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The wastefulness of automation

The wastefulness of automation

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Chris Dillow observes that "one function of the welfare state is to ensure that capital gets a big supply of labour, by making eligibity for unemployment benefit conditional upon seeking work." And despite noting that when jobs are scarce, paying some to "lie fallow" so others can work might be a good thing, he concludes that "this is certainly not in the interests of capitalists, who want a large labour supply - a desire which is buttressed by the morality of reciprocal altruism and the work ethic." (emphasis mine). Basic Income, therefore, is not going to happen because capitalist interests, claiming the moral high ground, will ensure that it never gains political traction.

But what if capitalists DON'T want a large labour supply? What if automation means that what capitalists really want is a very small, highly skilled workforce to control the robots that do all the work? What if paying people enough to live on simply is not cost-effective compared to the running costs of robots?  In short, what if the costs of automated production fall to virtually zero? 

I don't think I am dreaming this. I've noted previously that forcing down labour costs is one of the ways in which firms avoid the up-front costs of automation. But as automation becomes cheaper, and the efficiency gains from automation become larger, we may reach a situation where employing the majority of people at wages on which they can afford to live simply is not worthwhile. Robots can produce far more for far less. 

This creates an interesting problem. The efficiency gains from automating production tend to create an abundance of products, which forces down prices. This sounds like a good thing: if goods and services are cheap and abundant, people can have whatever they want, can't they? Well, not if they are unemployed and have no unearned income.  It is all too easy to foresee a nightmare future in which people who have been supplanted by robots scratch out a living from subsistence farming on motorway verges (all other land being farmed by robots), while lorries carrying products they cannot afford to buy flash past on the way to the stores that only those lucky enough to have jobs frequent. 

But it wouldn't actually be like that. If only a small number of people can afford to buy the products produced by all these robots, then unless there is a vibrant export market for those products - which requires the majority of people in other countries to be doing rather better than merely surviving on a basic subsistence income - producers have a real problem. They would normally expect increasing efficiencies of production to push up profits, either because demand for products would be sufficient to maintain prices while production costs are falling, or because lower production costs feeding through into lower prices gave them a competitive advantage. But the efficiencies of production created by automating - including, eventually, the low-skill jobs that at the moment are too expensive to automate - may actually result in the destruction of profits. The fact is that robots are brilliant at supply, but they don't create demand. Only humans create demand - and if the majority of humans are so poor that they can only afford basic essentials, the economy will be constrained by lack of demand, not lack of supply. There would be no scarcity of products, at least to start with....but there would be scarcity of the means to obtain them. 

What does a demand-constrained economy look like? Firstly, it is deflationary for everything except basic essentials. Perversely, prices of energy, housing and basic foodstuffs may actually rise, because people will prioritise those over all other spending. But prices of non-essential goods will crash to zero, and profits will evaporate like the morning mist. At that point - when even the very low maintenance costs of robots are too high - businesses will cease production.  So although the economy is generally deflationary, headline inflation could actually rise as producers  of essential goods hike prices (because they can) and other goods and services disappear. 

Secondly, a demand-constrained economy is sluggish. People who are struggling to survive don't do anything that isn't essential: they don't go shopping except when they absolutely have to, they don't go out for meals or other entertainment, they don't go on holiday, they may not even visit friends or relatives much if transport is expensive, they don't maintain their houses and they don't buy treats for their kids.  And they are tired. The physical and mental energy required just to ensure that bills are paid on time is considerable: constant worry makes creativity impossible for many people. If the majority of people are living like this, then the country is not a happy place. Few people can enjoy life in a society where the sheer challenge of surviving is so great that people even lack the energy to protest.

And thirdly, a demand-constrained economy is an unattractive place for businesses. Businesses want to make profits. If profits are impossible because no-one has any money, businesses will not want to locate themselves there, unless they plan to export their entire production. They will go to more vibrant economies where people have money to spend and the energy to pursue interests and hobbies.

So it seems that when an economy is facing deflationary pressures because jobs are disappearing, people's real incomes are falling and efficient production is causing excessive supply that cannot be mopped up by domestic or external demand, it might be wise for governments to support demand by putting a floor under real incomes at some level above basic subsistence.

