Like many people, I long worried about the specter of technological unemployment – as machines get smarter and gradually can do the jobs that people do, will we reach a point where machines can do everything people can do?
If and when that happens, we may have a paradise of abundance – machines will make everything we want, without any people needing to work.
But at the same time, how will people get money to buy these things?
I no longer think that’s going to be a problem.
Last week’s Economist has an excellent report on “The return of the machinery question”, which examines the problem from a historical perspective. People, after all, have been thinking about this problem since the start of the industrial revolution.
Despite all the hand-wringing, the economy always seems to generate more jobs than automation displaces.
Now I understand why (others have understood for a long time).
I’ll explain with a simplified economic model.
LIMITED STUFF-MAKING ABILITY
At any given time, the world (or national) economy has the ability to produce a certain amount of stuff. Food, clothing, houses, cars, entertainment, etc. – all the things we humans want.
How much stuff we can produce at any given time depends on:
- Labor: How many people exist (each has hands and brain)
- Capital: How many machines, factories, buildings, etc. we’ve accumulated. How much education people have received, etc.
- Resources: How much raw materials we can easily get at – metals, chemicals, energy, land, etc.
- Technology: The ways we know to do things and use the things we have.
Of course how well we use these things matters – we can run factories 24×7 or only 8 hours/day. We can have rules that make us waste time and materials, or incent people to be efficient. We can work long hours, or take lots of vacations.
And over time how much of these things we have changes – population can grow or shrink, resources can be discovered or run out, and we can discover new ways to do things that are better.
But, still, there are limits. At any given time, we can only produce some given amount of stuff.
Also at any given time, there is a (again, roughly) fixed amount of money in the world.
Sure, we can print more, but that doesn’t help. If we can make a billion stuffs each day, and there are a billion dollars of money, then the billion dollars will buy all the stuffs, so 1 stuff for each dollar.
(I said this was simplified.)
But if we print another billion dollars, that doesn’t help. Now there are 2 billion dollars, but only 1 billion stuffs each day. So you need 2 dollars to buy each stuff. (This is inflation.)
MONEY CAN ONLY BE SPENT ON PEOPLE
When someone buys something, they give money to some person.
Yes, you can buy a building, which is not a person. But to buy it, you give money to a person (who owned it).
The same is true with everything – whether you’re buying labor or capital or resources or technology – the money goes to people.
There’s no place else it can go, except to people.
NOW INTRODUCE ROBOTS
So, we can make a given amount of stuff, and the given amount of money will buy that stuff.
And money can only be spent on people.
Now we introduce lots of robots that can do most of the jobs that people do. The robots are cheaper to use than humans, so they get used instead of people.
So now there are people doing nothing, who used to be making stuff.
I just said “the robots are cheaper”. This is key.
Let’s simplify some more and assume we’re still making the same amount of stuff (actually we’ll be making more, which makes things better, but let’s ignore that for now).
So we’re making the same amount of stuff, but the robots are cheaper. That means somebody has extra money left over (probably whoever is using the robots, but that’s not important, as we shall see).
Same amount of stuff. Extra money left over. Which can only be spent on people.
The extra money will eventually get spent.
If it’s spent on stuff made by robots, there is still extra money left over. Because robots don’t get paid, only people do.
Yes, robots cost money, but that money is paid to people – the people who make or own them.
So there is still extra money around. Held by people. They can spend it on more robot stuff as much as they like, but that doesn’t use up the money – it just moves it around to other people.
And since we’re already making as much stuff as before, that means it has to be spent on new stuff made by people, that wasn’t being made before. That’s the only place it can be spent.
So now we’re making more stuff than before. And that new stuff was made by people. And the only people available – who aren’t already busy making the old stuff – are the ones who lost their jobs to robots.
So those are the people who get hired to make the new stuff.
That’s why despite 200 years of worries, technology has never caused mass unemployment.
Because it can’t. There is only so much money around at a given time. If money is saved by cheaper robots, that money gets spent on people.
