Sunday, November 8, 2015

Robot/AI revolution decimating employment and wages, not just could it happen, has it largely happened already? Surprising data


"My big issue with the horse argument is that horses cannot innovate on their own behalf, nor are they capable of imitating new innovations. People can do both."

– Dietz Vollrath, University of Houston growth economist, January 27th, 2015


I've been studying this issue extensively for several years now, and have carefully read/watched many or most of the biggest books, papers, articles, posts, and videos. I'm interested in it for many reasons; concerned and hopeful citizen and father, businessman, entrepreneur, investor, economist, and science and technology enthusiast. But also because my main career is in personal finance. And there is a significant possibility that this technological advance will decimate personal financial security for most Americans, at least without strong and smart policy responses.

The impetus for this particular post is Berkeley economist Brad DeLong's "Peak Horse" post last September. I agree with what Brad says. But I'd like to add the following:

A big issue is not just will machines – robots, artificial intelligence or advanced computers – replace humans, substitute for them, but will they be able to inexpensively do so much of what low and medium skilled and educated humans can do, that they have a great effect on the supply and demand, and thus the market wage. And will that market wage drop below minimum for more and more of the population – those with less skill than average, or no college degree; or next, not even no college degree, but not one from a major nationally-recognized university; less health and endurance, less youth, good looks, attractive personality, clean record, etc. Will the market wage drop below minimum for more and more of these people? For 10% of the population, then for 20%, then 30%, 40%, 50%, 60%,… What then?

And, has it largely happened already?

Yes, has it happened already, at least to a large extent? Not just in some theoretical debated future. Please stay with me for the evidence, which may really surprise you.

You go into a grocery store. In 10 or 20 years will 90+% of those jobs be gone. Will there be very advanced cameras throughout the store, connected to a computer with amazing machine learning and other artificial intelligence (AI). And that computer is connected to the cloud where it learns from similar computers at grocery stores around the world, constantly, from their experiences, and their learning, with constant updates.

And what is it learning? How to correctly identify everything you put in your shopping cart with its machine eyes (as well as how to detect stealing).

You go to check out. No cashiers. The computer recognizes you, and everything in your cart, and says, “That will be $127.49 Mr. Delong. Would you like to pay with your Amazon Visa like last time?”

The (mechanized, computer driven) cart docks at a conveyer, and robots with amazing dexterity and speed bag up your groceries and call up your computer-driven car. Then, your mechanized cart (which you didn't have to push or steer. It stayed with you.) goes to your car, and robots load the bags in. The shelves are stocked by robots, and most janitorial and other functions are done by them too. And if you read The Second Machine Age, Rise of the Robots, or just out, The Master Algorithm, you’ll see that robots aren’t that far from a lot of this even now. And solar, at least in the sunbelt (reporting from Tucson), powers all these machines relatively inexpensively. The roof of the supermarket is covered with solar panels, and the parking lot is shaded completely with solar paneled canopies – This kind of thing is not that rare even today in Tucson, and Moore’s law in solar is only accelerating after more than a generation. The sun food for the machines is, and especially will be, a whole lot cheaper than the farmed food for the humans.

All those low skilled supermarket jobs reduced to just a human manager, and maybe a few humans, if that, to fill in the gaps. And the same for restaurants, factories, janitorial and maid service,… I find it very hard to think of what jobs those low-skilled people will get instead, in anywhere close to equal numbers to those lost, where those who still have jobs and wealth will want to pay at least minimum wage for their services.

How many people are going to want to pay a maid to sweep, vacuum, and mop their floors, when for a tiny fraction of the annual price they can buy a robotic machine that can plug itself in and manage its cord, so that it’s no anemic baby-battery Roomba, but a full powered plugged-in machine, exactly like the one a maid would push and guide.

How many people today want to pay the “minimum”, or subsistence, wage for a horse, rather than buy a car, or a tractor, or take the subway, train, or a plane? Not enough to employ even a tenth of one percent of the horses we had a hundred years ago.

Now, is this all just a theoretical debated future?