Supporting real incomes when wages are being forced down typically involves in-work benefits: supporting real incomes when unemployment is rising involves unemployment benefits. The present welfare programmes were established on the principle that only a minority of workers would need this sort of support. But the reality has turned out differently. It is not clear whether the decline of real wages over much of the last twenty years has been caused by the existence of in-work benefits, or whether in-work benefits have (unwittingly) been created to offset the decline of real wages. What is clear is that we are already well down the road towards income support for the majority, not the few, with increasing reliance on in-work benefits as the median income falls, and a minimum wage to prevent employers (with the collusion of workers who expect to be subsidised) bidding down wages to the floor. But our current income support system is a mess. It's an unholy mixture of pensions, benefits and tax breaks, inconsistently designed and arbitrarily applied, riddled with exploitable loopholes for those who know how to play the system, and harmful sanctions for those who don't understand the rules. And government is now making ill-considered changes to it because of its increasing cost.  

Looking ahead, the only way in which such extensive outright subsidy of wages can be sustained in the longer term is through heavy taxation of profits and wealth - which rather undermines the purpose of forcing down labour costs, from capitalists' point of view. 

But the short-sighted strategy of forcing down wages to prop up profits is not the only problem. As Tomas Hirst notes, traditional "middle class" skilled production and office jobs are disappearing, but there is relative growth of low-skill, low-pay jobs, mostly insecure, part-time and short-term. These jobs are increasing because the cost of employing people to do them is lower than the cost (at present) of automating them. If the future is that the majority of people will do unskilled, insecure jobs for very low wages, then this amounts to a shocking waste of human capital. And if the more distant future is that even these jobs will eventually be automated, and working for a living will become the privilege of a few, then it is an even bigger waste.We have the most educated workforce in history, but the majority of them will have no opportunity to use their skills in satisfying and well-remunerated work. 

The obvious counter to this is that people have other opportunities to use their skills, through voluntary work and hobbies. But the problem is that people who are struggling to make ends meet focus only on survival - many of them working long hours or doing multiple jobs for little pay. People who have no disposable income don't do hobbies, because doing hobbies requires money. People who barely have enough work to meet essential living costs and don't qualify for state benefits don't do voluntary work, unless it has a real prospect of leading to paid work. For people on very low incomes, survival is the primary consideration. This is the lowest level in Maslow's hierarchy of needs: when you have to do any job - however lowly - in order to eat, self-actualisation (doing things that make the best use of one's abilities and interests), or doing things that improve one's social standing and benefit society as a whole can only be a distant dream. Is this really what we want for the majority of people?

Without financial support to enable people to do things that use their skills and talents, hysteresis - the decline in quality of human capital when skills are not maintained - is a real threat. And the work ethic to which Chris alluded encourages this. Better to work in a drudge job for dreadful pay than live off the earnings of others. Better to accept any job, however unsuited to your abilities, than be supported by the state while seeking the right job. Better to be "responsible", and provide for your family, than do the job you love and have been expensively trained to do. This attitude is all too prevalent, but it is fundamentally flawed. It is not good for the economy for people to be pushed into jobs that are unsuitable for them. Yes, it gets them off the unemployment statistics, for a while - but it doesn't necessarily get them off benefits, as I've mentioned already. And perhaps more importantly, it doesn't make good use of THEM. A labour market that is skewed towards unskilled jobs when the workforce is more highly skilled and educated is malfunctioning. People who are in the wrong jobs are less productive than they should be: therefore, when most of the workforce is in the wrong job, we inevitably have an economy that is less productive than it should be. But if the "right" jobs are disappearing from the private sector because of automation, what then? Human beings are part of the natural resource base of the economy. Are we to become like Shire horses, decorative relics of a past age? Or could the disappearance of production jobs and - even - many service jobs create an opportunity for human beings to invent new and exciting things to do? 

It may be that even with full automation of production and robots replacing many service jobs, there will always be productive and socially useful things for human beings to do. But while we insist that everyone must work to meet basic living expenses when the labour market is bifurcating into a small number of high-skill, highly paid jobs and a much larger number of unskilled, poorly paid and insecure jobs, we are preventing people from inventing new things to do and new ways of working, and dooming ourselves to a low-growth, low-income future. It seems to me that providing people with a reasonable income while they find or create for themselves the right job (not just any job), or to enable them to do creative and/or socially useful things that are currently unpaid, or to study and develop new skills, might be a good investment for the future, improving the productivity of human capital which over the longer term benefits the economy. And it would also provide a useful counter to the tendency of firms to force down wages and design work badly when profits are under pressure. If workers can afford to refuse to do poorly paid drudge jobs, firms will have to offer something better. 

