Wednesday, February 16, 2011

More Thoughts on Structural Unemployment

Structural unemployment

Martin Ford, in The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, argues that most jobs in the economy will ultimately be automated via advancing technologies such as robotics and artificial intelligence. In Ford's view, this process is likely to begin not in the far distant future (which most humans don't care about), but sooner than conventional wisdom thinks, because many skilled jobs that people tell themselves are "safe" from a combination of offshoring and automation are actually no "safer" than factory jobs (the book explains the details of why). Ford's analysis shows this creating first naggingly high chronic unemployment levels (8-15%) and sluggish consumer demand and confidence, and later possibly precipitating a major economic crisis.

The Lights in the Tunnel

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 other. The days of the feudal economy are gone. We now have a mass market economy.

You will note that the book is free to download. I guess he's trying to make a point on the deflationary aspects of his theory.

I'm going to give it a read. I'm clearly partial to his theory as seen in one of my first posts on this blog.

September 25, 2007
Automation and Inequality

The extrapolator in me has always wondered what would happen if we could automate all of our jobs away. Now I think I might know. As it relates to farm labor, wages are simply redistributed. The total amount of real wages (wages adjusted by the CPI) has held fairly constant over the years. If you are lucky enough to keep your job, you'll be worth more. You'll be happy. If you aren't, well, sorry about that.

If one was to keep extrapolating this trend to its logical conclusion, at some point there will be just one farmer. He'll have all the wages and will simply press the "harvest" button on his desk.


I'm about half way through The Lights in the Tunnel. Here's another quote to ponder.

The conventional view is echoed strongly by former Federal Reserve Chairman Alan Greenspan in his book, The Age of Turbulence. Greenspan’s book includes an entire chapter devoted to the growing problem of income inequality. Greenspan tells us that income in the United States is now more concentrated that at any time since the late 1920s.34 He correctly attributes this to globalization and, especially, technological advance, pointing out that many of the jobs previously held by “moderately skilled workers” are now handled by computers. What Greenspan apparently fails to see is that technological progress will never stop, and in fact, may well accelerate.

One more quote.

The reality is that the idea of this tremendous new market resulting from an exploding Chinese middle class is something of a mirage. The Chinese middle class is not an independent market. These people are essentially standing on the shoulders of American and European consumers. And as we have noted again and again in this book, those Western consumers all depend on jobs. If automation begins to dramatically impact employment in China, while at the same time demand dwindles in the West—and certainly if the catastrophic event described at the beginning of this chapter occurs—then this economic perpetual motion machine is going to collapse.

I'm a believer.


Anonymous said...

This already happened once. 90% of Americans were farmers. Now 1% are. So it may not be so dire.

Let's even assume that some large underclass forms as people can't find employment as change happens too quickly for the farmer to become an assembly line worker to become a CNC lather operator to become a mortgage broker to become a masseuse.

There will simply be redistribution of the wealth.

Right now, labor and legal arbitrage means that there are ways to avoid this...i.e. make stuff in China and make money in BVI, but if we get down to robots making everything, well then there won't be any globalization because Wichita and Beijing both are the same for robots really.

p.s. The really scary concept will be brain cloning. Imagine the top pharmaceutical researcher clones his brain 10,000 times, thus putting some number of almost as good researchers out of work...


Stagflationary Mark said...


This already happened once. 90% of Americans were farmers. Now 1% are. So it may not be so dire.

It has happened more than once. He uses the 1800s to show that it will probably be dire.

From the book:

If our simulation seems to indicate that a slave (or automation-based) economy is destined to undergo continuing decline, how is it that the slave states were able to maintain stability for so long?

The answer lies in the fact that the South was primarily an export economy.

Anonymous said...

This is an article that meshes well with this topic.

Again, to play the Pollyanna here, is it so dire? Yes, the underclass is having a hard time, but they also all have cell phones, TVs, cable, and a car. I'd rather be poor working class now than in the 1800's.

Another factor that's affecting your thinking is globalization, and that eventually goes away. China will not be so cheap forever. And while robots will eventually do many tasks, sometimes its just not economic to employ automation.

Your examples will all be extremely high volume items, but a lot of life isn't like that.

