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THE LIGHTS IN THE TUNNEL / 180 meltdown. Once the current global crisis eases, we can be sure that governments will turn to the task of attempting to contain this risk in the future by imposing regulation on the markets. However, the impact of advancing technology will not be confined to just the financial markets. We will ultimately have to address the issue of systemic risk throughout the entire world economy, and this will eventually involve transitioning to a more robust model. The Market Economy of the Future The scheme that I have proposed above essentially involves adopting special taxes to recapture the income from lost jobs and then having the government redirect that income according to individual incentives—without the requirement for traditional “work.” The conservative reader is likely to violently recoil from this idea. Is this not the worst form of Robin Hood socialism? Am I not proposing to steal from those who have worked hard to build a business and then simply give the proceeds to masses of indolent people in return for doing nothing? I will argue that I am proposing none of these things. Put yourself in the place of a small business owner. Remember that we are still thinking in terms of our extreme future scenario with 75 percent unemployment. How would your business survive in such a situation? The special wage recapture taxes that you would be required to pay as a business owner would be an inconvenience to you; you would, of course, prefer that you not have to pay them. (The same could be said of the wages you currently pay to your employees.) However, the wage Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 181 recapture taxes paid by every other business will collectively power the consumers that drive your sales (exactly as the wages paid by other businesses do today). We must find a way to redirect income to large numbers of consumers, or market demand will not be sustainable. It is not necessary to require work for that income because in an automated economy such work will not be required. The recipients of this income will not do “nothing;” they will, in fact, be motivated to behave in ways that benefit us all. The new taxes that I propose are simply a replacement for the wages that would have been paid in a less automated economy. Without government intervention of this type, free market forces, together with increasing automation, will drive our society toward an unsustainable concentration of income. Imagine a modern, industrialized society in which 95 percent of the population is impoverished and leads a subsistence level existence with little or no discretionary income, while the remaining 5 percent receives nearly all the income. In such a scenario, the majority of industries now in existence would collapse. The businesses from which most wealthy people derive their incomes would fail. While this is obviously an extreme example, the reality is that economic decline would occur long before such an extreme concentration of income was achieved, and that decline would be accompanied by the deflation of nearly all asset values. The wealthy will not be able to maintain their high incomes by selling things exclusively to each Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 182 other. The days of the feudal economy are gone. We now have a mass market economy. As long as an enormous mass market of viable consumers is preserved, the primary incentives that drive the free market economy will remain intact. In the future, it will still be possible to become extremely wealthy by building a new business or product. In fact, it may in some ways, be easier to do so than today. Many business strategists believe that future marketing will increasingly entail selling customized or unique products to huge numbers of small market niches.52 Evolving online technologies will make it easier to reach the consumers in these tiny niches and offer them highly personalized products and services. This will likely create many opportunities for entrepreneurs and small businesses to create new products geared toward specific market segments. It will also enable large businesses and new industries to sell huge numbers of different products on a highly targeted basis. However, it should be obvious that the existence of a huge number of viable market niches depends on a robust and ever expanding universe of consumers. In order to provide future entrepreneurs with a rich market for new ventures, we have to somehow ensure that the average consumers in our population have access to reliable income streams even as traditional jobs are increasingly automated away. Consider the business model of an Internet company like Google. Google relies on revenue from online advertisements that are highly targeted. The advertisers who use Google’s system do so because they have confidence that Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 183 their ads will attract viable consumers with adequate discretionary income. In today’s economy, nearly all of those consumers rely on jobs. If at some point in the future, it became obvious that the universe of viable consumers was substantially diminished, advertisers would be far less interested and Google’s business model would clearly be threatened. History has shown that only a select minority of the population has the combination of skill, entrepreneurship, access to capital, and luck that is required to start and run a successful business. This reality will not change: most people are destined to be buyers rather than sellers. The individuals who do succeed in building businesses in the future will likely find that wages paid to employees account for a far smaller fraction of their expenses. However, they will have to pay higher taxes to compensate for this; otherwise, they will not enjoy vibrant market demand for the products and services they create. An International View Many people might object to the ideas presented here on the grounds that if a country, such as the United States, were to raise business taxes substantially it would become less competitive relative to other countries and would therefore attract less investment. If you look back at the table on page 165, which showed how a wage recapture tax might affect the unit cost of a hypothetical product or service, the unit cost is clearly higher after taxes to recapture lost wages are implemented. For products or services that face international competition, this would constitute a Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 184 problem. One solution might be to rely more on a consumption tax rather that a direct business tax. In countries such as the United States, of course, the manufacturing sector has already largely migrated overseas and employment has become increasingly service oriented. In the U.S., the greatest danger is going occur when the service sector automates, and direct foreign competition is less of an issue in that arena. In the long run, job automation will clearly be a worldwide phenomenon. No country will escape its impact, and this includes developing nations with low wages. As I pointed out in the previous chapter, we are likely to see a shift in the incentives that drive businesses to choose where they invest. Political stability, minimized transportation and energy costs, and proximity to sustained consumption markets will be primary issues in the future. In the broader sense, we can speculate that an automated economy would, in many ways, redefine the nature of global trade. Some trade between countries occurs because of the availability of natural or agricultural resources (oil or French wine, for example), but much trade occurs because of labor dynamics. If a