No, not at all, because if you look at the data, it's happened already, to a large extent. We're already well along. The statistics I'm about to give you are from MIT economist Michael Greenstone and Brookings senior fellow Adam Looney in a 2011 Milken Institute Review article:

1) "Between 1960 and 2009, the share of men [age 25 – 64] without any formal labor-market earnings for an entire calendar year rose from 6 percent to 18 percent." (page 11)

2) "The percentage of men working full time [age 25 – 64] has decreased from 83 percent to 66 percent over the same period." (page 12)

3) "Nonemployment for an entire calendar year among men without high school diplomas [age 25 – 64] increased by 23 percentage points (from 11 to 34 percent) and among those with only a high school degree by 18 percentage points (from 4 to 22 percent)". (page 12)

4) "One way to untangle the two phenomena is to examine the median earnings among all working-age men – this time including those who earn nothing at all. What appeared as stagnant earnings for workers is really an outright decline in wages for the median men of working age. The median wage of the American male has declined by almost $13,000 after accounting for inflation in the four decades since 1969. (Using a different measure of inflation suggests a smaller, but still substantial, drop in earnings.) Indeed, earnings haven’t been this low since Ike was president and Marshal Dillon was keeping the peace in Dodge City." (page 12)

5) "Consider just men between the ages of 30 and 50, a group for whom retirement is rare. The median earnings of all men in this group declined by 27 percent between 1969 and 2009, which is nearly identical to the 28 percent decline for those who are 25 to 64 years old." (page 12)

6) "Surely, the most astonishing statistic to be gleaned from the trend data is the deterioration in the market outcomes for men with less than a high school education. The median earnings of all men in this category have declined by 66 percent [not a misprint] [from 1969 to 2009]. At the same time, this group has experienced a 23 percentage point decline in the probability of having any labor-market earnings. Roughly 10 percentage points of the 23 percentage points is attributable to the fact that more men are reporting disabilities, even though work in physically demanding jobs has been declining for many decades. Men with just a high school diploma did only marginally better. Their wages declined by 47 percent and their participation in the labor force fell by 18 percentage points." (page 13)

Now, it's true that all of these statistics are just for men. The total number of jobs has increased, due to women entering the labor force en masse, and the population increasing. Still:

1) The total labor force participation rate, which considers all of this, has declined in the last 15 years from about 67%, where it was throughout the 1990's, to about 64% (from the Current Population Survey).

2) You bring up horses to some economists, and other smart people, and sometimes the reply is, humans are different; humans are just so much more flexible and adaptable and creative than horses, as in the Dietz Vollrath quote at the start of this post.

The machines eventually got horses. They shifted the demand curve inward so much that the supply had to decrease by over 99% to keep the market wage for those horses that remained above the subsistence level. And you could have made the same argument for horses that you hear all the time for humans – It never happens. Hundreds of years technology has advanced, and we've always found jobs for as big, or bigger, a population of horses.

Well, you know what, after hundreds of years of technological advance, it finally did happen. Machines reached the point where they were so good at almost everything you could employ a horse at that there was no way for 99+% of the horses to do anything else that would pay even a subsistence market wage.

So, relatively low-skilled, low-educated males are not the entire group of humans. But, they are a class of humans, and a big one. And what these data show is that it's not just a theoretical debatable thing about the future. It's already very largely happened. They've already very largely gone the way of the horse in the face of advancing machines (and I'll discuss alternative explanations).

Now, you could say, well, they could become more skilled humans, and not go the way of the horse. But, the bar keeps rising, and pretty fast, as these machines get smarter and smarter. Already that bar is pretty high, practically speaking, for a substantial percentage of our population to clear, and it keeps going up.

And, we have to then invest more and more in educating our population, and crucially, Heckman-style early human development (all of which will, very importantly, also greatly increase the total size of the pie, of GDP long run). But the more we vote Republican, the less we do this, as this money is instead shoveled into more yachts and mansions for the rich. And, no, raising taxes on the rich will not have a substantial effect on the hours they work; this is well shown empirically, and there is the long established in economics income and substitution effects and backward bending labor supply curve taught at every major university.

