Job Automation, Purchasing Power and Consumer Spending
by Martin Ford
Job Automation, Purchasing Power and Consumer Spending
I’ve had several recent posts here arguing that automation technology is likely to depress wages and lead to significant structural unemployment in the coming years. One of the most common criticisms of my argument is that I am “not thinking like an economist” and that I’m viewing things in terms of dollars, rather than in terms of purchasing power.
Here’s part of a comment that James D. Miller, an economics professor at Smith College, made on my econfuture blog:
Non-economists (even when they are very smart and well-studied) get in trouble when they consider trade issues in terms of dollars (“everyone could work for a dollar an hour?”) It’s better to think of wages in terms of what you could buy. In a world with hyper-productive robots you could buy lots of stuff if you could work at a task for say 1,000 hours that saved a robot 10 seconds of time.
So the basic idea here is that although automation may result in very low wages in dollar terms (as well as high unemployment, since we do still have a minimum wage), things won’t be so bad because the efficiency of production will increase dramatically and everything will be really cheap.
To see the problem with this, view this graph at Visual Economics showing how consumers spend their incomes. The graph makes it immediately clear that consumers spend the lion’s share on their incomes on things like housing, insurance, health care, transportation and food.
“Hyper-productive robots” are not going to lower anyone’s mortgage principle, and interest rates surely cannot go much lower. Nor can rents adjust too far downward without threatening the landlord’s mortgage. The same is true of insurance. The reality is that the most of the average consumer’s budget is based primarily on asset (and debt) values—and not directly on how efficient the economy is at producing goods and services. Food and energy prices are likewise unlikely to adjust downward. Expenditure categories that might see falling prices as automation progresses, such as apparel, entertainment and miscellaneous represent a tiny fraction of the average budget, and in many cases prices have already been minimized by globalization.
The only way to have expenditures fall in line with wages so that consumers could maintain their standard of living would be to have asset and debt values collapse. And that, of course, would be catastrophic for the financial system. Asset values in the United States reflect the basic assumption that we are going to continue to have a vibrant mass-market economy and a first-world living standard. You cannot have third-world wages with first-world asset values. That is the reason that countries like Thailand prohibit foreigners from buying property and driving values beyond the reach of their population.
As wages fall and unemployment rises, the average consumer is going to be squeezed by the fixed costs that cannot adjust downward. Mortgage defaults would soar and discretionary consumer spending is likely to plummet.
A recent article in U.S. News noted that spending is already heavily concentrated among high income consumers:
The top 10 percent of earners account for 22 percent of all spending, for instance, according to Moody’s Economy.com. The top 25 percent of all earners account for 45 percent of spending. The bottom 50 percent of earners, by contrast, spend just 29 percent of all the money in the consumer economy.
As job automation (and globalization) drives down wages and creates structural unemployment, these numbers will become even more concentrated. At what point does this become unsustainable? In an environment with extreme financial stress due to loan defaults and falling asset values, can the wealthy few really drive consumer spending indefinitely? Recent history shows very clearly that when fear is pervasive, rich people stop buying as well. So where will consumer spending come from?
Martin Ford is the author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future and has a blog at econfuture.wordpress.com
The purchasing power argument works so far as we can buy cheap clothing, pots and pans, electronics and candy bars at Wal-Mart.
The purchasing power argument fails when we deal with the electric company, the insurance company, taxation agencies and other essentials of life not impacted by low-rider manufacturing.
And retirement? Fuggagetaboutit.
The problem with the notion that automation drives down wages in general is that the evidence is mostly in the other direction. In economies where capital concentration is high, wages are high. Historical patterns also suggest that living standards improve with automation. So whether viewed in a snapshot or over time, the evidence is that capital (automation) increases wages.
While that is true in general, there are exceptions, and the exceptions can be large. Transition to increased capital intensity often results in short-term job loss. However, if we look at labor market participation rates, it is pretty obvious in the US that opportunity for employment rose steadily for 3 and a half decades starting in the mid-1960s, a period during which capital intensity was rising pretty quickly in the US.
