At Last Economists See the Robot Revolution. Here’s Why They Worry.

by Fabius Maximus, FabiusMaximus.com

Summary: When I first warned about the “robot revolution” (the 3rd industrial revolution) 3 years ago, I was one of a minority. Experts assured us it would produce quick benefits without much disruption (unlike the previous 2). Time has brought new evidence, and now concern has replaced confidence. Today we review the problem. The next few posts will consider solutions.

“An increase in the productivity of labour means nothing more than that the same capital creates the same value with less labour, or that less labour creates the same product with more capital.”

– Karl Marx’s “A Contribution to the Critique of Political Economy” (1857/58).

Matthew Yglesias gave a strong rebuttal to people blaming automation for the slow growth in jobs and wages since the recession ended. But it’s happening nonetheless, slowly but accelerating. People tend to underestimate short-term change, and over estimate it over the long term. But now people are noticing the drumbeat of announcements, as automation affects more jobs of all kinds. Even economists are doubting their easy confidence that the future must be like the past.

Previous posts list scores of examples. Every month brings more, such as …

• “The computer will see you now. A virtual shrink may sometimes be better than the real thing.”

• “Here come the autonomous robot security guards.”

• Robots help deliver meals for patients.

• “Eerily lifelike androids join staff at Tokyo tech museum.”

• Journalists reporting the end of journalism as a profession,

• “Watch out, coders – a robot may take your job, too.“

The problem is structural on three levels, and just beginning. First there is the shift of rewards from labor to capital (those who own the machine), as we see in the workers’ falling share of GDP, and the rise in corporate profits as a percent of GDP.

The second structure factor: technology changes the distribution of income in many fields. We’re shifting to a winner-take-all economy, as explained in “Welcome To Extremistan! Please Check Your Career At The Door.” Excerpt:

You won’t be familiar with those terms if you haven’t read Nassim Taleb’s brilliant “The Black Swan“, which you should. Here’s a primer. Briefly, for our purposes: the remuneration for Mediocristan activities is fixed by boundary constraints – the number of hours worked, the number of clients aided, the number of widgets manufactured, etc. By contrast, the remuneration for Extremistan activities – basketball player, musician, messaging-app co-founder – can scale to an arbitrary amount …

…but only for a tiny fraction of those engaged in the activity. Most would-be pro athletes never make it. Most artists never get to quit their day job. Most startups fail. Few people engaged in Extremistan activities ever become successful enough to start referring to what they’re doing as a job.

I submit that technology is slowly dragging us all, economically, away from Mediocristan and into Extremistan. Consider college professors: Khan Academy, Udacity, Coursera, edX, etc, allow individual professors to teach hundreds of thousands of students, while legions of adjuncts live in poverty. Consider lawyers: it may be “more cost effective and accurate to utilize software tools to perform many types of legal work” – but the very best attorneys will remain incredibly valuable and expensive.

Consider even doctors: The New York Times warns: “Health care jobs may be safe now, but our sense of what’s safe has been consistently belied by the impact of our technological progress.” Valley legend Vinod Khosla has been arguing for years that expert systems can replace 80% of what doctors do … but at the same time, tech could greatly expand the remit of the best.

It’s not hard to imagine – whisper it – even software engineering moving into Extremistan. Already, everyone wants the so-called “A-players,” but has only lukewarm interest in second-tier software talent, much less the third tier. The best companies hire the best engineers, who, by definition, are a minority; the best engineers work at, or launch, the best companies; technology increasingly allows the best companies to dominate their markets like never before. Extrapolate that twenty years into the future, and what do you get?

This won’t happen to everyone everywhere, obviously – I’m talking about proportions, not the entire population – but I expect the shift will be significant enough to have enormous consequences. While technology will indeed, as Andreessen points out, create new professions and new fields of human endeavour, the fact that technology is an ever-more-powerful force multiplier implies that those fields will increasingly exist in Extremistan, and be partitioned according to power laws; a few will be enormously rewarded, while the majority scrap for crumbs.

I’ve been writing about technological unemployment for some years now, and whenever I do, commenters always chirp, “we just need everyone to become an entrepreneur!” But of course entrepreneurs have always lived in Extremistan … and most of them fail. Everyone who calls for a future of greater entrepreneurship is implicitly calling for us to move ever deeper into Extremistan.

Third, there is the outright loss of jobs and reduction in wages, as described in “The Rise of Turing Robots Leads to a Fall in Wages“, Dagobert Brito and Robert Curl, Newsweek, 25 February 2015 – Excerpt:

Increasing the number of jobs for humans will mitigate the problem of inequality in the distribution of income only if these new jobs have three properties: (1) they must be jobs that a computer cannot perform; (2) they must require skills that are scarce in the human population; and (3) the new jobs must include a substantial fraction of the population. Increasing the number of jobs, such as supermarket checkers, that do not have a scarce skill requirement will not solve the problem.

A large fraction of the population may have skills that a computer cannot perform, but these skills may be common to a large fraction of the population. Wages are set at the margin, and if at the margin humans are competing with robots, the cost of robot labor will be determining the human wage rate.

The argument is slightly more complicated. Computers are replacing humans with skill sets that were relatively well paid, so the competition between human workers and automation is not at bottom-wage levels. These displaced workers are forced to find lower-paying jobs, thereby lowering wages for all workers with whom they compete.

For high-paying jobs to return, enough human jobs must be created to employ the entire labor force so that at the margin humans are not in competition with robots. The Catch-22 of this proposition is that if the jobs are high paying, there are incentives to develop the technology so they can be performed by Turing robots.

The limits of computer technology or human ingenuity have not been found.

These factors are technological and economic in nature, but fixing them – distributing the bounty produced by our new machines is political challenge no larger than those we have surmounted in the past.

In the next chapter: the fallacy of education as a solution.

“Therefore, mankind always sets itself only such tasks as it can solve; since, looking at the matter more closely, we will always find that the task itself arises only when the material conditions necessary for its solution already exist or are at least in the process of formation.”

— Preface to A Contribution to the Critique of Political Economy by Karl Marx (1859).