Cutting someone's after-tax wage from $10,000/hour to $5,000/hour still leaves plenty of incentive, and at these levels it's pretty much about attaining the prestige and feel of how your income and position and belongings and consumption rank, which is unchanged if your fellow rich pay the same higher tax rate. Your 10,000 square-foot house becomes just as prestigious and rare and awesome feeling and satisfying as a 20,000 square-foot one used to be before the tax increase.

But the main point I want to make here is that robot/AI revolution causing unemployment to soar and wages to plummet, for a large and growing percentage of the population, is not just some debate about the future; the evidence is it's already well on its way.

Now, of course, what are other explanations for the shocking collapse of employment and wages for lower-skilled males over the last half century. There are two big ones as far as I know, globalization, and the collapse of unions/bargaining power. Could these two be the predominant, or overwhelming, cause of this plunge in wages and employment? and, males without a college degree (from a well-respected university) could just shrug off the effects of technology over the last 50 years – and over the next 50 years – and adapt with their superior, highly flexible, human brains?

So all we’d have to do is legally well-protect unions, and put up strong barriers to globalization, and employment and wages and job security would be at least restored to the level of a generation or two ago for lower-skilled males? And for everyone else.

Advancing robotics, AI computers, and other machines wouldn’t have been, and won’t be, a major, or catastrophic, problem for males without a college degree.

Is that it?

Well, let’s examine these explanations.

Unions provide much greater bargaining power for lower-skilled workers, and so certainly raise wages greatly for those who have jobs at companies with strong unions. This has been extraordinarily true in the past, when many unionized workers without even a high-school diploma had better wages and benefits than many high-skilled workers. Wages and benefits that would stun the typical fast-food worker of today, or low-skilled member of the sharing economy (or is it the sharecropping economy?)

But that would be an explanation for the plunge in compensation. It wouldn’t explain the plunge in employment, in the labor force participation of lower-skilled males. If unions had remained just as strong, and had kept on negotiating the same dream-like compensation for low-skilled workers (dream-like to a Walmart worker today), if anything, this would have resulted in even less employment.

Now, you might think that with strong unions, employment for low-skilled males would be greater, as the unions would just force it. They would strike and negotiate against automation. But this admits that advancing machines are the cause. It just says that unions could stop, or slow, this cause.

Next, what about globalization. So the idea here is that trade barriers fell substantially, and the costs of transportation and communication absolutely plummeted, and this led to low-skilled workers in the U.S. having to compete far more with the vast numbers of low-skilled workers in the developing world. So essentially, the supply of available low-skilled workers increased dramatically. And this increase did not come with anything close to a proportionate increase in the supply of available high-skilled workers to need the additional low-skilled workers.

Certainly, this would depress wages and employment opportunities paying at least minimum wage for low-skilled American males. MIT Economist David Autor put it succinctly in a 2012 MIT News article on a paper of his on U.S. manufacturing job losses, “Trade may raise GDP, but it does make some people worse off.” Still, University of Oregon economist, and purveyor of the central economics blog, Economist’s View, Mark Thoma, recently wrote, “The evidence suggests that immigration and offshoring aren't the biggest source of the problems workers face. Technological change, particularly digital technology, appears to be a much bigger factor.”

I agree with Professor Thoma on this, based on the research and information I’ve studied. But even if globalization were the bulk of the reason for the collapse in wages and employment for low-skilled males over the last fifty years, this would still mean that advanced robots, computers, and other machines would likely devastate low-skilled male wages and employment in the not too far future anyway. It would still, nonetheless, happen, even if all of the globalization were ended tomorrow.

Why?

Here's the logic:

First, even though I don’t think globalization is the biggest factor, I have no doubt that the effect of it is very substantial on wages and employment of low-skilled males.

But what are the products and jobs in question?

For this phenomena, it’s predominantly manufactured and processed goods that can be transported in the ubiquitous uniform metal containers; on ships, trains, and trucks.

So, the foreign workers that are putting supply pressure on low-skilled American males are workers in production and processing facilities and environments, because that's where the bulk of goods that can be shipped in uniform containers are made, and that's where the bulk of the labor hours to make them comes from. 