If the future of production and services really does lie in automation, though, it raises questions about the future of work for the majority. I mentioned earlier that working for a living could become a privilege to which people aspire. But if most people are paid not to work, while a small number of people own and operate the machines, how will capitalism survive? After all, as Bertrand Russell points out, we are used to having a small leisure class supported by a large working class....but this would be a complete reversal of that state of affairs.  There would be a very small working class and a much larger leisure class. If the owners and operators of the machines kept for themselves all the proceeds from robot production, the state could not for long provide enough income to the rest to enable them to buy the goods and services produced by the elite....but if most of the elite's money were taken from them by the state to provide incomes for the leisure class so that they could buy goods and services, why would the elite bother to produce anything? It seems to me that fully automated production and a world in which few people work for a living is not in the interests of capitalism or of capitalists. So maybe Chris is right. Maybe capitalists DO need a large labour force. Their survival depends on it.


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Related links:

Basic income vs capitalism - Chris Dillow

The financialisation of labour - Frances Coppola

Redistribution and the hollow middle class - Tomas Hirst

Bifurcation in the labour market - Frances Coppola

Maslow's hierarchy of needs - Wikipedia

Marx's unpublished thoughts on technology - Understanding Society

Beveridge rebooted: The Truth about Welfare - Social Market Foundation

In praise of idleness - Bertrand Russell

Audit report on universal credit set to highlight problems - FT (paywall)

The changing nature of work - Frances Coppola

Sympathy for the Luddites - Paul Krugman (paywall)


Comments

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Arghhh no edit button to correct my spelling error.

Sorry Frances!

Hi Francis,

I really enjoyed your article.

Maximum automation, a birth to death living wage for all, and a period of running the machines and the necessary human-touch infrastructure parts after you finish university or when you are older and wish to contribute more?

I am sure you know about this, but for me the below is one of the better plans for the future and definitely relies on maximizing automation :)

https://en.wikipedia.org/wiki/The_Venus_Project

Cheers!

Fred.

No matter how rich a person he/she is unlikely to enjoy being served by a robot barmen, treated by a robot dentist, or receive a massage from an android (automated massage chairs have not replaced humans), and after all ... walk down the emty streets of towns left by 99% of humans in search of basic food to the countyside or forests.
Not only the rich will suffer. The another 1% of skilled labour needed to sustain whatever of economy is left will be lost - in a generation. It's because that 1% of the skilled stems out of the 98%. And that 98% losing its skill in most trades, doing just the leftover of the unautomated jobs, or just receiving benefits for free, or searching for basic food - is a useless society, likely to survive a generation or two and then extinguish by itself, not to mention that the zero demand will devalue whatever assets of the rich are by that moment.
Marx must have been right then to the extent that a good is worth as much as it bears human labour in itself...
The only way for a human to stay is "eat, drink, sleep, excercise and by happy" (copyright by Hiroshi Ikeda, Aikido Master) and the "excercise" i.e. trade, practice, labour, skill etc. is the essential element of life (vs death). So a social formula has to be found for everyone to keep practicing wahatever art, and goods/services to bear the human labor in themselves. No other way round.

There are 225 million American adults over the age of 18 and out of that pool just under 65 million are either on Social Security or disability and receive an annual benefit of roughly $15,000 a year.

To fold and phase in the remaining 160 million American adults into Social Security, which is ultimately what basic income will be, and to have them each receive the same $15,000 a year carries an annual cost of just under $2 1/2 trillion dollars a year, or 15% of our United States's annual gross domestic product.

That sounds like an inordinately large upfront investment, however there are several things to consider.

For starters, no one is going to get rich or wealthy off of $15,000 a year.

The other item to consider is, just as we see with retirees on Social Security, the bulk of that money, up to 90% of it, will immediately circulate and flow back into the economy, that is why money is called "currency", so the overall "cost" is significantly lower than it appears at first blush.