(Yes, technology has caused, and will cause in the future, temporary problems as people switch jobs. That’s different.)
Finally – Since the robots are cheaper, prices for the stuff they make go down. Which means people can afford to buy more of them.
Which means that people actually get wealthier, in terms of how much stuff they can afford to buy. (They don’t necessarily have more money – they might have more or less – but they can afford more stuff.)
They can’t buy more of the stuff made by people, but they can buy more of the stuff made by robots. Which means stuff made by people is more expensive – more valuable – than stuff made by robots.
Which means the wages of the people who make stuff has gone up, in terms of what the money you pay them will buy.
Up, not down.
Technology makes wages rise. Not decline. Rise.
And that is why we have nice things today, like houses, and medicine, and clean rivers, and airliners, and indoor toilets, and the Internet, that our ancestors with little technology didn’t have.
March 29th, 2015
Why does almost everyone (even me) feel disgust at disaster profiteering?
On the face of it, that’s the market at work – big needs bring high prices, which bring lots of supply, right? It seems (looking at it economically, not emotionally) the quickest way to get help to those in need. But it disgusts me, too.
My hypothesis is that people instinctively fear that profiteers will engineer a crisis if they can make a profit from it. To prevent that, there’s social opprobrium for profiting from a crisis.
Just a thought.
March 29th, 2015
This is a letter to the editor in response to “How to Break the Internet” in the May 2015 issue of Reason magazine.
There are many legitimate criticisms that may be made of the FCC’s approach to net neutrality. Unfortunately, Geoff Manne and R. Ben Sperry do a poor job of making any of them in their May article.
While I agree that Title II regulation is the wrong approach, net neutrality is an attempt to solve a real problem that requires solution.
What Manne and Sperry miss are two points that have gradually become clear to those of us who have worked on these technologies over the last 30 years:
1 – Internet bandwidth is not, in practical terms, a scarce resource. In theory of course it is scarce, just as the amount of air we can breathe is limited by what Earth’s atmosphere holds. But in practical terms, we are not going to run out.
This took a long, long time for technologists to understand – a huge amount of network engineering development and standardization has focused on bandwidth prioritization and allocation mechanisms.
Almost none of which are used in practice. Because it turns out that it is almost always cheaper to simply add more network capacity (“overprovision”), than it is to implement mechanisms to allocate bandwidth as a “scarce resource”.
2 – Contra Manne and Sperry, at least in the US, Internet service provision is not a competitive industry, but a quasi-monopolistic one. This (as Reason should know) is mainly due to regulations at the state and local level. Having 2 or 3 regulated firms offering service in a given area is not the same as free entry into a market.
If truly free competition in the ISP business were allowed, there would be no need for “net neutrality”; competitive forces would solve the problem.
But we don’t have that. I’d much rather see Federal legislation that truly deregulates the ISP business (taking monopoly power away from states and localities). Until that happens, ISPs really do have quasi-monopolistic power.
ISP attempts to tax content providers based on “scarce resource” arguments are spurious excuses for a money and power grab that is in fact simply rent seeking.
As long as that situation is allowed to persist, we do need some limits on how ISPs may abuse that power.
August 10th, 2014
Google sells the use of user information.
It is not the same thing.
Selling “Joe Blow works at Acme Corp and shops for sex dolls” is selling user information.
Selling “I will advertize your sex dolls to people who shop for them” is selling the use of the information. Only Google knows you are Joe Blow at Acme with an interest in sex dolls. The advertiser does not; they just get a service that makes use of Google’s knowledge.
Yes, Google knows your stuff. Yes, you have to trust them with it.
But they don’t have to – and don’t – sell your info in order to profit from it.
July 14th, 2014
…but capitalism doesn’t have to.
The poor popular reputation of free markets may be connected to the prevalence of deceptive advertising, especially for consumer goods and services.
Spend just an hour watching TV after midnight, and you’ll be bombarded with ads for penny auctions, infant life insurance, sports betting (you’ll win thousands), anti-impotence drugs (or is it penis-lengthening? They’re never clear.), etc.
