Tag Archives: automation

Look at the retail sector and see the power of the new industrial revolution

Summary: Economists and financial experts are baffled by events because their minds know only the past and so do not see the new industrial revolution at work, slowly in its early days. Look at the retail sector. What explains unusually high corporate profits, rapid growth in sales — along with slow growth in jobs and wages? Automation; better methods and new tech. These are just the first touches before we encounter the giant wave that lies ahead.

Retail Technology

In this eighth year of growth since the great recession (worst since the 1930s), many experts struggle to explain the US economy’s slow growth — its failure to take off and return to normal flight. The retail sector shows the slow growth, and a possible cause. For over two decades retail sales have been growing faster than retail jobs, and jobs faster than wages. These trends are accelerating. Here are the total changes for the retail sector from January 1992 (the earliest data) through March 2016.

  • Sales: up 167% ($4.7 trillion, 26% of GDP).
  • Jobs: up 24% (16 million, 7% of non-farm jobs).
  • Real wages: +0.9% (avg hourly wages of production & non-supervisory workers).

The obvious causes are better methods and new technology. The two are mutually re-enforcing, and still in the early stages. McDonald’s is automating order-taking, cutting costs and increasing customer satisfaction. Bossa Nova’s retail robots stock store’s shelves. And a thousand other innovations are made, large and small, every month.

Now for the worse news. These numbers are for the legacy retail stores. The stores of the future are online. Since January 1992 their sales have risen 550%, but they have added only 30% more workers. They are slowly destroying much of the legacy retail industry. Eventually retail employment will tip over and shrink.

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Why a guaranteed minimum income won’t protect us from the automation wave

Summary: My post A guaranteed minimum income: faux solution for the new industrial revolution sparked discussions in the comments and on Twitter, with some powerful insights and incisive questions. Here are answers to a few of the questions raised.

Money from Uncle Sam

A guaranteed minimum income (GMI) is a powerful tool for fighting poverty. As such it has been implemented in many nations (in different forms) and proven to work. My previous post said that it would not work if expanded to offset the job destruction coming from the new industrial revolution. That is, it could provide subsistence level income to the unemployed (preventing mass poverty) — but little more, with ill effects.

  • Automation might lead to a massive increase in the number of people collecting subsistence-level GMI. While preventing suffering, it would help create a two-tier society of rich and proles — as the productivity gains from the new industrial revolution went to the owners of the machines. We could end up living in the world of 1800, a high-tech Pride & Prejudice.
  • Above subsistence-level GMI would reduce people’s willingness to work at many of the boring, dangerous, or unpleasant jobs that pay low wages — either destroying them or boosting their wages (and so accelerate their automation) — either way boosting the program’s cost.
  • It would be politically difficult to implement an above subsistence level GMI. There is support for fighting poverty, although the decades-long rollback of welfare in America shows the limits are quickly reached. But there is today little cultural basis for large redistributive income transfers.

Objections were raised to this analysis. A brief note follows about each of these complex issues, just sketches of an opinion.

  1. Can we afford a high GMI?
  2. The GMI is a transitional step, followed by more radical redistributive measures.
  3. Is a high GMI is politically feasible?
  4. How would a large class of idle people affect society?

(1) Can we afford a high GMI?

Let’s run the math. The Federal government spends $2.2 trillion on social security, Medicare, and welfare benefits. State and local governments spend $0.688 trillion ($489B on Medicaid and $199B on welfare). Total: $2.9 trillion. That’s paid for by taxes which are on the low end of the post-WWII range (lower than those of most of our peers), with a small deficit (~3-5%) — which also fund a monstrous military/intel budget ($800 – $1T, depending on definition — almost half of total world spending).

Assume the GMI replaces the existing welfare and social security system (probably more cheaply). Assume a high GMI with an average cost per household of $40 thousand/year. That assumes a higher benefit since a GMI would supplement, not replace, the wages for many (most?) people on it. On the other hand, the program would probably have to provide some form of medical care coverage. For comparison, the 40th percentile of household income is $41 thousand; a $15/hour wage at 40 hours/week yields $31 thousand/year.

Under these complex assumptions each trillion dollars spent brings very roughly another 25 million people on the GMI “dole”, equivalent to 16% of the current working population (151 million), with a loss of their income taxes. We probably can afford to spend an added trillion dollars per year if military spending is reduced and taxes are increased (current GDP is $18 trillion). That would take the percent of Americans employed very approximately down to near the 1960 low (note: the graph double counts the part-time reservists with jobs, roughly 800 thousand).

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Matthew Yglesias tells us not to worry about the new industrial revolution

Summary: The new industrial revolution has begun, yet we have not yet begun to prepare. An article by Matthew Yglesias, neo-lib story-teller extraordinaire, shows why. He explains that faith-based economics assures us all will work out for the best.

Industrial revolution

 

Last week I posted Well-meant minimum wage increases will accelerate automation. On the same day Matthew Yglesias posted “Will minimum wage hikes lead to a huge boost in automation? Only if we’re lucky.” at VOX. He provides an unusually clear example of liberals’ love of just-so stories to explain the world in a pleasing fashion — much like the follies of conservatives that liberals (correctly) condemn (e.g., Megan McArdle).

Yglesias explains the new industrial revolution in simple and non-threatening terms. No need to worry, let alone act, since the experts are in control (it’s the neoliberals’ mantra). The opening states his thesis.

“…one major line of criticism from outlets like the Wall Street Journal editorial page and Forbes’s Tim Worstall is that big increases in pay floors only lead to job loss via automation. Both critics point to initiatives at McDonald’s and Wendy’s to automate more of the service process, and warn that robots, rather than workers, will be the real winners if liberals succeed in boosting minimum pay.

“This is doubly wrong. On the one hand, there’s little guarantee that increased minimum wages really will increase the pace at which labor-saving technology is developed. On the other hand, there’s no reason to think this would be a bad scenario.”

To draw these confident conclusions he closes his eyes and makes stuff up. This is a common response to the new industrial revolution, one large reason we are so poorly prepared for its obvious effects. Yglesias supports his first assertion by saying…

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