And workers in such factories and facilities are one of the kinds of workers that advanced robots and machines are best suited to emulate. The work is relatively simple and repetitive, and in a relatively standardized predictable environment.  

So, the key point is that if foreign workers in these kinds of relatively standardized, simple, and predictable environments, with these kinds of also relatively standardized, simple, and predictable tasks, are able to so devastate employment and wages for lower-skilled American males over the last half-century, then machines would have done it anyway. Because advanced machines largely can do the same things already, and it looks like there’s a substantial probability they will be able to do the vast majority of this kind of work within the next generation or two.

So, in other words, if this is your explanation, then it would have happened anyway, or likely will happen anyway, from the advanced robots and machines doing the same thing as the low-skilled foreign workers.

If low-wage workers in China and India can so devastate wages and employment for low-skilled American males, then so can low-wage workers in Robotia and Machinia and The AI Republic.

So again we see that advanced robots and machines can devastate low-skilled male workers. But what is the evidence that machines will have this kind of capability to predominantly do what foreign low-skilled manual workers do?

Again, it’s largely in the books The Second Machine Age, Rise of the Robots, and The Master Algorithm; and, the large 2013 study by Oxford’s Benedict and Frey, which is based on the opinions and predictions of Oxford scientists and engineers. The authors conclude (page 45):
Our model predicts a truncation in the current trend towards labour market polarisation, with computerisation [instead] being principally confined to low-skill and low-wage occupations. Our findings thus imply that as technology races ahead, low-skill workers will [hopefully] reallocate to tasks that are non-susceptible to computerisation – i.e., tasks requiring creative and social intelligence. For workers to win the race, however, they will have to acquire creative and social skills. [emphasis mine]
And here is MIT economist Erik Brynjolfsson and MIT computer scientist Andrew McAfee in The Second Machine Age:
After visiting Rethink and seeing Baxter [a prototype, highly flexible, intelligent, and inexpensive robot] in action, we understood why Texas Instruments Vice President Remi El-Quazzane said in early 2012, “We have a firm belief that the robotics market is on the cusp of exploding.” There’s a lot of evidence to support his view. The volume and variety of robots in use at companies is expanding rapidly, and innovators and entrepreneurs have recently made deep inroads against Moravec’s paradox. (page 31)
And powerfully:
All these examples illustrate the first element of our three-part explanation of why we're now in the second machine age: steady exponential improvement has brought us into the second half of the chess board [1] – into a time when what's come before is no longer a particularly reliable guide to what will happen next. The accumulated doubling of Moore's Law [2], and the ample doubling still to come, gives us a world where supercomputer power becomes available to toys in just a few years, where ever cheaper sensors enable inexpensive solutions to previously intractable problems… 
Sometimes a difference in degree (in other words, more of the same) becomes a difference in kind (in other words different than anything else). The story of the second half of the chess board alerts us that we should be aware that enough exponential progress can take us astonishing places. Multiple recent examples convince us that we're already there. (pages 55-6, endnotes mine)
Other explanations for the collapse of wages and employment for lower-skilled American males, like an increased desire or ability to claim disability, or take on the role of homemaker, with a working wife, appear not to be large factors, as discussed in Greenstone and Looney’s article.

People today typically debate the future with regard to robot/AI revolution, will it be much harder to get and hold a job that can support a family decently, or even pay minimum wage. Will it take much more education to achieve this? Will this happen in some hypothetical advanced robot and AI computer future?

Well, for male humans, it’s not a will. It’s a has. It has, to a very large extent. The evidence I’ve presented I think is very strong on this. And it hasn’t happened to just mere horses this time. Lower-skilled male humans are humans, and they’re vastly beyond horses. And already the robots, AI computers, and machines have brought them a long way toward the fate of the horses. And these brilliant machines are just getting started.

