Sunday, 5 October 2014

Economic myths: Machines will put us all out of work

DBC Reed in the comments here:

If you replace skilled workers with easy to operate machines, you reduce the amount of dosh in circulation ("demand") and end up in a deflationary spiral as the replacement machines don't get paid and so don't maintain demand: Major Douglas.

Sooner or later you have to give people the money to buy the products of robots. And Uber is robot brain power or memory.


Quite clearly this is not true. Let's assume that somebody is clever enough to build a totally automated factory that churns out stuff at virtually zero cost. He will have to drop the price to what people are prepared to pay, i.e. a very low price indeed.

If you wind back the clock a few hundred years, most people were agricultural workers just above subsistence levels and by today's standards, in terms of material quality of life, health, life expectancy etc, we were very poor indeed. When processes become automated or people work out a cheaper substitute, there are unpleasant short term consequences for those who suddenly become unemployed, but this just results in a gradual shift from farming to manufacturing, and then from manufacturing to services.

The total value/amount of food grown in the UK is as high as it ever was, manufacturing output is as high as it ever was, it is just that the bulk of overall economic growth was down to increases in the amount of services provided (or leisure time, same thing, really). So in relative terms, agriculture and manufacturing output have fallen. Agricultural output at farm gate prices is only one or two per cent of GDP, and only one or two per cent of people work in agriculture, even though the UK is or could be self-sufficient in terms of food. If they'd realised this a few hundred years ago, the knee-jerk response would have been "Then surely we will have 98% unemployment!"

Overall unemployment rates are not materially higher now than they were a few hundred years ago, and what unemployment there is is largely down to the tax system driving a huge wedge between supply and demand. The welfare system solidifies and amplifies this.

We're all singing from the same hymn sheet here:

Bayard: "Mobile telephony, the internet and satellite-based route guidance systems were not invented to put traditional taxi drivers out of business, they were invented and someone thought to put them together to compete with established taxi-drivers. To this extent, technology is amoral. I'm not saying that's a good or desirable thing, it's just how it is.

To answer your question about purchasing power, today's poor are much richer in real terms than the poor of a hundred years ago, so if a hundred years ago there was not a problem with purchasing power, why should there be now? Again, I am not saying this is a good or desirable state of affairs either."


The Stigler: "Once you get robots making things, you reduce the price and increase the reliability of things. People need less money to buy a smartphone or a hard disk recorder.

Being rich now isn't so much about having stuff that others don't. It's more about having a Philippe Starck lemon squeezer instead of a normal one, a Mac instead of a PC, Diesel jeans instead of Tesco jeans, sitting on a warm beach in the Caribbean instead of sitting on a warm beach in the Vendee."


Lola: "The other lie that is bandied about (and to some extent what Douglas was on about) is that demand creates supply. It doesn't. It is precisely the other way about. If that was not the case then helicoptering money would be a sensible policy which it isn't because that is essentially a 'something for nothing' economics (rather like socialism). We are not the 'consumer society. We are the 'producer society'.

As regards redundant jobs, yes that is a sadness, but the beauty of human beans is that we are adaptable, have a cognitive ability and an opposable thumb. We can retrain. Robots usually cannot adapt as they are designed (by man) for a specific role, the classic division of labour. Asimov (I think) coined a phrase for people with worries like you - The Frankenstein Complex."

30 comments:

Lola said...

Couple of factoids.
1953 Ford Anglia = £500 (ish)
2024 Ford Focus = £15,000 (ish)
NAE 1953 = £500 (approx)
NAE 2014 = £27,000 (approx)

The 'deflation' in the two Fords is the cost and technologoical improvements. The Focus is light years in advance of the Anglia technically and staggeringly better made. That's capitalism/markets doing more for less every day and making everyone wealthier. No-one in their right minds complains about this, nor even thinks about the reduction in the number man hours less it takes to make the Focus over the Anglia.

Let's just suppose for one moment how good and how well developed Ford run health care could now be?

Lola said...

Apologies, forgot to add this link:-
http://www.chrishobbs.com/fiftyyears.htm

The Stigler said...

Lola,

and don't forget - cars are reliable for much longer now. Which means that while a new one costs £14K, that's really a luxury item for most people, like buying Macs and Diesel jeans. If you want a car that's safe, reliable and will get you to work each day, you pick up a 3 year old Focus for £6K.

I'm still driving a 13 year old Renault Megane. It's getting a bit noisy, few bits of rust, but it's reliable, and someone in a £70K 7 series behind me isn't getting to work first.