The argument that automation costs jobs has been around for a long time. Throughout that long time, living standards have risen pretty steadily anywhere that capital intensity was broadly on the rise. A static analysis – more machines means fewer workers to make the same amount of stuff – misses the fact that we have steadily consumed more stuff. The evidence doesn’t support the premise that automation is bad for workers.
Now, when you provide capital to workers in low age countries, it can change things a great deal, but the result so far has been rising wages for those workers who have increased access to capital equipment, and stagnant wages for workers in the economy where capital spending has slowed. Again, this suggests the premise here, that automation is bad for wages, is backward.
Perhaps the reason trained economists have a hard time with the story that automation depresses wages is that the evidence stands so strongly against that story.
“The graph makes it immediately clear that consumers spend the lion’s share on their incomes on things like housing, insurance, health care, transportation and food.”
Good grief. I’m not sure that I’ve ever seen someone get quite so confused in the guts of their own argument before.
Your original contention is that machines will make everything so there won’t be any wages for anyone.
Experts in the field counter with, well, but if machines make everything then everything will be really cheap. So very low wages won’t be a problem because you can still buy lots of really cheap stuff with really low wages.
Now you come back with: but not everything will be made by machines and so not everything will be really cheap!
To which the answer is of course that people will make their livings by doing the really expensive stuff that the machines cannot do.
You cannot both say that everything will be done by machines so that there will be no wages and then also say that some things won’t be done by machines so they will be expensive.
“…To which the answer is of course that people will make their livings by doing the really expensive stuff that the machines cannot do. …”
To which the answer is, how many people will make their livings by doing the really expensive stuff?
Society is all in the proportions.
Noni
I would also add that in many places in the country the Housing prices need to fall back to historic non-bubble prices. Rule of thumb is the median house should cost around 2.5 to 3.0 times the median income in any given area. Maybe a premium for places like NYC/SF may push that up to 4-5. BUt the 10-15 ratios we were seeing in far out subdivisions and Florida were just plain bubble and need to come down.
Islam will change
So what is the “new normal?”
So far it is not working so well on Main Street.
Now we get to the important part. Again, we have used productivity to have more stuff, rather then fewer workers. The times they are a changin’, but because other people are getting access to capital, when it used to be that we had access and they didn’t. That is not a case of OUR automation taking away OUR jobs. It’s a case of THEIR automation taking away OUR jobs. They are getting jobs just fine. The issues are far more complex than the old luddite arguments. They are more complex than the adjustment argument that lies behind noting that mortgage costs don’t go down.
And, by the way, mortgage costs can come down. Unless I am remembering backward, there is a good argument that productiivty gains, by holding down inflation, reduce nominal interest rates. Automation, in this view, provides opportunities to refi at lower rates. That is probably a pretty thin slice. In reality, long-lived assets purchased on credit leave one vulnerable to adjustment. But that’s not bad (or good) news for society as a whole. It is bad news (or good) for the individual with the long-lived asset. To make this anti-automation argument work, it needs to be shown not that there are costs, but that the costs outweigh the benefits.
I should note, to be honest, that a good bit of the decline in manufacturing employment in the US is due to productivity gains. However, the pattern through much of the post WWII period was to absorb some of the workers made redundant in a particular capacity in the same plant or firm as output rose faster than productivity and the rest in other parts of the economy. Meanwhile, living standards rose. If that no longer works, then something is going on other than capital accumulation that was not going on before. Doesn’t make sense to blame capital for job loss, when at other times, capital accumulation was coincident with rising labor market participation.
Actually automation/mechanization can directly reduce building costs. Imagine wall units coming pre built, with sheet rock mostly installed, doors and windows installed etc. This makes for a better structure, more uniform etc (and is not a totally new idea Sears sold house kits 100 years ago). But we have these featherbedding rule called building codes that require homes to be stick built so we can bring in more illegal alien carpenters.
Somewhat off topic: government should spend more, tax the rich more. Here the public has it right for a change. Perhaps Congress will listen.