It is not like we can't raise $2 1/2 trillion dollars a year for this, because the money is most certainly out there.

The combined net worth of the top 1,200 billionaires on this year's Forbes wealthiest people in the world list, the bulk of them being US citizens, have a combined liquid net worth of over $5 trillion dollars, and there is anywhere from $15 trillion to $30 trillion dollars sitting in offshore accounts.

The question is just how do we legally get our hands on this money?

I posit that the best approach is to get it through the head of the owner/operators that it is in their best interest to let go of their loot, or else suffer the consequences.

If that does not work, and I have no reason to think that it should, then we are going to have to take FDR's approach and implement laws with some real teeth to them, as well as clawback a significant proportion of those trillions of dollars sitting in those offshore accounts.

All of this, of course, is easier said than done.

And it will need to happen with a quickness.

Figure that from this point on that, at a minimum, both white-collar and blue-collar jobs will be permanently automated away through workplace automation at an annual compounded rate of anywhere from half a percent to 1% of all jobs in the workforce, which means that somewhere around the year/s 2020 to 2025, a scant dozen years from now, as many as an additional 25 million Americans, on top of those who are unemployed today, will be unable to generate any sort of income for themselves.

Given the current political, economic, social, and cultural environment this will not be an easy sell.

Up until the point where Wal-Mart, and every other big box retailer in United States, automates away half of its US workforce, an event that I expect to happen within the next three years or so, latest by the end of the year 2017.

Once that happens I think that we will see a massive shift in public thinking once it dawns on the general public that those jobs are never, ever, coming back, and establishing a national basic income here in United States will finally become politically viable.

Humans have value for several fields that automation does not, such as arts, culture, and knowledge development. There are many occupations that are skilled and cannot be automated such as writer, musician, historian, and pure researcher. If value from automation is used to support education, the arts, and research, then it will be a boon to humanity. The trouble will be in wrenching the profits from the hands of the rich and powerful.

the economy avec robots - it is one of the most interesting issues future humans will face. and that includes the darkest of human behaviour that is the unspeakable cloning of humans for the benefit of a few. the problem is that the changes will come gradual and mistakes will be made along the way. I like to speed forward these trial and error stages and jump to the universal utopia. the utopia of my fantasy is only possible if humans - one and all with no exception (one hitler can destroy it all) learn to live with the right values - thanks to my anthropology teacher. We celebrate celebs, seek fame, want to live on freebies and hoard wealth so that the future of our descendents is secure. We have to learn to secure the future of "all living things". HOW? is the work in progress that this blog is a good part of . i am very optimistic. good luck. Chokhe dee in Thai.

Consider the system of wages for labor. What is the purpose of such a system? It is a realization that, because not everybody can have anything they want, there needs to be some kind of priority-making. Some wishes have to count higher than others. In other words, there needs to be some kind of rationing, and in economics, the system of wages for labor (and pricing of goods) is called price rationing.

Giving people wages produces a rationing system which in effect says that those who work a lot have a preferable claim on goods. "Those who make, get". Again, this is required because not everybody can have anything they want.

But now consider what happens when automation is ubiquitous. Everything is cheap. Demand is the limiter, not supply. So why do we need price rationing at all? From the point of view of giving wages, the system self-destructs because there are nobody to give wages to. This is because the central assumption - that there are workers who make things, and thus should be paid - no longer holds. It no longer holds because the machines, not the workers, make things.

Seen in that light, it's not surprising that capitalism would break down. One of its central assumptions has just been broken. Like a car does not make a good boat unless explicitly designed that way, the system of wages no longer would no longer work well. And the solution is not to claim that because cars can't go on water, we should stop anyone who thinks about boats (pervasive automation). Instead, it would be a lot better to find out how to make boats work and then enjoy a world where automation can give everybody almost anything they want.

If the economy and people conflict, favor people. The economy is an abstraction. People, machines, goods: those are the real things. If the abstraction no longer works, replace it. It is much better than twisting reality to fit the abstraction.

Perhaps it is time to consider alternatives to income taxation. The Automated Payments Transaction Tax proposal, for example, shifts much of the tax burden to the financial industry. As we Californians learned from 30 years of experience with Proposition 13, citizens don't care what the government spends as long as they don't think they aren't paying for it.