Mark Wadsworth said...

L, agreed, but you cannot just extend this to healthcare which is labour intensive and where people get ever more demanding.

TS, 17 year old Golf still going strong. second hand value zero.

Lola said...

TS, Quite. I bought a 1996 Mondeo Estate 2.0 in 1997 for £11,250. It had 16,000 miles on it. It did 175,000 miles before some clown backed into it and made it 'beyond economic repair' (in itself a recognition of the success of capitalism and markets). It was on the orgiginal engine, gearbox, clutch and exhaust. All that went wrong over and above servicing in my ownership was a lambda sensor and some bushes in the rear suspension. Modern cars are a wonder.
Compare and contrast to what the Great Socialist Experiment produced / was still producing when my Mondeo was binned in about 2007/8 - the bloody Trabant. And DBCR thinks this is a bad thing.....~shakes head~.

Lola said...

MW. Well, actually I think you probably can. It's all about 'structures' and 'ownership' and 'price signals'. But I know what you mean about de-labouring and mass production.

Lola said...

TS. Oh, meant to say that the 'target' price for a new Mondeo at the time was £17,500 - £6K and a bit off is a good deal in my book. Ford Direct. Can't fault them.

The Stigler said...

Lola,

Cheers. I rented a Mondeo for a weekend and thought it was really nice. It's my first choice when mine dies (I'd prefer a 5 series BMW, but I'm not paying BMW prices).

Bayard said...

Lola, what does NAE mean?

Lola said...

National average earnings

Lola said...

MW (from article) Overall unemployment rates are not materially higher now than they were a few hundred years ago, and what unemployment there is is largely down to the tax system driving a huge wedge between supply and demand. The welfare system solidifies and amplifies this.
Indeed, and the shift from taxes on land rents to taxes on income, wealth creation (aka 'capital' and 'profit') and transactions.

DBC Reed said...

MW & L
The word "unemployment" and the concept involved weren't used until the 1890's so long term comparisons are not valid. (see OED)"A few hundred years ago" they talked of vagrants and sturdy beggars and did n't distinguish between the involuntary and voluntary unemployed.The term became significant after it was decided to do something about the unbelievable poverty and squalor depicted by Engels in 1844 though Churches were on the case.
earlier.Some of the history in the above comments is entirely bogus: it was not "economic progress" to put out of work spinners and weavers working from home ( and doing other things besides) and replace them with machines tended by children (working 12 hour days and generally not paid because they were farmed out by workhouses).Since they were spinning cotton which was produced by slaves (plus other plantation crops such as sugar tobacco etc) this economic progress was, in fact , a horrifying evolutionary regression to slave conditions.
Thankfully the Chartists and churches were on the case and got the children into school and as the franchise descended through the class system (with the help of building societies like the National and the Abbey which were set up to give working-men the vote through the property qualification), so employment and
working conditions tended to improve.Finally Joe Chamberlain banged laissez faire liberalism on the head in the 1870's ,only for it to return in the 1970's when a Chemistry graduate from a wartime university set out to sabotage real "economic progress".

Mark Wadsworth said...

DBC, nobody disputes that living standards for most people were shit during the first hundred or two years of the industrial revolution, I fail to see what relevance that has. And nobody here is defending slavery either. This is all getting a bit straw man.

In any event, the reason that people tolerated such shit living conditions in factories and towns was because they had been driven off the land. it was a choice between starve on the land or eke out a bare existence in a town.

The factory owners took the piss but it was the landowners who created the conditions where the factory owners could do so.

DBC Reed said...

It is relevant because I was accused of Luddism on here,( the usual neoliberal canard) when the situation the Luddites faced was that of skilled home-workers being put out of work by unwaged slaves working yarn from slave plantations.The scale of machine spinning was so great that they had to export to India, putting impoverished hand spinners out of work.Gandhi's choice of the hand spinner as a political emblem shows how far Britain's production methods made it unpopular globally .The North of England was solidly pro Confederate for obvious reasons: their fleet surrendered where it was hiding in Liverpool.
Your attitude is : yes things were bad but now they're alright so What Me Worry? (Things aren't alright now are they?)

Mark Wadsworth said...

DBC, the point is, that automation won't make us all unemployed in the long run.

I made it quite clear in the post that there are painful short term adjustments for the few but that is matched by overall larger gains for the many.

Nothing you have said disproves this simple statement of observed fact.

Don't widen the topic to British exploitation of the colonies and so on, that has nothing to do with anything. It's straw man stuff again which i find very tedious.

