At last economists see the robot revolution. Here’s why they worry.

Summary:  When I first warned about the “robot revolution” (the 3rd industrial revolution) 3 years ago, I was one of a minority. Experts assured us it would produce quick benefits without much disruption (unlike the previous 2). Time has brought new evidence, and now concern has replaced confidence. Today we review the problem. The next few posts will consider solutions. {1st of 2 posts today.}

“An increase in the productivity of labour means nothing more than that the same capital creates the same value with less labour, or that less labour creates the same product with more capital.”

— Karl Marx’s “A Contribution to the Critique of Political Economy” (1857/58).

Robot Evolution

Matthew Yglesias gave a strong rebuttal to people blaming automation for the slow growth in jobs and wages since the recession ended. But it’s happening nonetheless, slowly but accelerating. People tend to underestimate short-term change, and over estimate it over the long term. But now people are noticing the drumbeat of announcements, as automation affects more jobs of all kinds. Even economists are doubting their easy confidence that the future must be like the past.

Previous posts list scores of examples. Every month brings more, such as …”The computer will see you now. A virtual shrink may sometimes be better than the real thing.” “Here come the autonomous robot security guards.”  Robots help deliver meals for patients.  “Eerily lifelike androids join staff at Tokyo tech museum.Journalists reporting the end of journalism as a profession,  “Watch out, coders — a robot may take your job, too.

The problem is structural on three levels, and just beginning. First there is the shift of rewards from labor to capital (those who own the machine), as we see in the workers’ falling share of GDP, and the rise in corporate profits as a percent of GDP.

The second structure factor: technology changes the distribution of income in many fields. We’re shifting to a winner-take-all economy, as explained in “Welcome To Extremistan! Please Check Your Career At The Door.” Excerpt:

You won’t be familiar with those terms if you haven’t read Nassim Taleb’s brilliant “The Black Swan“, which you should. Here’s a primer. Briefly, for our purposes: the remuneration for Mediocristan activities is fixed by boundary constraints — the number of hours worked, the number of clients aided, the number of widgets manufactured, etc. By contrast, the remuneration for Extremistan activities — basketball player, musician, messaging-app co-founder — can scale to an arbitrary amount …

…but only for a tiny fraction of those engaged in the activity. Most would-be pro athletes never make it. Most artists never get to quit their day job. Most startups fail. Few people engaged in Extremistan activities ever become successful enough to start referring to what they’re doing as a job.

I submit that technology is slowly dragging us all, economically, away from Mediocristan and into Extremistan. Consider college professors: Khan Academy, Udacity, Coursera, edX, etc, allow individual professors to teach hundreds of thousands of students, while legions of adjuncts live in poverty. Consider lawyers: it may be “more cost effective and accurate to utilize software tools to perform many types of legal work” — but the very best attorneys will remain incredibly valuable and expensive.

Consider even doctors: The New York Times warns: “Health care jobs may be safe now, but our sense of what’s safe has been consistently belied by the impact of our technological progress.” Valley legend Vinod Khosla has been arguing for years that expert systems can replace 80% of what doctors do … but at the same time, tech could greatly expand the remit of the best.

It’s not hard to imagine — whisper it — even software engineering moving into Extremistan. Already, everyone wants the so-called “A-players,” but has only lukewarm interest in second-tier software talent, much less the third tier. The best companies hire the best engineers, who, by definition, are a minority; the best engineers work at, or launch, the best companies; technology increasingly allows the best companies to dominate their markets like never before. Extrapolate that twenty years into the future, and what do you get?

This won’t happen to everyone everywhere, obviously — I’m talking about proportions, not the entire population — but I expect the shift will be significant enough to have enormous consequences. While technology will indeed, as Andreessen points out, create new professions and new fields of human endeavour, the fact that technology is an ever-more-powerful force multiplier implies that those fields will increasingly exist in Extremistan, and be partitioned according to power laws; a few will be enormously rewarded, while the majority scrap for crumbs.

I’ve been writing about technological unemployment for some years now, and whenever I do, commenters always chirp, “we just need everyone to become an entrepreneur!” But of course entrepreneurs have always lived in Extremistan … and most of them fail. Everyone who calls for a future of greater entrepreneurship is implicitly calling for us to move ever deeper into Extremistan.

Was Marx right?