Even if the taxation required for sustaining a large leisure class was not overly burdensome, the elites (owners of machines, rentiers and highly skilled workers) would not necessarily tolerate such a welfare state. If the elites received little or no goods and services from the leisure class, welfare might require mandatory sterilization as part of the deal. Moreover, democratic systems might not survive this economic transformation - can citizens have political power (the vote) if they have no economic power? Another possibility is that elites withdraw into separate geographic and political entities.

On the other hand, the the leisure class might not tolerate the paternalistic and unequal social relations that are perhaps inherent in such a society - as Kurt Vonnegut brilliantly explores in 'Player Piano'.

The best solution would be to tax the robots, not the owners of the businesses or the businesses.

It is the work done that needs to return worth to society so that the underemployed can live. By having a small automation tax either on the sale of the robot, on the maintenance/leasing charges or by encrypted monitoring software (essentially piece-rate payment), more than enough money could be raised while taxes on the highly skilled and businesses could be lowered.

Some black market may evolve and it would become a hackers paradise but all the same. And there would need to be controls and regulation or we would all end up being owned and possibly controlled by forces outside our borders.

The great thing about robots is that once they are developed they can be reproduced and work from day one without expensive education and health care. Eventually they wear out or are superseded and are scrapped without having to pay pensions and worry about care homes and funerals. So we can increase the robot 'population' without having to build new towns, worry about water supply etc. All we need is power and maintenance.

The more work - ie robots - that are 'employed' the more tax is raised. So a nation of people run essentially by a billion robots would be a better place than the rather miserable nation we have become under ill-thought out austerity.

People then can be released to pursue their own happyness (!) and some - but not all - will create new ideas but as you point out, will not have the drudge of having to 'survive' because some sort of basic income will take this worry from them.

For 40 million adults at £100 a week plus say 20 million children under 18 at £50 a week the total cost for the UK would be £260bn. A more generous to adults £130 a week with £35 a week per child would be £306bn. The current spend on 'social provision' is about £190bn to which would be added the savings of scrapping tax allowance for employment.

Not so very different really. Proper calculation would take into account the enormous administrative cost of the present system, the consequent and eventual slimming of salaries for those in work which would boost profitability etc. There is also the hot potato of immigration - when would people become eligible for a basic income etc.

Just my £0.02p!

In many places in this article could you not replace the word "automation" with "China"? The machine that is/was China gave us low cost goods as well as take our jobs. However, like this article mentions, if one has no source of income how does one afford even the cheapest of goods? I am a 4th generation domestic manufacturer that has heavily invested in automation and I welcome any resurgence to the American markets.

The problem with this thesis is that it presumes centralized control and management of the economy at large. Which, from an industrialization standpoint, makes sense. That is, one needs corporate organization to manage the people and resources of a factory necessary to produce goods, market them, and deliver products to market. But, as you point out, this model breaks down when employees become no longer necessary to produce the goods they then buy at market.

But what happens when individuals can manufacture many goods on their own, such as with a 3D printing machine? Production of simple items become distributed across the economy, and as printing capabilities increase so too does production decentralize. Then, intellectual property rents become crucial to distributing income flows around centralized corporate structures - monopolies and cartels - in order to provide a living wage to the populace.

The same can be said for any other type of IP. Whether you're a wordsmith, a song writer, film maker, software author, or any other content producer, the game is to distribute your material to the largest audience while cutting out as much revenue from the middle men as possible. Jaron Lanier suggests a micro-royalty scheme to resolve this problem.

http://www.niemanlab.org/2013/05/jaron-lanier-wants-to-build-a-new-middle-class-on-micropayments/

Ultimately, when centralized production funnels all income flows through singular organizations, the tax - whether government or corporate - arises due to a combination of diminished market competition and parasitism. The solution to this is not to create an ever larger bureaucracy that collects and then redistributes. Much better is to create the right incentives for individuals to create useful ideas and products so that centralization collapses, and the tax it incurs is instead transferred to private parties engaged in exchange.

This is not to say that I oppose government, for I accept that it's necessary to maintain a level market playing field through regulation. Simply that I believe the approach you propose would be unwieldily and ultimately counterproductive.