Lola said...

DBCR. Generally, still nope. The whole point of mechanisation / automation is that it does stuff better quicker and cheaper. It makes us all wealthier, end of. The hand spinners jobs were redundant. That's a disbenefit to them. The benefit to everyone else is that we all get better quality cloth at a much lower price and much more of it. The hand spinners can retrain. (FWIW I am a pretty good engineering draughtsman, but nowadays engineerig drawings are done on CAD systems, quicker and more accurately than they could be done when I was on the drawing board. I have entirely retrained myself, and I have gained by it).
The rest of your historical references interopretations are at the very least highly dubious and definitely challengeable.
To repeat, there are no circumstances when technical progress does not make all of us, ultimately, much better off.

Lola said...

DBCR. Out of pure curiosity what actually do you think 'laissez-faire' means. And, or what, it is?

Lola said...

MW. There's a lot of crap talked about 18thC bad working condiitons in factories. Yes, with the benefit of hindsight we don't do things like that now. But the past is, as the man says, a foreign country. At that time in that place those standards were entirely acceptable. And, often a lot better than scratching about in subsistence farming or un-wage slaved to lord of the manor.
And cotrary to what other people have posted a huge amount of the improvements in factory workers lots were brought in by their employers, not by lefty 'reformers'.
I also agree with you about the rent issue for subsistence farmers, but in one sense that was also due to being able to get higher yields by using mechanisation hence pushing up the value of land.
Another comment made by DBCR amused me. He remarked that the franchise was made available to landowners....
You will find a 'Freehold Road' in most towns.

DBC Reed said...

@MW Allow me to make my own points instead of deciding what my points should be. I have hammered the point that you are saying that automation won't cause long term unemployment simply because it hasn't in the recent past. But this past includes heroic efforts of remediation that got the children out of the factories and created employment for adults in their stead etc. In the Luddite era before this interventionism skilled workers were replaced by unpaid children. So the fact that increased automation was, thanks to progressives, attended by shortening of hours and action to create jobs kept a balance between jobs destroyed and jobs created. To say otherwise is to show no knowledge of the history of specific tradese.g.cotton spinning
eventually collapsed in Lancashire but was compensated not by the magic of the markets but post-war consensus governments that ,unbelievably now, all believed their prime responsibility was creating employment. Since the invasion by political Vandals, governments ignore employment figures safe in the knowledge that stable house prices will get them elected. Si monumentum requiris, circumspice .

Lola said...

DBCR @ 22.27. Nope.Skilled workers were not replaced by unpaid children. Weaving mills (for example) employed all ages and, yes, children.
Hours were shortened because of automation, not depsite it. The extra productivity at lower cost boosted employment, not the other way about.
And governments have never ever 'created employment'. They cannot. All they can create is occupation at someone elses cost. Where state directed employment has been tried - USSR for example - it has led to the progressive and increasingly rapid destruction of wealth and consequential impoverishment. (See my Ford Anglia / Focus v Trabant comment above).
DBCR, old son, I am really not sure what the weather is like on your planet, but I do hope that at least the sun shines for you, otherwise you are going to have a miserable time.

Lola said...

DBCR. Oh and the children removed from factories were not replaced by adult workers. They were replaced by better machines...

DBC Reed said...

@L
A clean sweep: practically all the historical comments you make, (without supporting evidence)are ultra-reactionary nonsense.
Improvements in 19th cent working conditions were not introduced by employers. The campaigning factory reformers were not "lefties" but in England were often Tories who had it in for the Liberal/Whig factory owners.I am going to reverse-patronise you by asking you to self-educate by looking up Richard Oastler (Tory radical wrote "Yorkshire slavery" letter)and more to the point Sir Robert Peel himself whose 1844 Factory Act " acted more against ... industrialists than it did against the traditional stronghold of the Conservatives, the landed gentry, by restricting the number of hours that children and women could work in factories and setting rudimentary safety standards for machines." (Wikipedia)
You are now choosing to patronise the Post-war settlement governments ,left and right, Attlee and Macmillan for succeeding in their endeavours to keep unemployment to the thousands not millions.Shame on you.You me and all the rest of the post-war generation owe everything to active politicians who did not just expect market forces do their work for them.

Lola said...

DBCR. Thanks for reminding me that it was those evil Tories that did so much to reform factories.

And yes, using 'lefties' was an error.

The rest - usual nonsense. But it's a free country - well it would be a lot freer if it wasn't for the proto fascism of socialism....