Your kitchen counters can't be installed by a robot yet, and it may never be economical to do that. Mowing the lawn, maybe, but I doubt landscaping could be automated any time soon.

Human beings are also very the price of Christmas lights went down, people started coming up with more and more elaborate lighting for their houses that required lots of manual labor to install. This job didn't exist in the 1980's even.

People also like to deal with other people and what they amke - farmer's markets, artisanal cheese, etc. I suspect once we become rich enough, luxury production will be a big industry. That and "content" providers.

And here is the kicker why we will not end up like that...lawyers. You see the lawyers have not been hit yet by outsourcing and technology, but they are starting to be hit. Since they make up the political parasite class, you can be sure there will be new laws about all of this once they feel the bite.

By the way, you should also listen to this podcast which discusses what might happen:

p.s. Isn't the real problem here not the technology obsoleting jobs but the SPEED with which it does so? If the speed of change were about the same as the average career, then it wouldn't be so painful.


Stagflationary Mark said...


"Isn't the real problem here not the technology obsoleting jobs but the SPEED with which it does so? If the speed of change were about the same as the average career, then it wouldn't be so painful."

Yes! This is exactly the problem. There's a nice chart in the book showing the speed at which we're getting smarter (we're not if SAT scores going back to the 1970s are any indicator) vs. the speed computers are getting smarter (exponential).

From the book:
These numbers should give you a sense of the incredible degree of technological acceleration we can expect over the coming years and decades. As futurist and inventor Ray Kurzweil writes, “Exponential [or geometric] growth is deceptive. It starts out almost imperceptibly and explodes with unexpected fury.”

Back to you:

And here is the kicker why we will not end up like that...lawyers.

From the book:

Based on our previous discussion, the first thing you might guess about these attorneys is that they are already subject to offshoring. And you would be correct: in India there are already teams of lawyers who specialize in researching case law not in India—but in the United States.

He goes on to say how much of a lawyer's job can be automated through smart algorithms. Know any "political parasite class" members who would turn down a productivity tool to make their lives easier?

The software may start out as a productivity tool to make the lawyer’s job easier, and then eventually evolve into a full automation solution.

Stagflationary Mark said...

I also meant to thank you for the links! I'll be sure to check them out. :)

Jazzbumpa said...

The only thing I disagree with is Ford's contention that our mass marketing economy can somehow insulate us from a collapse and degeneration into feudalism.

The Greenspan quote is outdated - wealth disparity is even worse now. We are far down the road to collapse. The current Rethug assault on unions is part of a dedicated plan to roll back not only the new deal, but the U.S constitution, and the enlightenment.

The key point is the radical statement: "All men are created equal." Conservatives have never believed that to be true.

Ford is at least implicitly rejecting (and if his analysis is on track, refuting) the Lump of Labor Fallacy fallacy. I deal with it here and again here.

Coba - Yes, being working poor is better now than in the 1880's. But so what? Poor with a cell phone is still poor. Trapped with no opportunity is still trapped. You are spouting a canard. Technological advance has raised the floor on living standards over 130 yrs. I sure as hell hope so!

Alas, there is no guarantee against regression.

JzB (just another crisis blogging doomsayer)

Stagflationary Mark said...


"The only thing I disagree with is Ford's contention that our mass marketing economy can somehow insulate us from a collapse and degeneration into feudalism."

Like you, I thought he was taking a rather optimistic tone on that topic especially when one reads the doom and gloom in the pages to follow.

I think Ford is suggesting what I am suggesting.

We are simply thinking up new ways of destroying jobs FASTER than we are thinking up new ways of creating jobs.

Workers of today will find it increasingly difficult to compete with machines. I truly believe that.

The amount of work is not fixed. It continues to grow. There's no doubt in my mind about that. However, the exponential growth of automation has the serious potential of reducing the need for humans to do work. We've already seen this in the farming industry and it is quickly spreading to other industries.

Anonymous said...


Sorry, but being poor with a cell phone is much more fun than being poor without.

I once did some thinking and decided if I could have a case of beer a week and high speed internet, I could live a pretty horrible existence alright.

Stagflationary Mark said...

For what it is worth, I'm one of the few people left in this country who doesn't have a cell phone yet.

I keep thinking I'll get one of those pay as you go phones for emergencies, someday.