It's amazing the things they will be doing soon - outsourcing a hip surgery via remote to a Doctor in Bophal India.. http://en.wikipedia.org/wiki/Remote_surgery - can't say I see any way for the Global economy to expand given these deflationary forces.. and I've tried to look at this from every angle possible..

Brodrick,

I see, after I posted, that I duplicated some of the same ideas you had already posted...

You write:

"People think they have earned it entirely on their own, centuries of infrastructure, education, and society be damned. "

That seems to me, the be the core problem of getting people to gasp what is going on and what needs to happen. Many people are so self-centered, that they just don't take the time to look at, and understand, the big picture. They just survive, day by day, by dealing with what is in front of them, by putting one foot in front of the other, and having no real awareness, of the bigger issues.

This sort of self-centered world view, naturally seems to lead to this error of believing "I earned it". If they get a job offer, for 100K, they believe that money is "their money". If the government takes 80% of it away, they feel like their labor was "stolen" from them - that they were forced to work 40 hours, but only get "paid" for 8. In fact, in the bigger picture, their labor was not worth 100K but rather, it was only worth 20K TO SOCIETY. That 80K was just part of a larger accounting system at work.

I don't think it will be easy to get these self-centered thinkers to ever understand the bigger issues. So it might be useful if we could find better way to do the accounting, so that the system works without a person like this feeling like he had "so much" taken from him. I'll have to think more, about what might be possible in this regard.

"if most of the elite's money were taken from them by the state to provide incomes for the leisure class so that they could buy goods and services, why would the elite bother to produce anything? "

Becuase "most" is not "all". Because the elite will still be super rich for their work.

If the economy is 10 trillion (aka the GDP), and one person owns all the robots, all the factories, and all the natural resources used by the production (farms, factories, mines), then he has zero expenses. He has no leases to pay for the land his factory is one, because he owns the land. He hires no humans, because the machines have become so advanced, not even one human is needed to "run" the robots - there are robots watching, and maintaining each other. All this stuff he owns, is turning out produces and goods and services and power, but what is the guy to do with all all this stuff his machines are making?

So he sells it to the people, and make himself 10 trillion dollars a year. But of course, the people, who own nothing, don't have the money.

So the government takes from the guy that owns everything, 9.5 trillion dollars, and gives it to the people. Who then spend 9.5 trillion buying goods and services from this guy. They guy keeps the extra 500 billion for himself. And he buys for himself, 500 billion dollars worth of goods and services, from his own companies. Or, he buys 100 billion of luxury items, and uses the extra 400 billion, to buy more land, and mines, so that before he dies, he's bought, and owns, the entire planet.

Now my example above, is meant to show that even only a few people own everything, capitalism can still work fine, and the people of the world, will all live a happy retired life, doing whatever brings them joy. Capitalism and money and free trade is important, because it is the system that automatically allocates the resources, to produce the products and services that are most important to the consumers.

The big change that is happening in society and economy, is the shift from human labor to natural resources.

Once, in the distant past, natural resources were so abundant, they were nearly free. But humans were in short supply. All things of value, were created and limited by, human labor. If you want a house, humans had to spend lots of time cutting down trees and building a house. There was a nearly infinite supply of trees, but a limited supply of humans to do the work. Value, was mostly a function, of human time - hours of work humans invested in labor.

But as society grew and changed, and our productivity with technology advanced, natural resources have become increasingly valuable. We started to run out of trees. To run out of good land for farming. To run out of water to drink. To run out of energy. The more we automate, the more the value of all things produced, are a function of what natural resources are consumed and not a function of how many man hours were invested.

The free market assigns values based on how important the different assets are, and the free market has been telling us, over the years, that human labor, is dropping in value, and natural resources are growing in value. The word "capital" really translates to ownership rights, for natural resources.

So as machines displace humans in the work force, money will be increasingly made by those who own the natural resources - the land, the oil, the patent rights for invention, and the machines made from the natural resources. But an economy based on ownership, and not labor, is a highly unequal economy. The economy, becomes like the famous board game monopoly. There's only one winner in the game - which is the player that manages to by up all the natural resources of the game - all the property.