particular country has low wages and/or a particularly skilled workforce, it currently enjoys an advantage that will lead to trade. In an automated economy, where workers play a far less significant role, this trade dynamic would obviously be less important. There are really only two primary reasons that the government of a country would want to attract factories and business investment: jobs and taxation. As automation reduces the number of jobs, taxation will become increaCopyrighted Material – Paperback/Kindle available @ Amazon Transition / 185 singly important. It seems likely that once this issue becomes apparent, some degree of cooperation between nations will develop. Perhaps international entities such as the World Trade Organization will address this issue by setting standards for taxation. We cannot expect that the transition to a new model would be entirely smooth, and perhaps in some cases, protectionist measures will be necessary. While free trade may be desirable, it should clearly be a lower priority than the preservation of our entire economic model. Transitioning to the New Model Now that we have seen how the government might be able to support the consumers of the future by redirecting incentive-based income streams captured through taxation, we can begin to think about how to transition into this new model. The primary problem we face is that the current economy is still highly reliant on human labor. We need to develop a system that avoids creating a disincentive to perform necessary work. In other words, we don’t want to create inequities by requiring some people to work and not others, and we don’t want a “moral hazard” that pushes people to avoid work and seek government support instead. The answer must be some type of job sharing solution. The exact mechanics of this solution would need to vary depending of the nature of the job. For many job types, it might be possible to simply move toward a part time work schedule so that more people are employed doing the same amount of work. For jobs that do not lend Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 186 themselves to part time work, a rotation scheme could be used. A worker might rotate into a job on a monthly or even a yearly basis. Jobs could be shared by giving workers a sabbatical at different times of the year. In each case, workers would be supported by supplementary incentive-based income streams from the government. As automation progresses and more jobs are eliminated, this supplementary income stream will become an increasingly important component of total income. In large corporations and organizations, it might be possible to handle job rotations internally. In smaller businesses, it would probably be necessary to set up external mechanisms so that workers could rotate between employers. Obviously, regulations and/or incentives* would be required to implement these job sharing schemes. Needless to say, the business community is likely to initially oppose this idea and dismiss it as expensive and unworkable. As I’ve pointed out however, businesses will ultimately have to choose between government intervention and taxation and the existence of a robust market. Once this tradeoff becomes clear, opposition will be less vigorous. We see a similar phenomenon in the health care arena, where many industries that opposed efforts at reform in the 1990s now at least recognize the problem and have lined up behind the general concept of reform— although no consensus has yet been reached on a solution. The tax code could be used to provide an incentive for participation in a job sharing scheme. In the previous chapter I suggested the idea of “progressive” deductions for wages paid. In a similar fashion, higher deductions could be provided to businesses that agreed to incorporate job sharing into their business models. * Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 187 One thing that is abundantly clear is that, in a world where traditional jobs are disappearing, access to health care insurance cannot be coupled to employment. One of the primary near term goals for the United States should be to establish a universal health care system that is not tied to jobs. Additionally, as I pointed out in Chapter 3, payroll taxes will become increasingly unsustainable. The first steps in transitioning to a new model will have to be to shift the burden for maintaining social programs away from taxes on individual jobs and toward a broader, more sustainable model which falls more fairly on capital intensive industries that employ relatively few people. The burden that falls on a business should depend not on how many workers it employs, but on how successful that business is at deriving wealth from the market. Once a system is put in place that allows work to be shared on an equitable basis, it should be possible to achieve a relatively smooth transition into an automated economy. Over time, the incentive-based income streams provided by the government would increase, and the amount of traditional work performed would decrease. As job automation increases and the wages paid by businesses fall, the special taxes that have been put in place would need to be gradually increased to recapture the income. In addition to the primary economic objective of sustaining consumer demand, this would of course, have many positive impacts on society. Individuals would have more time for family, leisure, personal health and education. Better educated consumers with more leisure time and more confidence in their future incomes would result Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 188 in sustained consumer spending, vibrant demand for new products and services, and long-term economic growth. As incentive-based income became more important relative to traditional wages, individuals would see increasingly potent incentives to act in environmentally conscious ways, and that would potentially have a significant, favorable impact on climate change and other environmental challenges in the coming decades. Transitional Economy Average Income Value Consumers and Workers Decoupled Machines Getting Better Machines Becoming Autonomous Time Copyrighted Material – Paperback/Kindle available @ Amazon Transition / 189 Keynesian Grandchildren While few contemporary economists seem particularly concerned about the seemingly inevitable transition to an automated economy, one legendary economist did have remarkable insight into the future. In 1930, as the world plunged into the Great Depression, John Maynard Keynes wrote an essay entitled “Economic Possibilities for our Grandchildren.”53 In his essay, Keynes coined the term “technological unemployment,” writing: We are being inflicted with a new disease of which some readers many not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.* Keynes recognized that, in 1930, technological unemployment would be a temporary phenomenon and that the economy would eventually absorb the excess workers. The main thrust of his essay was to attempt to look much furToday, when economists discuss the causes of the Great Depression, they tend to focus almost exclusively on the monetary policy of the Federal Reserve. While there is little double that the overly restrictive policies of the Fed prolonged the Depression and perhaps turned a run of the mill recession into a disaster, it should not be forgotten that there was a widespread belief at the time that the technological unemployment (and the resulting plunge in consumer demand) that Keynes spoke of played an important role. Even Albert Einstein expressed this opinion when asked for his take on the causes of the Depression during a visit to the United States in 1933. * Copyrighted Material – Paperback/Kindle available @ Amazon