won’t be able to buy anything from the people that do succeed.

    2. I am specifically dealing with the disruptions themselves, and the end results that will occur because of those disruptions.

      As I pointed out to Econ, I see our current “crisis” as a phase transition phase between scarcity and abundance. Many of the “institutions” we take for granted, like massive conglomerates and financial institutions will fail to make the transition, because their size is prohibitive, and too many of their “products” will cease to be profitable. This “turmoil” is pretty well going to follow the path Econ laid out, with increasing globalization and automation, and there will be quite a bit of societal “damage” done by this “collapse”

      My main point though is that while I think Econ is quite right in “How” things will progress, I think he’s failed to look at the total social, political, technological, and economic picture, in particular I think he’s failed to account for the repercussions that will occur as a result at each stage of this “phase transition” that will transform the economy into something new. To make a comparison, I think he’s seeing the “cocoon” as the “death” of the caterpiller, instead of the “birth” of the butterfly.

      He’s quite right that we are going to face a crunch, and that it’s probably going to get worse. What I don’t think he’s done is look PAST the crunch to the new economic reality that will come about because of it.

  13. Well, you just keep repeating your position. I will just keep repeating mine.

    I don’t think your analysis is correct. Humans that are involved with producing machines can make – and therefore spend – many billions of dollars – though much of it may get spent on fuel and machine parts. Their spending power in the market can be *enormous* – compensating for spending power lost by those who are unemployed. If you count the unemployed humans as a minus, you *must* properly account for the drivers of the machine-minions as a plus.

    That’s the analysis in your preferred framework. If you just view machines, companies and humans as independent economic actors, the analysis is simpler. It makes no difference to the analysis whether the machines are enslaved or not – their needs get fulfilled just the same either way, with purchases of fuel and parts. Your analysis apparently has the “liberated” and “enslaved” machines leading to different economic outcomes. That is an obvious bug – from my perspective – since all that is really different is who is signing the cheques – not what is actually getting spent.

    The conclusion is not that humans will find jobs – but it is that the whole “economic collapse” business doesn’t make any rational sense. Nobody else thinks that is going to happen – as far as I can tell – which should be a “heads-up” for you.

  14. Most economists at this point in time do not have much credibility in my mind. They seem to be like the Emperor Wears no Clothes. Greenspan was the Emperor and many agreed, until his policies imploded.

    One of my favorites cynics is Nassim Taleb. He talks smack for days about Economists and risk. He points out that Economists mostly look at the past to predict the future. Yet as systems speed and get more complex they change so that its difficult to predict where complex systems will go.

    Tim, here is a point. I believe that the future will have machines, yes, but humans will be more defined by going inwards towards virtual reality. The machines that I use daily are getting smaller and more integrated. The last PC I bought is Windows 7 box for $700 thats blazing fast. Soon it will be $300 and I will just sit on Facebook and watch stuff on Hulu. There is little production there. The future is not about giant machines taking us to the stars its about Humans having cheap cell phone computers and sitting in their rooms watching them.

  15. @Genomik

    Actually those “giant machines which will take us to the stars” ARE being worked on, they are just not a high profile as the economy, the climate, and politics in general.

    Check out NextBigFuture. He provides space news updates regularly and I have been quite interested in the “Mach Drive” Inertial Propulsion system being developed in England. If it truly works, we might have planet surface to planet surface drives in the next twenty years that can also achieve relativistic speeds.

  16. The analysis of the effects of technology and the impact on society begun in the 19th Century by Marx among others.

    Marxist analysis revolves around the fact of technological progress and the implications for class struggle and the transformation of society. Marx was ignored and ridiculed for quite a while until actual revolutions occurred and the prevailing order was under real threat. The Marxist analysis is once again ignored as it is thought dead. So it was, so it will be again.

    Ford, your analysis will be ignored and never accepted by economists because the implications of what you are saying are revolutionary, even if you don’t understand or recognize this. You are talking about a possible eventual world without capitalists or workers supported by intelligent machines – the Socialism of the Future. However, this will not just depend on the advance of technology alone but also human agency through the class struggle.

  17. @ Mark

    It’s precisely those changes in societal structure that will occur BECAUSE of automation that will enable the transitive phase between the current economic system to the post scarcity system, which is not really socialist at all, but communistic. When each “worker” has his own individual “manufacturing” plant, then there is little need for the state to provide for the individual. To GET TO that point however, there is a need for a socialist system that enables the collective to provide for the needs of the collective during that transition phase.

  18. How the fruits of increased productivity due to automation are distributed is the key issue, and it’s a political problem, not a technological problem.

  19. Very interesting research/analysis on an issue that will become increasingly important to an increasing number of people.

    btw, Autor has published other papers, and others have published stuff as well- some source links at the end of this Economist article:

    Automatic reaction: IT spending has hollowed out labour markets, to the detriment of middle-income workers

  20. I’m not an economist but I have studied some economics at the university although I don’t have any degree but I know that basic economic theory suggests that there is always full employment as long as the wages get low enough for businesses to find it profitable to hire people with their respective skills. So if demand for lowskilled labor or for large parts of the labor force weakens as a result of technological change then wages have to go down for them to find employment. So while the overall economy grows, less and less money goes to the majority with skills or no skills that are in low demand and more and more goes to the few whose skills are still in demand and also to the capitalists (rising profits). This has in fact already been going on for quite some time in the United States, since 1980 there has been a huge explotion of incomes for the top one percent of income earners from roughly 9% in 1980 to 23% in 2007. This suggests that there won’t be any unemployment in the future either because the minimum wage is quite low in the US, so there is plenty of room for lower wages in many occupations, but instead the income inequalities will become ever greater and also because of this low demand for labour, and because the downturn was quite severe this time, reaching full employment will take longer. On you question, most economist’s I suspect would say that technological change and globalization leads to greater income inequality, a topic that is already big among economist’s and which is getting more and more attention.

    1. The Veitgeist movement spun off from the origanal Venus Project. Both address the problem of technological unemployment and offer a solution that involves redesigning society around a Resouce Based Economy. I have blogged about it here:

      The Zeitgeist Movement likes to promote conspiricy theories which is why The Venus Project dumped them as their activst arm, but they both still pursue the same goals.

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  22. Our governments should spend more of our tax-dollars on something we want. I’m for robotics that are owned by all of the citizens of a country. Lot’s of people want to cheer every time a robot puts someone out of work. Fully automated robotics factories, with self replicating robotic arms. Highly automated renewable energy, windmills or underwater water mills. Highly automated steel production. Highly automated chip manufacturing, and Linux. I’ve seen some automated building manufacturing companies starting up as well. Other prerequisite products can eventually be manufactured as well. All source code and blueprints have to be fully owned with rights to an infinite amount of use. All owned by the citizens of the country concerned. Small factories at first, with all of the bugs worked out, so that it largely builds itself in the end. It should be affordable, I’m an economic conservative. Eventually the complex can produce consumer goods besides steel, energy, chips, buildings, and robotics. Charities and the open source community can help as well. I support liberal licensing agreements of source code and blueprints, to allow infinite replication without cost(one time fee models).

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