We are shifting from a labor economy, to a resource economy, and as we do so, inequality is growing. Some players are getting the lion's share of the wealth, while others starve in poverty. The capitalistic economy is still growing, and working just fine. Profits are still high, but increasingly all the wealth flows to a shrinking minority of the people. The entire massive wealth of the world's economy, is shifting to support, a minority of the humans. You don't need 9 billion people to keep all the resources of the planet used. With the help of massive automation, 100 people can consume the entire wealth of the planet if they wanted to. What if one guy decided he wanted to build a death star the size of the moon in orbit around the planet? Why no if he's got the machines do all that work for him, and all the resources of the earth to use?

The bottom line, is that though we have enough economic and industrial power to support the entire human population of the world, the shift from human labor being the source of all value, to resources being the source of power, is causing wealth to shift to the few - to create rising amounts of inequality. It was the need for human labor, and the fact that each human "owned" a body to sell into the labor market that has maintained equality for anyone willing to "work" for thousands of years. But those days are coming to and end, and we must decide, if the purpose of our economy, is to turn over control of the planet, to a small elite, or if the purpose of the economy, is to support mankind.

We need to implement world-wide basic incomes, to offset growing inequality. The few will still "work" simply becuase they will still get super rich by working. A person that has made 3 billion, can still afford 2 million in taxes, to feed the poor, while he gets to keep 1 billion for his success at feeding the poor. As a society, we have to decide what levels of inequality are acceptable, and set the tax rates, and basic income rates, to create that level of inequality. Today, where human labor is still very important - and lots of it, we need to make sure people are still well rewarded for working. But our economy and industry is advanced enough, that no one should have to waste an instant of their lives, fearful they won't have food to eat, or a home to live in, or basic medical care when it's needed.

Seems to me that there's a fairly obvious short- to medium-term solution for the problems created by the automation of unskilled or semi-skilled jobs in the private sector: The creation of jobs in the public sector. In every advanced capitalist country -- I'm in the States -- there's trillions of dollars worth of work that needs doing that the private sector can't or won't do. Much of that work can't, at present, be automated, and can be done by unskilled or semi-skilled workers. Roads, bridges, public water and sewer systems need to be repaired, maintained and upgraded; derelict buildings and vacant properties need to be razed (and replaced with, say, parks, recreational centers, community gardens, or low-income housing); substandard housing needs to be weatherized and outdated and wasteful heating and cooling systems need to be replaced; daycare for parents employed on such projects would need to be provided. I could go on, but you get the gist. This is all stuff that desperately needs doing, but that will never get done unless governments do it.

It further seems to me that monetary sovereigns like the United States could easily underwrite these projects, particularly if hugely wasteful spending by the central government (like, say, the trillion dollars or so the US squanders annually on defense and "national security" spending ) were curtailed and re-directed to projects that actually benefit social welfare.

In the long term, it seems likely that automated processes will eventually displace most human labor. This is a good thing, since the work that most people do is pretty awful. If both human labor and human expertise becomes largely unnecessary, the conventional justifications for vast disparities in income and wealth will largely disappear, and some form of "communism" would become inevitable. Which would also be a good thing.

Frances,

You say: "We are talking about tax rates well above 90%, I suspect"

This may, or may not, be a problem. As a thought experiment, we could take the most extreme case where one person owns a corporation that produces all the worlds robots and that those robots do every piece of work that humans ever did. Then presumably that person (or their corporation) would have a turnover exactly equal to the total of global GDP. They would be so wealthy that even taxing them at 99% would leave them wealthier than the wealthiest person alive today.

In summary, it would not really matter what % tax was paid, they would still be famously wealthy.

But I can see that you may have a point in that our 'cultural capitalism' seems to lead people to believe 90% tax is unfair in any circumstance. People think they have earned it entirely on their own, centuries of infrastructure, education, and society be damned. It might even be that this is really the reason UK and Europe cannot get any traction today, i.e. people are trying to get a big % of a smaller cake rather than smaller % of a big cake (like the UK to and fro with the 50% top marginal income tax rate). This sort of takes us full circle, since tax is often seen as just a simple wealth transfer, when it should be seen mainly as an enabler and a form of insurance.

Frances Coppola

Brodrick,

I don't think you fully appreciate just how high taxation of the elite would have to be if the majority of people were either not working or working in jobs that paid less than the cost of living. We are talking about tax rates well above 90%, I suspect. In which case, as I said, these producers simply would not bother to produce. Why would they, if virtually all their income and wealth would be taxed away to provide incomes to those who are not working?

