Tuesday, March 8, 2016

Against the Neo-Luddites and Anti-Automation Rhetoric

A few months ago, I ran into an essay on LinkedIn about how automation is going to destroy the job market. Of course, this is nothing new, along with claims that foreign trade is going to impoverish us, that China is going to buy us out (an update of the 1980s fear Japan would do the same), and that increased worldwide consumption of oil will destroy the economy, it is one of the more popular economic doomsday myths. In this case, however, I was happily surprised to find a fellow skeptic, and so wrote the following in support of his argument:
I have to agree with you. After all, in a way this is nothing but an update of Luddite nonsense. "The water driven mills will starve the workers!" yet the industrial revolution brought riches, not poverty. Then electrical automation would drive away all jobs, then computers, now robots. It seems every innovation is going to destroy the need for labor and yet, we never seem to see this in reality. Perhaps it is time to take such doom-saying Cassandras with a tremendous grain of salt.
Of course, nothing terribly surprising in my response either. I have been saying the same thing here since 2007. But, having read this again a few days ago, I realized how many people believe this claim (and some related nonsense, such as the fear of outsourcing), and decided it may be worth my time to write a short essay debunking this claim.

I suppose the first point to make is the one on which I based my comment, that this same fear seems to have been repeated since at least the introduction of water driven machinery, if not earlier, and has never once proven correct. Time after time, the claim was made some new labor saving device would eliminate the need for workers and leave the proletariat dying in the streets, and yet time after time, the world continued with everyone working away just as before1. Despite endless fears about machinery taking the place of workers, somehow those workers always found a new job, or someone found a new job for which they needed workers. And, either way, the economy continued without any sudden mass unemployment.

An interesting parallel can be found in labor saving devices marketed to housewives from the turn of the century onward. Each would give her endless free time. From mechanical wringers, to iceboxes, to clothes washers and drier, to garbage disposals and so on, each was said to free time for her to spend on herself. Yet, oddly, housewives in the early sixties had little more free time than housewives in the teens, as they or their husbands and children, found new demands to take up all that free time.

And that is what happened with automation. Workers who were no longer needed to work as fullers (one of the first use besides grinding grain to which industrial water drive mills were put) were employed in some other capacity, as cutters of cloth, or tailors, or in some other industry entirely, maybe transporting or selling goods, or mining, whatever could be imagined.

The simple fact is, there are unlimited human wants2, and there are even more ways in which each of those wants could possibly be filled, but there is a limit to the amount of labor. And that limit defines the extent of our economy. Some would argue limited natural resources are also a factor, but that is not quite accurate. Almost anything has substitutes, or has an alternate process for producing it that uses other resources. What prevents us from using those approaches is (1) that a cheaper alternative exists and (2) the required labor is costly enough to make it unprofitable. Thus, even scarce resources are only scarce because of labor. Labor is the sole limiting factor on production.

Given that, we allocate labor3 to those functions where it provides the greatest returns. But, if one of those functions suddenly required half the labor it once did, that would not mean unemployed workers, but, instead, that another, somewhat less profitable function could now be fulfilled.

Let us look at this in a slightly different way. Suppose you are on a deserted island, and each day you can work only so many hours. You gather food, gather water, make clothing, build or repair shelter, make tools and so on. Now, suppose, one day, a box of tools falls out of the sky. Would you lament that you lost the chance to make them yourself? Of course not! Would you sit idle for the hour or two you normally used to make tools? No! You would take the extra time you had and do something you previously lacked the time to do. In other words, you would become more wealthy, not less. And that is the same with automation. When labor is freed from one task, someone else finds a use for it, and overall wealth is increased.

For example, the transition from hauling things on our backs, to using carts freed up labor, as one man can drive a cart hauling the load it took a dozen men on foot. Similarly, a train can haul many carts of goods using only a fraction of the manpower carts would require. So, when we went from manual hauling to carts, and from carts to trains, did we impoverish ourselves? Did humanity suddenly find a fraction of its population with nothing to do? No! Those men found other work, and added to the net wealth of the world.