As Michael Caldara said in the first link above, “we don’t hear calls to regulate infomercials, get-rich-quick seminars, and fad diets”, but – perhaps we should?
I’d prefer vigorous enforcement against common-law fraud, but (in my humble opinion; don’t sue me,) these ads intentionally mislead the ignorant and incompetent. That’s why they air when most successful people are asleep.
To many people this gives the impression that capitalism is little more than legalized theft and deceit. A crackdown on these obvious (to me, anyway) cases of fraudulent advertising might go a long way toward improving the reputation of both government and business. Markets only work to society’s benefit, not to enrich those with the least scruples, when the basic rules of honest dealing are enforced.
If that’s too hard, another path would be an organization of ethical businesses that observe a code of honesty (complete with a membership seal).
September 22nd, 2013
I read today that Pope Francis thinks the global economic system shouldn’t be based on “a god called money”, and that “Men and women have to be at the centre (of an economic system) as God wants, not money.”
Maybe he’s right. Our economic system should be about people – that’s who it is supposed to be for.
We should have an economic system that encourages people to help each other out, and voluntarily give one another the things they need. One that works without threats and coercion, and which makes people want to be nice and helpful to each other.
Here’s an idea I’ll call “smile economics” – it’s based on an economy of “smiles”:
Each time someone does something nice for a stranger (helps them out, gives them something they need, etc.), that person should give “smiles” in return – to show their appreciation of the nice thing. It might be a lot of “smiles”, or just a few, depending on how big the favor was.
(This would be mostly for use with strangers – people tend to be naturally nice to their friends and relatives.)
The people who accumulate lots of “smiles” would be those who are especially nice and helpful to others. Of course most people want to be perceived as nice, so wanting to have lots of “smiles” would act as a social incentive to encourage everyone to be nice to each other.
Now, when someone really wants a lot of help or something from other people, they could offer a lot of “smiles” for that help. Other people would know that they can really help someone a lot, if that person is offering a lot of “smiles” for the help. Because people want “smiles”, and everyone would know that others wouldn’t offer to give away many “smiles” unless they really wanted the help very much.
Here is the best part – even people who are not naturally nice – selfish people – would want to be nice, in order to get “smiles”.
Why? It’s true that nasty people often don’t care what people think about them. But in order to get help and other things they want from strangers, they’d need to offer “smiles”. Probably they’d have to offer even more “smiles” than nice people, because people don’t generally want to help nasty people. So, in the “smile economy”, nasty people would have to to be nice to others, in order to get the “smiles” they need to get the things they selfishly want for themselves. (Because, in this system, they can’t just buy what they want with money – they need “smiles”.)
“Smile economics” actually makes nasty people want to act nice, in order to satisfy their own selfish desires. It actually makes their own selfish interest drive them to be nice to other people! How about that!?
Of course, to do the most good, the system should be utterly universal and work between strangers of all races, religions, and nations, no matter where they are. We want to encourage people to be nice to one another no matter who they are. Anyone who said, for example, that someone in Brazil shouldn’t do nice things for someone in China (or any other pair of countries) would be seen as evil – because wanting people not to be nice to each other is evil. Nobody should ever tell anyone not to be nice to one another.
What do you think?
Addendum – A few people who have read this think it won’t work because people can just make fake “smiles” all the the time (as many as they want) in order to get things. They have a point. So let’s say that everybody gets a certain limited number of “smiles” to spend – maybe eight or ten each day (they can save them as long as they like).
Addendum #2 – In case it isn’t clear, it doesn’t need to be “smiles” that people give as a reward. It could be anything that’s limited in number which other people value – for example pretty marbles (if they’re hard to get), or shiny rocks, or little pieces of gold. Or what the Spanish used to call “pesos de ocho” (pieces of eight). Or Greek drachma, Pakistani rupees, or Thai baht. Japanese Yen would work. Or Bitcoins. I suppose those all have their pros and cons, but it doesn’t really matter.