Third, there is the outright loss of jobs and reduction in wages, as described in “The Rise of Turing Robots Leads to a Fall in Wages“, Dagobert Brito and Robert Curl, Newsweek, 25 February 2015 — Excerpt:

Increasing the number of jobs for humans will mitigate the problem of inequality in the distribution of income only if these new jobs have three properties: (1) they must be jobs that a computer cannot perform; (2) they must require skills that are scarce in the human population; and (3) the new jobs must include a substantial fraction of the population. Increasing the number of jobs, such as supermarket checkers, that do not have a scarce skill requirement will not solve the problem.

A large fraction of the population may have skills that a computer cannot perform, but these skills may be common to a large fraction of the population. Wages are set at the margin, and if at the margin humans are competing with robots, the cost of robot labor will be determining the human wage rate.

The argument is slightly more complicated. Computers are replacing humans with skill sets that were relatively well paid, so the competition between human workers and automation is not at bottom-wage levels. These displaced workers are forced to find lower-paying jobs, thereby lowering wages for all workers with whom they compete.

For high-paying jobs to return, enough human jobs must be created to employ the entire labor force so that at the margin humans are not in competition with robots. The Catch-22 of this proposition is that if the jobs are high paying, there are incentives to develop the technology so they can be performed by Turing robots.

The limits of computer technology or human ingenuity have not been found.

These factors are technological and economic in nature, but fixing them — distributing the bounty produced by our new machines is political challenge no larger than those we have surmounted in the past.

“Therefore, mankind always sets itself only such tasks as it can solve; since, looking at the matter more closely, we will always find that the task itself arises only when the material conditions necessary for its solution already exist or are at least in the process of formation.”

–- Preface to A Contribution to the Critique of Political Economy by Karl Marx (1859).

Other posts in this series

  1. A graph showing the end of America as we know it. – The gap between growth in wages & GDP.
  2. At last economists see the robot revolution. Here’s why they worry.
  3. Automation hits the professions. Most remain delusionally confident, so far.
  4. Education, the glittering but fake solution to automation.
  5. Automation is a race with the Red Queen. Let’s play a different game & win.

For More Information

I recommend these books about the new industrial revolution: Martin Ford’s Rise of the Robots: Technology and the Threat of a Jobless Future (2015) and The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (2014) by Eric and Andrew McAfee.
Our world in their hands.
See all posts about these topics: The 3rd Industrial Revolution has begun. and About inequality & social mobility. Posts of special interest:

  1. Krugman discovers the Robot Revolution!.
  2. How do we respond to the Robot Revolution?
  3. 2012: the year people realized the robots are coming.
  4. Journalists warn us about the coming revolution, but we don’t listen.
  5. The next industrial revolution starts. Beware the Pied Pipers who lull us into passivity.

27 thoughts on “At last economists see the robot revolution. Here’s why they worry.

  1. “distributing the bounty produced by our new machines is political challenge no larger than those we have surmounted in the past.”

    Could you make it a bit more explicit how you measured the political challenges of those various socio-economic stages of human history to arrive at such a firm conclusion?

    I do not disagree with the rest of the post though, the third (robotic-AI-automation revolution) is going to have a profound, disruptive and, let us skip euphemisms, cataclysmic effect on societies. It will be a rough ride with many more losers than winners in the first 3 to 5 generations (if history is any guide).

    1. guest,

      Touché! I made a careful estimate of the magnitude of our past challenges by — making a wild guess. But it still seems roughly valid. Here’s my list of “wins”.

      1. The world has almost entirely rid itself of slavery (here’s the honor roll, by date; the US appears near the bottom). Mostly without civil war (again the US is one of the exceptions).
      2. We managed the difficult transitions of the first two industrial revolutions (these divisions are somewhat arbitrary).
      3. The western nations have managed, more or less, the transition from autocracy to democracy — most with little violence.
      4. We managed a fantastic solution to the last of the great tribal wars (WWI – WWII, the period Nietzsche predicted), although since 9/11 we’re dismantling them.
      5. The colonies of the western nations were freed with less violence than history would have suggested likely (a few brutal wars, many small wars).
  2. Two previous industrial revolutions were much less of a problem then robot revolution since at those times there was still a lot of need for material needs (better housing, food, transportation), so those revolutions were contributing to fullfilling material needs of large number of people and new jobs apeared. Material needs are largely satisfied in developed world, now there is transformation toward satisfying psychological needs of large swaths of population, like entertainment, knowledge, (meaning of life-maybe :-)).