But some would argue that current automation, with robotics and similar technologies is different, and will produce different outcomes.

It would be laughable if so many did not take it seriously. Just use your senses. When we went from the largely man and animal driven economy of the year 1000,  to the early wind and water driven machines of the 13th through 16th centuries, to the coal and steam driven machines of the 18th and nineteenth centuries, and then the petroleum and electric and nuclear powered economy of today, did we become poorer? Or did we increase the population of the earth many times over, while simultaneously giving to even the poorest of developed nations things kings of the past would envy? If that is true, then why would suddenly one type of machine break with this pattern? Why would robotics be different than internal combustion engines or steam engines or water wheels?

Before someone puts forth some silly strawman argument, let me say, yes, there will be individual problems. Some people will find a transition to a new job difficult. But, then again, that is true with all economic changes. When a corner grocery closes, some workers have trouble finding jobs for a time, does that mean we should never close a store? In the past, buggy makers probably lamented the coming of the auto, as did blacksmiths an horse breeders and whip makers and wheelwrights and so on. Yet they adjusted. A few may have suffered for a time. But, does that mean we should never have allowed the change to happen? Would it be better to freeze the economy in the present state so that no one ever suffers a hardship? Even if we could freeze technology, I doubt it would work to prevent hardships, as bankruptcies and buyouts and expansions and changes in fashions would still take place, and some would lose jobs while others gained them. Life is dynamic, unless you mandate an absolutely lack of change, hardships for some are unavoidable4.

Nor is this only an argument against the neo-Luddites who would argue against new technology. The same is true also of job "loss" to overseas firms. If a product is made elsewhere, it is because it is cheaper to produce there. But that does not mean suddenly there will be  a mass of unemployed workers. Instead, it means consumers have more money left over, and there are free workers to produce other things. In short, it means the economy will expand, not collapse. If a product can be made cheaper, whether overseas or at home, that is a net gain, not a loss. And it is silly to think it is not longer so simply because it involves the goods crossing a border5.

Of course, all of this depends upon a free economy to work precisely as described, but even with a somewhat regulated economy, things will still come out much closer to these results than to the worries of the Luddites. It would take a very extensive and rigid regulatory economy for automation to produce lasting unemployment, and we are nowhere near that. And, in any case, if our economy were that highly regulated, then unemployment would be the least of our worries.

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1. It was not until the government granted pseudo-political powers to unions, instituted welfare and unemployment insurance schemes, mandated minimum wage, undermined the banking system with unconvertible currency and engaged in chronic inflation that there emerged the phenomenon of people who neither worked nor were supported by their families. This was unknown throughout most of history, and really only arises in the mid to late 19th century and onward. Obviously, as industrialization had started much earlier, and there is no correlation between this unemployment and the degree of automation, this is not a phenomenon of industrial development, but rather a consequence of government economic and social policies.

2. This is literally true, as not only are there all conceivable wants that exist today, but there are wants of which we are not aware. Fifty years ago, no one wanted a cell phone or computer. A century before that no one wanted a car. As new products and services arise, new wants are created. Thus, the total possible wants is truly unlimited.

3. When I say this, I mean the market, through competitive bidding for labor, does the allocation. It is simply easier to use this shorthand rather than spell it out with more precision.

4. But change is not only about hardships. Without change, there would also be no improvement, and many who could benefit from a change would never receive that benefit. Of course, that is an invisible loss, while the store owner driven out of his shop is visible, so the Luddite position often gains more sympathy, even if the potential harm from never changing is far greater and harms far more people. (If you doubt this, ask what would have happened had we banned pacemakers, or pharmaceuticals in the name of stopping the negative consequences of change.)

5. Some will argue against foreign countries subsidizing their goods, but in truth, that amounts to little more than transferring domestic tax monies to foreign consumers, which seems to benefit those consumers, not the country giving the subsidy. So long as the market is free to enter, subsidies cannot create a lasting monopoly, and so end up being self destructive and nothing else. (Just look at Japan after the 1980s, it certainly makes one question why we worried about their subsidized economy.)

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