Dec. 10 (Bloomberg) — Americans want their government to create jobs through spending on public works, investments in alternative energy or skills training for the jobless.
They also want the deficit to come down. And most are ready to hand the bill to the wealthy.
A Bloomberg National Poll conducted Dec. 3-7 shows two- thirds of Americans favor taxing the rich to reduce the deficit.
Even though almost 9 of 10 respondents also say they believe the middle class will have to make financial sacrifices to achieve that goal, only a little more than one-fourth support an increase in taxes on the middle class. Fewer still back cuts in entitlement programs such as Social Security and Medicare or a new national consumption tax.
[“Islam will change”=I am stupid and don’t understand the world well.]
“…Actually automation/mechanization can directly reduce building costs. Imagine wall units coming pre built, with sheet rock mostly installed, doors and windows installed etc. This makes for a better structure,…”
And make them better. A mold- and fire-proof prefab home is being pioneered here in Canada, initially for remote homes on native reserves where homes fall prey to dampness and unsuitable heating systems, maintenance problems, and crowding. Scarcely a winter goes by without deaths in house fires, or illness due to mould in homes. Building homes that don’t support mould growth and also resist fire, will help clear up the crowding problem, too.
Noni
kharris:
You touched upon it here:
“if we look at labor market participation rates, it is pretty obvious in the US that opportunity for employment rose steadily for 3 and a half decades starting in the mid-1960s, a period during which capital intensity was rising pretty quickly in the US. ”
and then you left it dangling. What has happened with Participation Rates since 2001? We have experienced a decrease in it from 66.8% in October 2001 to 65% in November 2009. Participation Rate has been on a downward trend, in particular for males and younger people, since 2001. You may call this short term job loss; but once sidelined and out of work for years on end, I tend to believe it becomes more structural than cyclical or short term in nature. Economists appear to gloss over and ignore what Participation Rate has been doing since 2001 and we are approaching a decade of decreased labor participating. It is no longer is short term.
Laurent Guerby on her blog provides a nice graph of the impact of a lack of job creation and loss of jobs has on men ages 25-54.
http://babelfish.yahoo.com/translate_url?doit=done&tt=url&intl=1&fr=bf-home&trurl=http://guerby.org/blog/index.php/2009/01/24/193-l-inexorable-ascension-de-la-population-sans-emploi-aux-usa&lp=fr_en&btnTrUrl=Translate “The Inexorable rise of the population without employment in the US”
It used to be that fewer workers would see increases in wages due to automation improves. Here again, I will point to another graph as placed on this blog by Spencer. http://3.bp.blogspot.com/_Zh1bveXc8rA/SvLucYKJSxI/AAAAAAAAA78/abFmqSf1JLE/s1600-h/Clipboard02.jpg Nonfarm Business: Labors Share as taken from here: http://angrybear.blogspot.com/2009/11/productivity-growth.html “Productivity Growth” The share of productivity gains (typically wages) going to Labor as a result has been decresing since the eighties whether those gains came from automation or globalization.
Dr. Elizabeth Warren in her report, “The Coming Collapse of the Middle Class” touches upon the very same factors as pointed out by Laurent and Spencer for the middle class. What a high school education and a good work ethic achieved in the seventies as the ticket to the Middle Class now takes two incomes and a college education. The families are not any farther ahead and losing ground. Why is that the case? Clothes have gotten cheaper, appliance, cars, etc. have all gotten cheaper as you said. What has changed are housing motrtgage costs for homes (the average is 6.1 rooms and 25 years old), two cars needed to go to work, healthcare and healthcare insurance costs, the need for childcare so mom can go to work, and higher taxes on that 2nd earner income as her dollar comes after the last dollar of the first income. On top of this there has been decreasing wages as paid to males. http://www.uctv.tv/search-details.aspx?showID=12620
The Middle Class and much of Labor is waiting for that tsunami of job creation to happen and are still waiting for the higher wages whether it comes in the form of fewer hours worked (Tom Walker’s Lump of Labor argument ), paid healthcare, job security, etc.