I pointed out in the post that in-work benefits are outright wage subsidies. Obviously these benefit "corporations and the rich".

I like your writing Frances. If you and Steve Keen could get together, then you just might save Western Civilization.

Not convinced by this article though. As Greg above points out, it seems that 'insurance', which would almost certainly be via higher taxes on the 'elite' would solve most of the problem. Indeed I'm always surprised that virtually all Western Democracies except the USA have not understood this. The USA tax system ensures that you pay at least the USA tax rate regardless of where you live in the world. If you don't then you must surrender your passport (citizenship) and if there is a revolution in your little tax haven don't expect the Marines to be sent in to rescue you. In this way the USA tax system can quite clearly be seen as at least partially and 'insurance' payment for the 'elite'. And given how many of the 'elite' seek US citizenship, it can't be that bad value.

Other governments, such as the UK don't do this though. In fact they do exactly the opposite. The UK tax system encourages the wealthy to come and live in London often without paying any tax any on their income, and yet receive 'free insurance' in the sense of getting all the protections and benefits of the UK society that they could not get in their home land.

Taking this even further, one might want to consider the case of, say, a cleaner that works for, say, a Russian oligarch in central London. The cleaner will not be paid a wage that would allow s/he to live anywhere near where s/he needs to work, and so they will receive in-work benefits such as housing benefits that can be seen as a subsidy to the oligarch. I don't think this is reductio ad absurdum, and suspect that many in-work benefits are in fact subsidies to the corporations and the rich.

Frances Coppola

Greg,

Indeed, I too see the opportunities from automation, and I've previously written about them on this site - I'll add "The changing nature of work" to the links at the end of this post, since you've drawn this to my attention. What I am really talking about though is the long-term effects of scarcity of money, deliberately created in the mistaken belief that pushing down people's incomes pushes up profits and therefore benefits the economy. That is only true in an export-dominated economy - but not every country can be an export-dominated economy. In the absence of export domination, pushing down wages slowly impoverishes the economy.

The reason why I discussed automation in this context is that state support of incomes is a viable counter to firms' tendency to push down wages when the number of people struggling to find enough work to pay their bills is fairly small, but when it is the majority of people - as it could be if production & services were fully automated, and indeed we seem to be heading in that direction already - state support of incomes becomes financially impossible unless producers are heavily taxed. Paul Krugman made this point recently in his post "Sympathy for the Luddites" on the New York Times. My extension to his comment is that if producers are very heavily taxed they won't bother to produce, which would force the state to take over production. Communism, here we come.

"[I]f most of the elite's money were taken from them by the state to provide incomes for the leisure class so that they could buy goods and services, why would the elite bother to produce anything?"

Steve Randy Waldman answered this some months or years ago (sorry, I find it hard to locate posts on his site): it is insurance. Pay a high-ish cost to maintain a position of privilege and respect in a stable, prosperous, safe society; or don't pay it, and live with the threat of expropriation, kidnap, assassination and the extinguishing of your family by violent means.

The generation that experienced World War II understood this choice well, but clearly failed to pass their understanding on to their children. Enlightened self-interest, and the notion that it is the circular flow of income that matters, have been exchanged for myopic greed, based on a zero-sum view of the world in which he who dies with the biggest stock of capital wins.

On the general theme of this post: I was once a believer in the threat from automation, but now I'm sceptical. If there is a threat, it is three or more decades in the future and is irrelevant to the present. The situation we're in now arose because of systematic suppression of household incomes, specifically from labour. This policy has been in effect in the West for forty years (starting in Carter's time in the USA) and in East Asia for nearly as long.

If nearly everybody had more disposable income, entrepreneurs would soon develop plenty of high-skill, labour-intensive services to relieve people of their incomes. For example, I'm sure many, many people would love to use wardrobe consultants, interior designers, and life coaches, if they had the means to do so. At least some services of this sort are intrinsically resistant to automation, for in them it is the "human touch" that adds the value.

Frances Coppola

Because only humans desire to consume in excess of basic living needs. Show me a robot that wants a Gucci handbag. Or a Shire horse that wants an iPad.

Not sure if this is a stupid question or a profound one, but why do you assume that 'only humans create demand'?

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