Technology and the Economy of the Future_5

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Danger / 153 implement policies to address the situation. The natural incentives in the private sector would tend to accelerate, rather than resolve, the crisis. There is an ongoing trend toward concentration of income that is driven largely by the continuing advance of automation technology and globalization, and also by a lack of progressive tax policies. Many people might argue that increasing income inequality is caused primarily by a “skill premium.” In other words, in the modern, technological economy, people who are highly educated and skilled have a significant advantage in the labor force. While this has been true so far, it is largely because relatively low skill jobs have been the first to be automated and also the first to be subjected to the full force of globalization. As we saw in Chapter 2, advancing automation technology will increasingly threaten highly paid knowledge workers with college educations. These jobs will also, of course, be subject to offshoring. Clear evidence of these trends is already apparent in information technology (IT) jobs, and we can expect this to become much more broad- based in the future. We can expect that income will become even more concentrated in the hands of those who are positioned to benefit directly from the increasing value of technological capital relative to labor. Extreme income inequality is generally presented as a social problem or an issue of basic fairness. While it may be these things, it is also—more critically—a mathematical problem in terms of the viability of the mass market. When purchasing power is taken from thousands of average consumers and concentrated in the hands of one wealCopyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 154 thy individual, that purchasing power is effectively sterilized: it no longer plays a vibrant role in generating mass market demand for products and services. As we have seen, this will ultimately cause the market “river” to run dry. We often hear that income in the United States is today more concentrated than at any time since the 1920s. The reality is that the risks from this concentration are probably even higher today because the rise of the mass market has changed the nature of our economy. Today, virtually everyone in industrialized society—including especially the most wealthy individuals—derives his or her income directly or indirectly from the mass market. The social impact resulting from the permanent elimination of a large fraction of the jobs held by average people would obviously be dramatic. History shows that once unemployment reaches a certain level, the very foundations of democratic society may be threatened. During the Great Depression, unemployment reached 25 percent in the United States. Joseph P. Kennedy, the founder of the Kennedy dynasty, famously said that during this period, he would have gladly given up half of everything he had, if he could have been certain of retaining the other half of his fortune under the rule of law. Clearly, the risks are very real, not just for the bulk of people whose incomes may be threatened, but also for those wealthy individuals who may be likely to resist the idea of government policies that include more progressive taxation. My purpose in writing this book is to try to give these issues more visibility in the hope that a constructive disCopyrighted Material – Paperback/Kindle available @ Amazon Danger / 155 cussion and debate can occur. Perhaps the arguments that I have presented here will turn out to be wrong. But if they are even partially correct, then we cannot afford to be taken by surprise; it will be essential to have a plan. In the next chapter, we will fast forward to a point in the future where the trend toward widespread job automation has become clear. Once this happens, there will really be no choice except to come up with some modifications to our system so that the free market can continue to function and thrive. Copyrighted Material – Paperback/Kindle available @ Amazon Chapter 4 TRANSITION In the previous chapters of this book, we have seen that machine automation is likely to someday eliminate a substantial fraction of the jobs nowperformed by people. Automation is poised to advance on two broad fronts. First, machines and robots will increasingly take over the routine jobs in factories, retail stores, offices and warehouses that are nowheld by workers. Second, the existing trend toward technology-enabled self-service will accelerate. We already see this trend with ATMs, automated checkout aisles, online banking, and automated telephone answering systems. All of these represent areas where machines allow consumers to independently perform tasks that once required the involvement of human workers. In the future, we can expect that this trend will be extended to include cell phones and other mobile devices so that consumers will be able perform tasks and get automated assistance almost anywhere. In addition, the drive toward self-service will also occur within businesses. New automation tools will enable managers in both large corporations and small businesses Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 157 to directly do the jobs and perform the analysis that once required human employees. As we saw in the last chapter, if these trends become unambiguous and are allowed to impact in an uncontrolled manner, the result is likely to be a severe economic downturn as workers (who are also consumers) begin to fear for their long-term employment prospects. In Chapter 3, I proposed some initiatives which might help to stabilize the situation and delay the onset of this scenario; however, we cannot escape the fact that technological advance is relentless and that free market incentives will continue to push the private sector toward the elimination of jobs. Once we accept the fact that a large fraction of jobs will be automated in the future, then we really have no choice but to also accept the reality that our economic system, as it exists today, cannot continue to function indefinitely without modification. In this chapter, we are going to fast forward far into the future; we will imagine a time when at least three quarters of the jobs which exist in our current economy have been permanently automated away. In other words, the unemployment rate will be at least 75 percent—an almost unimaginably high level—and there will be no realistic hope that more jobs will be created in the future. Is it possible to have a prosperous economy and a civil society in such a scenario? If we can devise a system that would work in such an admittedly extreme situation, then we should also be able to figure out a way to gradually transition into that new system, so that we can maintain economic stability as auCopyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 158 tomation advances in the coming years and decades. Toward that end, let’s begin by looking at the basic elements of our existing free market economy. The Basis of the Free Market Economy: Incentives The free market economy is a natural system that pushes consumers, businesses, investors and workers to act in ways that ultimately propel society as a whole toward advancement and greater prosperity. In other words, as each of us pursues our own self-interest, collectively we move everyone forward. Through the logic of the market, these collective actions automatically allocate resources in the most efficient way so that economic output is maximized. This, of course, is the “invisible hand” that Adam Smith spoke of. We can divide the logic of the free market into three broad sets of incentives: 1. Individual consumers act to find the best values for products and services. In other words, consumers shop around. No one wants to overpay, and no one wants to end up with an inferior product. 