Continued:
kharris:
I guess no one has ever heard of “throughput analysis,” Goldratt’s Opt, Kanban, Drucker, manual machines to NC to CNC machines or has seen the results of rearranging a shop floor to minimize the distance travel between operations?
The net result was labor reduction. Furthermore, labor reduction has been going on since the sixties with a decreasing percentage of labor in products.
The end result for those companies that did not automate and maintained a high percenatge of Labor content in the product, such as Levis and textiles, was globalization to Asia, etc. were Labor did not have the same burden of infrastructral costs assigned to Labor as the the US. Automation is good when Labor get a continuing share of the pie which has not been occuring.
Martin doesn’t have to be 100% correct in his roughly constructed assumptions. He has it correct on the costs of housing (interest rates, etc.), healthcare and healthcare insurance; but he should have added taxation on the second income needed to be middle class today as compared to the seventies, childcare which didn’t exist greatly in the seventies, the need for two cars now as mom has gone to work also as compared to the seventies. That is where the difference lies.
If Martin is just 20% correct in the displacement of Labor by automation in the US and globally and we do not see that promised tsunami of job creation and increased wages; we are in deep trouble.
kharris:
The pattern up till the seventies has been to absorb Manufacturing Labor into other jobs. As Laurent demonstrates in her graph; the trend has increased for men 25-54 years of age since seventies to be unemployed or inactive. Men make up the largest percentage of manufacturing jobs. High school educated and minorites make up a large percenatge of manufacturing jobs also.
Something else is going on and we are stuck looking at trends and changes in a historical fashion, which is why I do not reject Martin’s thoughts so readily. He doesn’t have to be 100% correct.
But he has to be somewhat correct in order for us to pay attention to him. If some factor that was at work for decades did not hurt employment and wages for decades, and then employment and wages stagnate, why do we blame the factor which historically did not lead to job loss and wage stagnation?
If my horse has a record of winning on mud, then loses on a muddy track, you gonna let me get away with blaming the muddy track? Hope not.
Unless Martin has an explanation for the changed response in the workforce to automation, he doesn’t have an explanation at all. If he does have an explanation for the changed response, let’s see it. We may find that automation, in itself, is not the problem. The problem, more likely, is whatever has resulted in a changed response to automation.
While we’re at it, why am I asked to trust the views of a guy who says entertainment prices are going to fall? Most of the new music I listen to cost me exactly the cost of the electricity used to reproduce it. Most of the TV I watch cost no more than the electricity used to project it. Baumol has something to say about declining costs in entertainment and things like entertainment.
We get assertions about what it is that drives consumption – more asset prices than income. Don’t recall seeing evidence that spending is more dependent on asset prices than income. I recall seeing pretty convincing evidence that some form of a relationship between spending and life-time income is at work, which makes the claim that our spending is mostly dependent on asset prices look a little hinky.
One thing after another seems to rely on “I think it’s true, so it must be true”. There’s way too much of that in the world already. Let’s see some evidence for these assetions.
“The top 10 percent of earners account for 22 percent of all spending, for instance, according to Moody’s Economy.com. The top 25 percent of all earners account for 45 percent of spending. The bottom 50 percent of earners, by contrast, spend just 29 percent of all the money in the consumer economy.”
The top 10% of earners capture ~50% of all income , yet account for only 22% of spending.
The bottom 90% of earners capture the other 50% of earnings , yet account for 78% of spending.
The rich aren’t the ones who’ll save the consumer economy , they’re the ones who have , and will continue to , destroy it.
