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.

Update:

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.