2. The owners of businesses and capital compete to maximize profits by providing the best possible value to consumers. As they do so, they invest in ways that drive innovation and create newproducts, services and industries. 3. Individual workers act to maximize their income. They seek the best possible job, invest in education and Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 159 training to enhance their future career prospects, and do their current job to the best of their ability. Historically, these three incentives have worked in concert to drive society toward ever increasing prosperity. As we have seen, the problem we face if automation eliminates a large fraction of the jobs held by workers is that consumers and workers are the same individuals. Without reliable income from employment, there will no longer be a critical mass of viable consumers. And it is consumers who ultimately drive the mass market economy. Without the expectation of sufficient market demand, no rational business owner will invest in increased production or innovation. Preserving the Market Clearly, in order to preserve the mass market in a largely automated economy, we need to provide an alternative to jobs. We need a mechanism that can get a reliable income stream into the hands of consumers. This of course, is a proposition that will be very difficult for most of us to accept; the idea that we must work for a living is one of our most basic core values. The current alternatives to jobbased income, such as unemployment insurance or welfare payments, come with highly negative connotations and are purposely designed to provide minimal support so that a disincentive to work is not established. Our current value system celebrates the importance of our labor. We believe that work is essential and that consumption is a privilege that derives from that work. However, this is a belief system that is fundamentally Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 160 based on the historical reality that human labor is indispensable to the production process. What happens when technology reaches the point where most human labor is no longer essential? At that point, we will have to undergo a quantum shift in our value system. In order to preserve the free market system, we will have to come to the realization that while work (at least for most people) may no longer be essential, broad-based consumption is essential. In the developed world, our mass market economy has grown far beyond what is required to simply provide individuals with basic necessities. In order to maintain the global economy and drive it toward future growth, we must have a very large number of consumers with adequate purchasing power— all of whom have confidence in their future continuity of income. Without that critical mass of viable consumers, economic decline is mathematically inescapable. There is really no way to envision how the private sector can solve this problem. There is simply no real alternative except for the government to provide some type of income mechanism for consumers. While this idea will initially, of course, be vehemently opposed, I believe that in time, this will have to be accepted as a basic function of government. Consider the viewpoint of an economically conservative or libertarian thinker. This person is likely to advocate the smallest possible government and a market that is as free and unregulated as possible. Nonetheless, this person—if he or she is reasonable—is very unlikely to propose eliminating government entirely because he or she Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 161 understands that there is one core function of government which is critical to the operation of the free market: the protection of property rights. The government must maintain a national defense, a police force and a judicial system, and it must enforce and protect clearly defined rights to own and trade property. Without these governmental functions, the free market could not operate effectively and civil society would erode into jungle warfare. In a future, largely automated economy, the preservation of robust market demand by providing an income stream to individual consumers will also have to become a core function of government. This is an idea that will no doubt initially elicit derision or outrage. In the long run, however, I believe that there will simply be no alternative. Market demand powers our economy. No rational business owner will invest in increased production in the absence of an expectation of demand. In the economic environment of 2009, consumerism is very much out of fashion, and this is really not a good thing. The media is replete with stories about how Americans have gone out and spent too much on big screen TVs. These stories miss the point. While there will always be some individuals who act irresponsibly, the overall problem is really not that Americans have spent too much. The problem is that their spending has been sustained by borrowing rather than by growth in real income. And this is because, for most average people, there has been little or no growth in income, while at the same time, health care costs have been exploding. Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 162 In the long run, onlysustained consumer spending can turn the economy around and return us to economic growth. Everything produced by our economy is ultimately consumed by individual people; we cannot have longterm prosperity unless enormous numbers of people have sufficient income—and sufficient confidence in the future—to power sustained consumption. Again, conservative economic thinkers may reflexively object to this view. Conservatives tend to emphasize the importance of production (or the “supply side”) in the natural cycle that occurs between production and consumption. Conservatives generally favor low taxes and minimum regulation of producers in the expectation that this will result in increased economic activity and job creation, which will then lead to strong consumer demand. The problem with that way of thinking, of course, is that, in an increasingly automated economy, the job creation will not occur. Consumers will have little opportunity to participate in the production process as workers and will lose access to the wages that sustain them. In the absence of an alternate income mechanism, a collapse in consumer spending must be the inevitable result. Recapturing Wages As we begin to envision how it might be possible to design an alternative income stream for consumers, let’s begin by considering howthe wages from a job that has been automated away could be recaptured by the government. When a business eliminates a job as the result of automation technology, the income that was previously paid to Copyrighted Material – Paperback/Kindle available @ Amazon
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