It’s about “marginal propensity to consume”. It’s about earning enough to purchase the goods you produce — something Henry Ford recognized , but couldn’t get thru the thick skulls of the wealthy elites. Give the next $1000 paycheck increase to someone in the top 10% , you’ll get $220 in consumption and $780 chasing speculative bubbles all over the globe. Give that increase to the bottom 90% , you get $780 dollars in consumption , which , when multiplied through a program of rejiggering the f’ed-up income distribution we have , will result in a healthy consumer-based economy
Plumping up the top 1% was counterproductive in the ’20s , and it’s been counterproductive in recent decades , but we still think ” The rich will save us ! “
It’s surreal.
kharris:
Why? Because you judge his views to be inaccurate based upon historical views that have yet to recognize the decrease in Participation Rate since 2001? You have built a “strawman” argument without answering the meat being presented to you. Why do economists ignore the obvious and still pretend to know what is happening to Labor based upon outdated models?
The decades of increasing particpation rate for men (25-54) started to decline in the seventies. The decades of increasing Participation Rate overall took a nose dive starting in 2001. Manufacturing has been escaping to Asia and other cheap places not having the higher infrastuctural costs as the US. Labor intensive jobs went earlier than the start of the decline for manufacturing in the nineties. During all of this time and since the sixties, automation and better manufacturing practices (which I have been pointing out) have been occurring. As automation takes hold and improves, labor decreases, population grows, and fewer jobs are being created to repair those robots Miller claims will reap higher wages. Huge Labor Pool out there with NO work to be done.
Labor is still waiting for the tsunami of job creation beyond hamburger flippers that every academic has been promising. It isn’t there for the high school grads, its not there for the college grads and even those with engineering degrees, and it is not there for advanced degreed people with Masters. What Martin has is a forecast of the future beyond the myopic views of economics which seems to be content on betting on the same number hoping it will come up eventually. The number has not come up on the roulette wheel yet. Maybe it is time to change the number or the views?
And more hurricane resistant as you glue the studs to the sill and top plates and add screws instead of nails. Since the sills would be pre-drilled for anchor bolts they would be far more likley to be put in as well. But of course the NIMBY crowd leans on the local government to prevent this for fear of the dread decreasing property values.
kharris: If that no longer works, then something is going on other than capital accumulation that was not going on before. Doesn’t make sense to blame capital for job loss, when at other times, capital accumulation was coincident with rising labor market participation.
I think this is a great challenge. There’s definitely something missing from Martin’s argument. I’ve been pondering it a lot and can’t figure out what it is. But I think it’s out there.
I would not rule out automation/capital formation as a factor–not the cause, but it *has to do with* automation. It also seems to have something to do with concentration of financial assets vis-a-vis productive capital. (Yes, everyone, I also am filled with moral outrage–but I care even more about well-conceived, well-executed policies for *long-term* well-being for my kids. And I haven’t seen a cogent, lucid, comprehensive answer to kharris here yet. I’m thinking that Martin’s pondering it hard, as I am…)
I find Martin’s long-term view to be quite compelling. (I came to an almost identical one myself a while back: http://www.asymptosis.com/why-prosperity-requires-a-welfare-state.html) But I also love to test my thinking against cogent arguments. Where my thinking has holes, I want to fill them. I feel a definite hole.
Kharris, can you help? I think you could make very strong arguments against your position–or actually enhancing both yours and Martin’s–that might shed a lot of light.
I’d love to hear you talk to us, adopting the assumption that something *has* changed, and trying to suss out what it might be.
Thanks,
Steve
http://asymptosis.com
Oh, just to add that adopting that assumption makes sense because there does seem to have been a shift since the 70s, and since 2000: jobless recoveries, stagnant wages, increasing concentrations of wealth, etc.
…massive buildups of “money” in the form of nonproductive financial assets…more etc.
Goldy,
So we reward the people on the bottom just becuase they can distribute the wealth more efficiently? …..Got it! I think I’ll go have a drink now.
I would agree with much of this statement of yours as it conicides with my statements. The equation has changed somewhat.
