These two headlines appeared side-by-side on Bloomberg’s main news page on Tuesday morning:
“Bank Jobs That Dodged the Crisis Now Face a Robot Dawn”
“Your AI Is Important to Us: Call Centers May Receive Bot Boost.”
If you only read one book over the next year, may I recommend Rise of the Robots, by Martin Ford. I’ve suffered through several other texts recently on inequality, automation, and the endgame for our current monetary experiment, and none have been able to bring all three themes together as Ford has done so cohesively with Robots. In particular, his perspective on the way inequality stifles an economy is especially illuminating in the context of recent intricate discussion of this topic here.
Frequent readers are aware of my concern that the magnitude of wealth and income inequality in developed economies has the potential to slow economic growth, especially when taken to the extreme. I make that statement objectively, saying nothing of the politics of redistribution. It’s clear to me that the math just doesn’t work when the economy becomes too skewed. (Equally, the math also does not work when the incentives to produce, invest, and innovate are taken away). In Oh Great Now This – Part II, we examined an arcane academic simulation that illustrates the slowdown in transactions in an economy as cash accumulates in the hands of those who were already endowed with wealth. Through repeated iterations, cash concentrates in successively fewer (and successively wealthier) agents, like a fractal, with each richer microcosm of the economy successively hollowed out. Essentially, holders of capital run out of consumers to drive their own continued wealth accumulation. In the real world, automation makes this problem worse, because technology is transitioning from a tool that workers use to enhance productivity, to an outright replacement for labor, and robots, after all, do not consume. This process is likely to accelerate as wages rise and technology cheapens.
Ford puts it like this: “markets are driven not just by aggregate dollars but also by unit demand. A single very wealthy person may buy a very nice car or perhaps even a dozen such cars. But he or she is not going to buy thousands of automobiles. The same is true for mobile phones, laptop computers, restaurant meals, cable TV subscriptions, mortgages, toothpaste, dental checkups, or any other consumer good or service you might imagine. In a mass-market economy, the distribution of purchasing power among consumers matters a great deal. Extreme income concentration among a tiny sliver of potential customers will ultimately threaten the viability of the markets that support these industries….
“What we call the economy is really the total value of all the goods and services produced and sold to someone. The economy can either produce enormous numbers of low and moderately-priced goods and services, or a much smaller number of very high value goods and services. The first scenario requires broad distribution of purchasing power; this is currently made possible by jobs. In the second scenario, it is unclear what products and services the economy could produce that would be valued so highly by the wealthy elite. Whatever these high-priced goods were, they would need to be consumed voraciously by the lucky few—otherwise the economy would not grow at all: it would contract.”
I do not believe developed economies can move away from mass-market consumer-driven growth, because democracy won’t allow it. While robots don’t consume, they also don’t vote, and clearly here in 2016 we’re starting to see the early signs of discontent among citizens who do vote. Some sort of society where supermajorities of the population work to support an economy consisting mostly of ultra-elite consumption is simply not plausible.
So, given we don’t need to worry about it happening, it should be ok to enjoy imagining that scenario as science fiction. Ford makes a passing reference to the movie Elysium in his text, but re-watching this movie after reading his book is a fascinating experience.
In an allegory for the present, writer/director Neill Blomkamp succeeds in envisioning and illustrating a world where indeed the economy is based on ultra-elite consumption of a small number of very high value items. Or really, consumption of mostly one item: a giant very expensive-looking space station, Elysium. The world’s wealthy families have fled Earth to this utopian habitat in orbit leaving the impoverished plebeians behind. Tellingly, the elite have been granted “citizenship,” effectively disenfranchising the masses and enabling their oppression. Vast armies of humanoid robots provide abusive law enforcement on poverty-stricken Earth, as well as many of the services in the economy. Matt Damon’s character holds one of the few remaining coveted jobs on Earth: working for a mega-corporation, Armadyne, building robots. Armadyne also built the space station, and builds most of the technology visible throughout the movie. This is an economy resting mostly on one company. But like the fractal depicted in the academic simulation, even this extremely top-heavy economy is susceptible to a further hollowing out of the small elite class; the owner of Armadyne and a powerful politician on Elysium plot a coup to take over the elite society of which they are a part, stripping it of any remaining vestige of morality.
Without disruption, inequality slowly intensifies, mathematically. However, the difficulty in imagining a realistic pathway which would culminate in an economy with such extreme skewness serves to highlight at least one of the challenges facing the developed markets currently: disruption will occur. Obviously the fabric of society breaks down far sooner than an Elysium-style endgame can arrive. Simple redistribution is probably not the answer either, as the shambolic stewardship of national resource wealth in Venezuela demonstrates, despite years of fiscal giveaways. Over the short-to-medium term, (fiscal) policy must focus on lifting broadly-inclusive productivity growth, and if that succeeds, the economy will have more flexibility for structural reform.