You want to ask some will’s, then how about these:

Will it take a bachelor's degree to have at least a 50% chance of having a reasonably secure career that can pay wages high enough to support a family decently? And I emphasize secure, because I mean not just can you usually hold a decent job, but will you be marketable enough that you can avoid constant serious risk of long term unemployment before you find another decent job. Because this risk is incredibly costly. Even one or two episodes of 3 – 12+ months of unemployment can devastate a family. Or can lead to homelessness, which is so harmful and dangerous, there's a very good chance it's game over from there.

Will it take not just a bachelor's degree, but a bachelor's degree from a well-respected nationally-recognized research university, like my employer, the University of Arizona? and those kinds of skills? Or even moreso, the literacy, numeracy, and technical skills of only the top half of graduates from respected national universities today?

Because if you say: Oh, ok, it's just horses and men who don't make the effort to become skilled and educated enough, so no problem, they just get skilled and educated enough, and then the robots and AI's are no risk. Then, what if skilled and educated enough so all this is no problem goes from high school diploma to bachelor's at a nationally known respected research university, and with the commensurate skills? Or even the commensurate skills of just the top half of such graduates today, so we can't just grade hyper-inflate our way out of this, and throw up a bunch of Potemkin colleges.

How are we supposed to get the vast majority of men, and women, up to this level of skill and education?

To do so would take a regime shift in our politics, and in public understanding of economics. By and large, one of our two major parties not only does not believe in global warming, or evolution for that matter, they don't believe in externalities, asymmetric information, natural monopoly, contracting limitations and costs, and basically anything that says the pure free market is imperfect (except in cases where it benefits the rich). But providing a massive increase in the education, skills, and general capabilities for most of the population is something that free market companies could only extract a small fraction of the benefits from in profits. And therefore they alone would grossly underprovide this.

The externalities, contracting and enforcement problems and costs, adverse selection and other asymmetric information, and so on, are profound and enormous. This is why general education has historically been predominantly publicly funded. To say that now, so that most of the population won't go the way of horses, we have to enormously increase our investment in Heckman-style early human development, education, public nutrition, healthcare, and more, from prenatal until at least well into a person's 20's, is to say that we should have an unprecedented increase in governments' size and roles.

Right now, this is impossible, as the Republican party is dogmatically against any government, except for a small number of areas; mainly military, police, courts, prisons, and perhaps minimal public infrastructure and education.

Of course, to win elections they have to favor Social Security and Medicare for seniors. But, from my study of politics, I think that most of those who control the party would like, if they could get away with it without losing political capital, to end Social Security and Medicare. And, in fact, they fought Social Security and Medicare tooth and nail when they were first enacted. And I also think that many of those in control of the Republican party would like, if they could get away with it at no cost in political capital, to eliminate most, if not all, publicly financed education, infrastructure, and research.

This is my conjecture, but certainly it's obvious, and not controversial among experts, to say they would oppose any significant increase in investment in education and human development, let alone an increase to an unprecedented level. Just read their platform, and the positions of their major candidates; it's pretty obvious that the direction they'd like to go in is the opposite one.

So, if it's going to require a massive increase in human development, education, skills, and general capability for most men not to go the way of the horse, then that edification is not going to happen anytime soon. And things could get very bad. And for a large segment of the population, the statistics show it already has.

Republican control of the House (with gerrymandering, disproportionate weighting of rural votes, etc.), and the Supreme Court, could easily last another decade. And if the Republicans take the Presidency too, things could go viciously in the wrong direction. They would likely be able to enact extreme legislation and executive orders. Moreover, the Supreme Court, which could strike down any major program, in spite of what's in the Constitution, could be cemented in Republican control for another generation with a Republican President to appoint more Republican Justices.

So, I don't think we can take that much solace in the reply, all the low-skilled men have to do is become high-skilled to avoid going the way of the horse.

Nonetheless, longer run at least, I do think that this is a critical part of the solution (see, for example, my 2014 guest post at Carola Binder's.) I do think that if we had a massive increase in public investment in human development, especially Heckman-style early human development (Nobel Prize winning economist James Heckman's research has shown a high social return to public investment in high quality prenatal and postnatal care, training, and assistance, high quality developmental daycare and preschool, and other early assistance and intervention) that we would greatly decrease the percentage of our population without secure employment. And we would greatly increase the size of the economic pie long-run.