I would also add this:
“From 1990 to 2006, the GDP share of the financial sector in the broad sense increased in the United States from 23% to 31%, or by 8 percentage points. During the same period, the increase in the GDP share was in excess of 10 percentage points in the United Kingdom but significantly less – around 6 percentage points – in both France and Germany. Graph 3 shows the development of the share of the financial sector in GDP for selected major advanced economies since the middle of the 1980s. The figures on profits are even more striking. For example, the financial services industry’s share of corporate profits in the United States was around 10% in the early 1980s but peaked at 40% last year.” http://www.bis.org/speeches/sp081119.htm “How Might the Current Financial CrisisShape Finacial Sector Regulation and Structure”
Overwhelmingly, money has been flowing away from manufacturing. I would also pinpoint one other event which came into play in 1978. SCOTUS ruled on Marquette National Bank vs First Omaha Service Company reinforced the National Banking Act by striking down state usury laws restricting National Banks. South Dakota is a bigger player for banks.
I am not trying to be an a**; but, all of my time is spent on manufacturing floors and in companies determining strategy and consulting on Lean Manufacturing and Lean Six Sigma. I am interested in the discussion also.
kharris,
Well said. I don’t think I could improve on what you said, so I’ll just shut up.
Imagine a world where robots produce everything. They even design themselves and build themselves. Things are very cheap.
The problem is that no people have any work, no wages, hence they can’t purchase regardless of how cheap things are.
But this is only a problem if there are some people who own the robots (and the output) and others that don’t. Lets assume the robots don’t own themselves (corporations are legal persons, but not robots). And lets also assume most people don’t own robots (just an assumption).
The question then arises – without wages, how do people without robo-ownership get income? Legally, that is. Of course, how do the people who own robots make any money, since there isn’t anyone to buy their stuff? Maybe we aren’t thinking creatively enough. Maybe income isn’t the problem, it’s just a money problem.
So the people who own the robots swap stuff with each other to get what they want. They do need some people helpers, so they lend “money” to those with no income to generate sufficient demand to keep the robots busy. The people with no wages were looking for income, but now they have money. They still don’t own anything, except debt. Debt is a poor substitute for income, but it’s better than starvation.
How long could such a place maintain itself? As long as the robot-owners can swap stuff they want with each other, they can keep the robots going and provide enough debt to the people without income to keep the robots busy.
Thank god we are nowhere near that kind of place.
We have an ancient historical example, make the robots slaves, and make it the city of Rome. We had the roman mob that every so often shook the stability of th city. So the government gave them bread and circuses. In the suggest cases the robot owners would give out bread and video games (modern circuses) to the mob to keep them calm.
That is essentially the question that I try to address in my book, “The Lights in the Tunnel”. I don’t think it is as far off as you think. Keep in mind that we don’t have to get anywhere near the extreme point where machines produce everything. The issue would somehow have to be addressed long before then.
What you’re giving here is the standard “luddite fallacy” argument. Yes, historically, as machines have improved, the wages of the workers operating those machines have increased. Improved machines make the workers operating them more valuable, so they command a higher wage. Better machines also make production more efficient and that drives down prices and leaves consumers with more to spend–and that creates more demand which leads to more, higher paying jobs. In fact, long term economic growth is pretty clearly tied to technological advance (or machines getting better).
We are in total agreement about how it has worked HISTORICALLY. The question is: can this continue INDEFINITELY? For this to be the case, machines used thoughout the economy would have to continue to get better basically forever. Can the average or typical machine used in the economy keep getting better forever without someday becoming autonomous? I think not. Once machines, on average, begin to run themselves, wages stop increasing and begin to fall, perhaps dramatically. At that point we also have a serious problem with consumer spending.
The primary point is that, historically, machines have improved but, on average, they have not closely approached autonomy: machines (on average) have historically required workers to operate them. That is going to change in the coming decades–and then the old rules are not going to apply. Just because something has been true HISTORICALLY does not mean you can pretend it is a law a nature and project it indefinitely into the future. Until the early 1900s it had been true since the beginning of time that heavier than air machines do not fly. That historical observation did not mean anything at all once the Wright Brothers came along: It flipped from being true to being untrue in the space of a few seconds.
I lay out my arguments regarding this in some detail in my book The Lights in the Tunnel (http://www.thelightsinthetunnel.com).