    But there is no clear developement of compensation mechanisms for such jobs, that is where the problem is. Many are posting on youtube which is satisfying entertainment need, but who can live off of it – only small number of people. Internet is free source of knowledge, free of compensation for those that volunterily contribute to database of knowledge in small ammounts. There is everlarger need for entertaining (human touch) old and single people that is not going to have enough funds to pay for to those that would want to entertain them.

    There is where future can open large number of jobs while robots are doing unwanted labor. Socializing is opening as unwanted chore due to people hanging on smartphones and ignoring human next to them.
    Socializing is the future job creator, it is going to be chargable and then maybe comodified.

    To do that, state will have to create market for for socializing, or there will be, due to chronic unemployment of more then half of working age population that will struggle to change the system and enjoy livable and decent distribution of almost free robot produced goods. Sure trough violent revolution.

    State can easilly solve the economic part of the problem of robot production and services that becomes almost free in price, politic is unsolvable part of the solution as you pointed in the post. The problem carries the solution within it.

    1. Jordan.

      “since at those times there was still a lot of need for material needs (better housing, food, transportation), so those revolutions were contributing to fullfilling material needs of large number of people and new jobs apeared. Material needs are largely satisfied in developed world”

      I think you need to get out more. That’s not true in the US. It’s not remotely true in the rest of the developed world. And, as you correctly imply, there is massive unmet needs in the developing world — which could fuel increased production in the developing world for generations.

      The problem is not at all the plateauing of production due to insufficient demand. Rather its the increased production from automated mechanisms (i.e., increased productivity from capital), which does not generate income for the bottom 90%+ of the population. It’s a question of distribution.

  3. “The problem is not at all the plateauing of production due to insufficient demand. Rather its the increased production from automated mechanisms (i.e., increased productivity from capital), which does not generate income for the bottom 90%+ of the population. It’s a question of distribution.”

    I am confused. Isn’t that exactly a description of insuficient demand? Wrong distribution is the insuficient demand. Increase of credit is also the source of demand.

    1. Jordan,

      Insufficent demand is not a useful description because it does not tell us what’s responsible for the problem or point to appropriate responses.

      You give a specific cause of insufficient demand: fulfilled material needs. That’s not accurate.

      There is ample evidence that we have distributional problems, and they’re getting worse.

    2. Thank you for you clear and pointy criticism. Now i can understand where i did not express myself clearly. It is a welcome change from just insulting as before. Thanks, again.

      What i meant is that what aristocracy have enjoyed is what poor and less rich craved was offering ideas on how to provide more jobs during industrial revolutions that due to productivity was producing more with less labor. This craving was idea source to offer products to poorer much cheaply that could substitute what aristocracy have. So, today most of what aristocracy used to enjoy solely is also afordable among poorer now, of much lesser quality and durability, but still the idea of what to produce came from aristocracy. Only thing left is airplane, so the talk is about flying cars which could become affordable to masses.
      That is what i meant by material needs that two previous industrial revolution advanced into to provide to commoners. It is giving ideas on what to produce next. So, what todays aristocracy have that comoners do not? Airplaines and psychological satisfaction from power over others. Power can not be substituted with anything cheaper as in previous industrial revolutions.

      But, entertainment/socializing can be the source of ideas on future jobs. That is only thing left. And flying cars :-)

      I was not talking about AD as the reason previous industrial revolutions have created more jobs then destroyed, but about having ideas where to go next in creating those new jobs, hence saying material needs.

    3. Jordan,

      “So, what todays aristocracy have that comoners do not? airplanes and psychological satisfaction”

      GO to the poorer sections of your town and ask. Or to the poorer parts of America. People living in trailer parks, carefully regulating the heat during the winter, counting pennies at the supermarket. Or go to the poorer parts of the developed world, where America’s poor look rich.

      They want heat and air conditioning, health care (including dental care), larger homes, and the material goods it appears you take for granted. The demand for material goods has not saited, and the difference in consumption between rich and poor is not just “airplanes and psychological satisfaction”.

      You need to get out more. Volunteer to help the poor — big brothers, salvation army, boy scouts, etc. It will open your eyes.