You get the idea now, I’m sure. Pope Francis is going to love this idea!!
December 18th, 2012
From Techdirt, 2012-12-17:
China Tries To Block Encrypted Traffic
from the collapsing-the-tunnels dept
During the SOPA fight, at one point, we brought up the fact that increases in encryption were going to make most of the bill meaningless and ineffective in the long run, someone closely involved in trying to make SOPA a reality said that this wasn’t a problem because the next bill he was working on is one that would ban encryption. This, of course, was pure bluster and hyperbole from someone who was apparently both unfamiliar with the history of fights over encryption in the US, the value and importance of encryption for all sorts of important internet activities (hello online banking!), as well as the simple fact that “banning” encryption isn’t quite as easy as you might think. Still, for a guide on one attempt, that individual might want to take a look over at China, where VPN usage has become quite common to get around the Great Firewall. In response, it appears that some ISPs are now looking to block traffic that they believe is going through encrypted means.
A number of companies providing “virtual private network” (VPN) services to users in China say the new system is able to “learn, discover and block” the encrypted communications methods used by a number of different VPN systems.
China Unicom, one of the biggest telecoms providers in the country, is now killing connections where a VPN is detected, according to one company with a number of users in China.
This is the culmination of at least 35 years of official concern about the effects of personal computers.
I’m old enough to remember. As soon as computers became affordable to individuals in the late 1970s there was talk about “licensing” computer users. Talking Heads even wrote a song about it (Life During Wartime).
The good guys won, the bad guys lost.
Then, even before the Web, we had the Clipper chip. The EFF was created in response. And again the good guys won.
Then we had the CDA, and then CDA2. And again, the bad guys lost and the lovers of liberty won.
In the West, the war is mostly over (yet eternal vigilance remains the price of liberty).
Not so in the rest of the world, as last week’s ITU conference in Dubai demonstrated.
I say – let them try it. Let them lock down all the VPNs, shut off all the traffic they can’t parse. Let’s have the knock-down, drag-out fight between the hackers and the suits.
Stewart Brand was right. Information wants to be free. I know math. I know about steganography. I know about economics.
I know who will win.
October 24th, 2012
…at least if you’re Google.
The interesting site Terms of Service; Didn’t Read gives Google a thumbs-down because “Google can use your content for all their existing and future services”.
I don’t think a thumbs-down is really fair here – I mean, that’s the whole point of Google.
Google is a service that gives out free answers in exchange for valuable questions.
Answers are worthless to Google (though not to you) because Google already knows those answers. But it doesn’t know your questions. So the questions are valuable (to Google, not to you). Because Google learns something from every question.
When you start typing a search into Google and it suggests searches based on what other people have searched for, that’s using your private information (your search history) to help other people. They’re not giving away any of your personal information (nobody but Google knows what you searched for or when), but they are using your information.
Google gets lots of useful information from the questions that people ask it. It uses that information to offer valuable services (like search suggestions) to other people (and to you), that they make money from (mostly by selling advertising).
That’s not a bad thing. It’s the only way to do many of the amazing, useful, and free things that Google does. I’m perfectly fine with it, but you have to more-or-less trust Google to stick to their promise to keep your private info private.
I think Google does a lot more of this than most people suspect.
When you’re driving and using Google Map to navigate, you’re getting free maps and directions. But Google is getting real-time data from you about how much traffic is on that road, and how fast it’s moving.
When you search for information on flu symptoms, Google learns something about flu trends in your area.
Sometimes I ask Google a question using voice recognition and it doesn’t understand. After a couple of tries, I type in the query. I’ve just taught Google what I was saying – next time it’s much more likely to understand.
When you use GMail, Google learns about patterns of world commerce and communication, who is connected to who, who is awake at what time of day, etc. Even if it doesn’t read the contents of the mail.
When you search for a product, Google learns about demand in that market, by location and time of day and demographics (it knows a lot about you and your other interests).
Google learns from our questions – answers are the price Google pays for them.