Moreover, an unprecedented increase in human development investment would, in of itself, create an enormous number of jobs.

But the benefits would extend way beyond jobs. A much smarter, healthier, stronger, less criminal, more knowledgeable and expert population would make for a much stronger and better country, and a much healthier democracy.

Eventually, there is a good chance that AI will reach the point where few if any humans will be smart and skilled enough to do anything pecuniary that a machine can't. At that point, substantial redistribution will be unavoidable. Most people have little wealth outside of their labor endowment. If that becomes worthless, they quickly starve without redistribution [3]. If we can maintain a democracy, in spite of the efforts of many plutocrats, then large-scale redistribution will probably be inevitable.

But, of course, there will be an aversion to just giving people money without it being earned. But there, a solution I see is allowing people to earn it by working to become better people, and citizens. The redistribution can be money paid for the job of being a student; getting a college degree, a graduate degree, passing expertise exams,... Or, money paid for hours spent on a physical fitness program, or studying chess and improving your intellect and game, or Tai Chi, Yoga, psychological study, or therapy..., at least until you have reached a certain number of hours worked, or age, and are allowed to retire with a pension if you wish [4].

So, in this way, there may be one job that we can never lose. In the end, our final job may be ourselves.



[1] This refers to an old story that the inventor of chess presented his game to the emperor of India, who was so impressed, he asked the man what he'd like as a gift in return. The man replied, simply some rice for my family, one grain on the first square of the chess board, then two on the second, four on the third, and so on, doubling until the end of the board. The emperor agreed, thinking it a modest request. But due to the power of exponential growth, the last square would require 263 grains, more than 18 quintillion; more rice than has been produced in the history of the world!

In the first half of the chess board, the number of grains grows relatively, or very, slowly. For a while the growth looks linear, and with a modest slope. By the end of the first half of the chessboard, the current square is about 4 billion grains, still just one large field. But now we're in the famed "second half of the chess board". Each doubling, or square, now causes not a small improvement, not a relatively modest, or ordinary, improvement, but a qualitative leap.

And the idea with computer advance, and Moore's law, is that we are at, or near, the second half of the chess board, where every routine doubling of Moore's Law, or similar doubling in computer-power-per-dollar-of-cost, due to software advance, 3-D circuits, parallel processing, etc., causes a startling increase in capability. An increase equal to every increase that came before it for the last 80 years. For supercomputers this means that a new square on the chess board, which happens every few years, now means an additional thirty-four thousand million operations performed every second! Very different than early doublings, which only added hundreds of calculations per second to the capability!

[2] Many experts expect Moore's Law to continue for decades or more, at least in spirit. Originally, Moore’s Law, or “Law”, as it’s an observed and predicted, approximate relationship, not an immutable physical law, was basically that the number of transistors per square inch would increase exponentially for a long period. But the term, “Moore’s Law”, is often used now to say, basically, that computing power, or capability, per dollar of cost will increase exponentially over a long period. And I think this is a much more useful definition. The number of transistors per square inch cannot double that many more times before a transistor becomes as small as an atom. So we're approaching the physical limit of matter's smallest units, and many experts say the practical limit will be hit in a decade or less. But there are many ways that the computing power, or ability, per dollar might keep doubling every few years for decades or more.

These include: (1) 3-D chips – micro-layers of chips on top of each other; (2) Directed self-assembly (DSA); fascinatingly, this is like the way DNA constructs our bodies. Certain molecules attract or repel others, and you use this to form the transistors, the connections between them, and other components and architecture in a chip. This can both plummet the cost of production, and create revolutionary increases in capability; (3) Improvements in architecture in general; (4) Massively Parallel Processing, like the human brain. This can lead to an astounding increase in capability, but it also can plummet power usage and heat. The human brain, which is incredibly massively parallel, has in many ways the capability of today's supercomputers, and more, but with about one one-billionth the energy usage; (5) Quantum Computers; (6) Advanced new materials like carbon nanotubes, potentially inexpensive room-temperature superconductors, and other new nanomaterials with amazing properties and applications; (7) Much faster and denser memory, such as RRAM (Restrictive Random Access Memory);(8) And there is more; this is not an exhaustive list.