    4. FM Editor. Why do you keep talking about problems of distribution, wasn’t your post about robot revolution. I keep talking about robot revolution problem. You can not even grasp what i am talking about, i am so far ahead of you that you can not comprehend ideas i am writing about.

    5. Jordan,

      Almost everybody writing about industrial revolutions (past and present) describes them as a problem of distribution. That is because the problem is not in the machines themselves — increasing productivity is a central driver of rising social income — but in distributing the bounty they produce.

      I have written several dozen posts quoting various experts on these matters who explain this in great detail.

      It is basic social sciences — political science and economics — discussed in intro texts. Also found in intro level courses of western history.

  4. There is another and even more imminent revolution that will collapse western societies,
    the sebot revolution, it will be a black swan.
    Lets assume that in 15 years there is sexbots that can replace an 7.6SMV woman
    What would that do to to western societies and their economies?

    1. Xavier,

      I totally agree. They are coming. Even low fidelity sexbots will change the world.

      Look at the immense use of sex chat lines, online sex “models”, and porn porn porn. Guys will accept quite low level substitutes for women if the alternatives are either too expensive, too difficult, or too unappealing.

      New tech is often driven by sex. Mass long distance by the pay by the minute 900# phone lines. Pictures of girls were 80% of traffic on the early videotext systems (I remember downloading picture at 800 baud, taking minutes for what today is a low-res picture).

      Sex is a major factor today in the use of video games. For example see the League of Angels game preview (probably NSFW):

      http://youtu.be/UpGrIxwG3Kw

  5. More interestingly, Non-Western Societies like say China, could make that technology happen without their society collapsing…

  6. What does that mean for the US? (given that this is a Usaian blog and I want to stay on subject more or less)

    For the US, sexbots would mean a rapid dip into sub-replacement , nothing subtle, a 1.5-3% sub-replacement annual acceleration, that would collapse the social security system, 35% of the discretionary (BS) spending in the US, taking it into D2. Yes, cancel 40% off US marriages, cancel 35% discretionary spending (married female spending).

  7. Considering myself a Feminist, I would like to offer you this video gentlemen of the FM blog:

    Jane McGonigal: Gaming can make a better world. Yes , it s is a TED talk of 20 minutes, by a woman, it is very good. That said, Jane can be pretty retarded once in a while, just like any of us.

  8. Bonus Track: Vanguard, From Wikipedia: The vanguard (also called the advance guard) is the leading part of an advancing military formation. It has a number of functions, including seeking out the enemy and securing ground in advance of the main force.

    The vanguard derives from the traditional division of a medieval army into three battles or wards; the Van, the Main (or Middle), and Rear. The term Vanguard originates with the medieval French avant-garde, i.e. the ward in front. The vanguard would lead the line of march and would deploy first on the field of battle, either in front of the other wards or to the right if they stood in line.

    The makeup of the vanguard of a fifteenth-century Burgundian army is a typical example. This consisted of a contingent of foreriders, from whom a forward detachment of scouts was drawn, the main body of the vanguard, in which there traveled civil officials and trumpeters to carry messages and summon the surrender of towns and castles, and a body of workmen under the direction of the Master of Artillery whose job it was to clear obstacles which would obstruct the baggage and artillery travelling with the main army.

    In an English force of the period, the foreriders of the vanguard would be accompanied by the harbingers, whose job was to locate lodgings for the army for the following night.

  9. Another very interesting discussion. Some comments:
    1) The automation of academic jobs WILL also impact science because most people can’t make it on only ‘soft money’.
    2) “Extremistan” is far from meritocratic- look at Microsoft!
    3) According to Picketty a greater danger is pure inheritance. Look at the Waltons.

    1. socialbill,

      All great points!

      (1) It’s become fashionable to mock large online courses, much as people mocked early cars and airplanes. But the eventual impact will be hedge as they’re improved.

      (2) Great point about “meritocracy” of extremistan! Look at how many actors and musicians are children of successful artists. And the great universities are reverting to their role as engines of social privilege. For example, see “The Academy’s Dirty Secret: An astonishingly small number of elite universities produce an overwhelming number of America’s professors.”

      (3) This discussion is about income inequality. But, as you note, wealth inequality is an even more powerful social force.

  10. online courses.
    i suspect “cheap” books when printing press was invented were mocked as a ‘poor substitute for genuine education’.

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