Attlee etc. did not succeed in keeping unemployment down. They just deferred the day of reckoning and made the costs and consequences much, much more horrible. Sadly, that's about to happed again, probably.

And, with respect, you seem to fail to understand exactly what is meant by 'market forces'.

Bayard said...

The best, and probably only thing, the government can do to increase employment is to reduce the cost of labour. All governments since WWII have done precisely the reverse. Taxes on labour and the huge cost of labour laws and regulation have made it more and more expensive to hire labour. Never mind the laudable reasons for this increase in expense, quite apart from the fact that what benefits the many will always be exploited by the few, the direct sufferer of this policy is the worker. An employer can only afford to spend so much on their employees. The more of this is taken by the government or by government mandated practices, the less is available to the worker as wages.

Lola said...

B precisely, and I speak as an employer.
E.G. I could, and want to, employ three more people. Now. Today. I want a trainee to develop into investment management (according to my lights - so it'll be low cost and no bullshit), a typing and filing person (an office junior) and a 'technician' (who can do all wot I do but cannot deal with clients), but (apart from some issues with my business partner...) I cannot afford to do so. Why? Tax and regulationism. That's three, real, wealth creating, real tax paying jobs in provate business that could be filled, now, today if I didn't have to pay shed loads of tax and regyewlaytory costs. Government destroys jobs. So spending my wealth on HS2(say) to create jobs is bollocks.

Lola said...

DBCR. May I expand on my various comments and responses to you?
I do not mean to patronise you. You are a guest on here, as am I, and MW once told me that you are a Good Bloke.
It's just that your arguments are inconsistent and observably false.
There is nowhere and nowhen that socialism has worked. End of. It always ends up as totalitarianism.
In its name tems of millions of people have been murdered (remember Hitler's appalling cod philosophy - which I have read - was branded national socialism) and Stalin murdered more. Whereas 'capitalism' (not actually an -ism at all) has never consciously set out to murder anyone. Why would you kill your customers? It's self evidently stupid.
Capitalism cannot afford discrimination on race, creed, religion or wahtever.
It cannot afford to 'exploit', in the sense of overwork as Ford discovered when he cut workers hours and got more production.
What is evil is cronyism, and that is what we now have. Sponsored in the main by the appalling Blair Brown Balls.
I believe in people. Poeple are great. Almost universally they want to be be wanted and get what they work for. Yes, many believe that the world owes them a living and most of that type are employed by the government or are bureaucrats of one type or another (in my experience). None of them need 'socialism'. Thye just need not to be mucked about with and to have their property rights honoured and their person safe from coercion.
And those two facts are an anathema to lefties who neither honour property rights or personal freedom.
And yes, I abhor the current banking settlement which may I remind you is the result of failed lefty interventions.
So when you select factoids and misinterpret them, I do get a bit niggled, but it's not a personal thing it's th result of a lifetime spent on these arguments and their illogicality, their selectivity and their mis-arguments.

The Stigler said...

Bayard,

And helping out with training people, especially in skills that cost a lot to develop. That's a real Tragedy of the Commons problem - everyone wants skilled people, no-one wants to pick up the tab for creating them.

And university isn't the answer to that, as lots of people go off and do degrees in History and Sociology (Comp Sci has barely increased in the massive swelling of degree numbers).

Lola said...

TS. Not quite sure I entirely agree with your first para. Maybe employers are happy to pay for training, but the comfort they need is an enforceable training contract which ties the trainee in for a period after training. That way they can get a return on their investment.

The Stigler said...

Lola,

Sure. That's another way to deal with it. But if we aren't going to have that (the courts and law take a very dim view of such contracts), the other alternative is the state picking up training costs.

And most employers don't mind a bit of training, but it costs at least £10K to take a raw recruit and get them trained as a programmer, followed by lots of supervision after.

(it's what's often forgotten when people complain that employers don't take on apprentices - in the past the apprentice was expected to work for many years where they were trained).

Lola said...

Re your last para. Exactly. The law didn't used to take a dim view. It was a perfectly reasonable arrangement - as long as employers in the same sector didn't collude to keep contract terms onerous. And they wouldn't because they just wouldn't attract good trainees if they did. Actually this is point I was trying to make. The Law has been undermined by all sorts of touchy feely equality crap.

Agreed about the cost of getting a programmer (or whatever) up to speed. I have remarked before that when I was in engineering any graduate engineer you'd take on would cost you money for 6 to 12 months.