And one thing I'd like to especially focus on is software advance. We always hear about hardware speed and capability doubling, but often as important, or even more, is the exponential advance of software. There are many examples you can give – Machine learning, which is revolutionary, is the reason for computers driving cars in dense city traffic, recognizing faces better than humans, and beating the best at Jeopardy. It is a new kind of software (at least in this form, and at this level). Certainly, it is made more powerful with hardware advance, but that hardware would never have been capable of coming close to what it does without this software advance.

MIT's Brynjolffsen and McAfee wrote in their first book on robot/AI revolution, Race Against the Machine (2011), "It also seems that software progresses at least as fast as hardware does, at least in some domains. Computer scientist Martin Grotschel analyzed the speed with which a standard optimization problem could be solved by computers over the period 1988-2003. He documented a 43 millionfold improvement...Processor speeds improved by a factor of 1,000, but these gains were dwarfed by the algorithms, which got 43,000 times better..." (page 18).

So, as a result of all of this, we see many different promising avenues by which "Moore's Law", at least a Moore's Law for doubling of capability per real dollar of cost, can continue for possibly decades, or more. And these doublings are now in the second half of the chessboard (see endnote 1 above), where each one is a gigantic, and possibly profound, advance.

[3] One might argue that with the technology explosion things would get so cheap that even a small amount of savings, maybe even $1,000 or less, would be enough to live ok for a lifetime. However, interestingly, I think this would be unlikely to work. The real price of at least many goods will plummet, but remember, the Fed, and all first-world central banks, hate even moderate deflation. For this to work, for your $1,000 to blow up in real value, they would have to allow hyperdeflation. Extremely unlikely. They are going to print as much as it takes to prevent more than at most modest deflation.

For you to have your wealth explode in value will require having it in real assets, like stocks, or ownership of raw materials that will be necessary, and relatively rare, in the robot-revolution future, not cash or fixed-interest bonds. This looks to me like the way to hedge against robot/AI unemployment, other than things like improving your and your children's education and skills.

I'll eventually do a post on this, but for now, if you'd like to find out more, please see my comments here, and this recent post.

[4] Of course, there would be a lot of specifics to work out here.

3 comments:

Anonymous said...

Good evening,
I was struck by the statistics you gave for labor force participation rates. Your analysis was pretty interesting, and struck a chord with me because for most of my working life my job has been to automate people out of jobs. For instance, in mid-to-late 1980s I worked for a major oil company's credit card division. There was a waiting list for a space in the parking garage. The faster we could get files on microfilm, the faster we could automate canned letters, the more we could computerize decision-making, the fewer office workers would be required. And I got my parking slot! (Note: most of the workers displaced by automation at that time were women: file clerks, secretaries, typists....)

But my work didn't affect just white collars. Are you old enough to remember filling station attendants? We introduced pump-your-own-gas terminals; I wrote a PIN encryption/decryption subroutine and put a jillion undereducated men out of work. Later, working in the airline industry -- well you can imagine how many jobs were killed when we invented electronic tickets and automated baggage-handling, and came up with ideas like Hotwire, Priceline, Orbitz & Expedia.

That said, it's a stretch to attribute the downturn in U S labor force participation to automation alone. Offshore outsourcing introduced, and continues to play, a major role in US wage-suppression, devaluing US workers' "human capital." If you truly wish to isolate the extent of the automation impact vs. that due to offshoring alone, you'll have to look beyond US-only stats.

That said, in the US, as women began to participate to labor force in higher numbers, the rate for men declined (duh!) http://www.dol.gov/wb/stats/facts_over_time.htm#labor

Thank you for your fervid contributions to this discussion! To be continued.... 10 years from now!

Anonymous said...

Almost forgot to mention -- as I'm sure you're already aware -- the global economic downturn of 2008-9 also accounts in no small part for recent drops in labor participation in the USA. Automation (and AI to come) are factors, yes, but certainly not the whole story.

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