What really expensive things that machines can’t do are you referring to? Will there be 140 million of these jobs? Will the average worker be able to perform that job? Why are you so sure machines won’t be able to do those jobs too?
The point I am making is that we are going to have huge problems long BEFORE “machines do everything.” In fact, I would argue that we will probably never get to that point. If consumer spending begins to fall dramatically as automation advances, then why would the owners of the machines keep them running? Production is in response to demand. Demand can be sustained for a while by consumer borrowing, but as we’ve seen that is not a long term solution. Consumption comes primarily from wages.
As run75441 says I don’t have to be 100% correct. If I get the basic trend correct and if it is relentless, then sooner or later we have a big problem.
I never said asset prices drive consumption. I said significant fixed costs faced by consumers are tied more to asset values that to the efficiency of producing goods and services. Consumption is very clearly tied to wages. I think if you look at the GDP numbers, wages are about 80% of consumer spending overall, and of course, it is closer to 100% for low wage workers. That is my whole point: consumption is based on wages and as wages fall, the fixed (asset and debt value based) costs are going to overwhelm consumer budgets.
As to entertainment, yes of course, technology has already driven down costs as you point out. In the future, this will continue. I bet we’ll see less money spend on things like movies and pro sports and more on “automated” alternatives like video games, virtual reality, etc.
You are exactly correct.
Actually a great thread. Thanks for coming by Steve Roth.
Yeah, I’m shocked. It’s not like Kharris to be right.
A retired small manufacturing owner here. The bottom line is that automated manufacturing force companies to become more and more volume driven. Early equipment obsolescence due to changing marketing conditions and newer technology forces greater consolidation, mergers and BK.
Manufacturing automation impact is always viewed from the economist point of view which has little connection to day to day reality of making payroll or watching as your competitors install newer faster machines and raid your sales force to try and generate the additional sales required!
In the long run increased manufacturing efficiency has led to higher living standards, but this has been driven by periodic political convulsions.
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There’s also the roughly 200 year cycle of alternating stability and sensitivity to financial events that has characterized Europe since the late Middle Ages. During the periods of stability, financial shocks are absorbed. During periods of sensitivity, financial shocks lead to rising prices, particularly for rent, fuel, food and capital goods, and to declining prices of manufactured goods and labor. This cycle is commonly accepted, and well documented, in Europe, but relatively unknown in the US. I’ll recommend Hackett-Fisher’s The Great Wave for a good discussion of it.
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If all economic output were produced by robots and purchased by borrowing, we’d basically be taxing the robot owners to provide goods for the borrowers who would then die and leave the owners to write off their loans. Of course, as a robot owner, you’d have no choice. Either idle your robots or lend money to mortals, and remember that there is nothing that your customers can give you in exchange except the money you lent them. Some terms may be unfamiliar, but that sounds like socialism to me.
If we extend this far enough into the future the luddites will be totally correct-that is, humans will become obsolete and replaced completely by machines. Everything humans do is a physical process that could theoritically be modelled and reproduced by machines, this has already happened in many areas, and in those in which it has not happened(pattern recognition, visual processing, human interaction), technological progress is already aiming for. Eventually all human tasks, potentially even art and science, will be acheivable by machines at a lower cost than the minimum wage(whether you set it in real terms or not). At this point the only consumption will come from welfare schemes and property ownership(the property being administered not by the owners but by hyper-intelligent machines). Competition between property owners would eventually lead to them being thrown on to whatever welfare there is as well(or more likely anti-competitive compromise between owners).
Obviously there are a ton of what-ifs in this scenario, and people would be able to work for quite a while(perhaps indefinitely), utilizing their comparative advantage, but income inequality between the owners and workers would grow and the workers would take home an ever-diminishing share of overall production(maybe even diminishing in absolute terms).
At this point we’ll either institute some sort of equitable socialism, or have an arbitrary heirarchy, a new feudalism(which is probably more likely).
This is assuming the Earth can sustain such continued economic growth and that our economy doesn’t run into some sort of obstacle that makes continued economic growth(or even indefinite maintenence of the current level) impossible.