May 18th, 2011
[Hint: You can get around The Economist‘s paywall by linking via Google – just put the URL into Google, then click on Google’s link to the article.]
Last month there was a story about various dirigiste steps the Japanese government might take to deal with the post-tsunami electricity shortage in The Economist (of all places). They published my response in the May 14 issue, again with some unfortunate editing (see “The market for electricity”, halfway down the page). Here is my original version:
Date: Sat, 07 May 2011 19:06:22 -0400
To: letters [at] economist.com
From: Dave <dave [at] mugwumpery.com>
Subject: Or, you could let the market work
I agree with your assessment (“A cloud with a green lining”, 30 April) that Japan’s government has many options to deal with the electricity shortage resulting from the earthquake and tsunami. As you say, they could encourage solar power, subsidize LED lighting, push for batteries to shift demand away from peaks, etc.
Alternatively, they could do nothing at all, and allow electricity users to bid up the price of power until demand drops to meet the limited supply. The resulting high price would by itself encourage alternate sources of supply and force conservation without any need for “publicity” or nagging. More, it would encourage people to find clever ways to increase supply and reduce demand that the mandarins in Tokyo might never have thought of.
And all without costing taxpayers a penny, or feeding subsidies to the politically-connected.
The sad thing here (on top of the greater tragedy of the earthquake itself) is the lost opportunity for entrepreneurs to come up with efficient and innovative solutions to address the electricity situation.
But the market works even when governments attempt to suppress it – just less efficiently. If the Japanese government decides to dole out subsidies and propaganda instead of letting the electricity price rise, that won’t end the shortage. Rolling blackouts will still cause electricity consumers to increase their own electricity supplies, and adapt their demand to the blackouts, by buying their own generators, investing in battery storage to supply power during down-times, etc. But there will be a lot less incentive to cut consumption, since cheap power will still be available in bursts.
Eventually the Japanese electric grid will be rebuilt to handle the demand, but in the meantime adaptation will be slower, and the pain more prolonged, than it would be had the authorities let the market do its thing. But despite the best efforts of the government, electricity users will adjust and find ways to get by with the limited supply. And that is the market in action.
February 24th, 2011
Another letter to the Economist:
Date: Thu, 24 Feb 2011 09:06:36 -0600
To: letters [at] economist.com
From: Dave <dave [at] mugwumpery.com>
Subject: Re “Ending the open season on artists”, 19 February
As a an “aghast” digital libertarian, I object to your presumption that stronger copyright enforcement is good or necessary for artists.
No one disputes that artists must be rewarded for successful creation. (Middlemen are another story.) Copyright was a reasonably effective system when copying was expensive anyway and the means of reproduction were relatively centralized publishers and distributors, easily policed. Now that works can be copied costlessly by any individual, the principle of limiting copying is both unworkable and inappropriate, as copying (although illegal) is not theft – because copying does not deprive the original owner of anything.
Certainly, artists must eat. The challenge is to find new business and legal models to accomplish that without needlessly depriving the public of the full enjoyment of the fruits of creation.
Attempts to perpetuate obsolete business models by law are not the solution.
It is hard to make a strong argument in a letter short enough to get published.
My larger point is that there is what economists call a “deadweight loss” when someone who would have enjoyed a creative work doesn’t because of costs imposed by copyright.
Say we’re talking about a copy of The Beatles “A Hard Day’s Night” (which, completely off-topic, has some of the lamest lyrics imaginable – “…to get you money to buy you things“??).
Some consumers are willing to pay the asking price for the song under the copyright system. In that case the artists get 10 or 20%, and the middlemen get the rest. (And yes, the studio technicians, etc. need to get paid too, but not necessarily by a record company – painters seem quite able to buy blank canvas without middlemen to help.)
But more consumers (usually far more) are not willing to pay that much. They’d enjoy having a copy of the song, but not enough to justify the price. These people are going to be in the majority almost regardless of the price asked. This is the deadweight loss; value that could have been realized without cost to anyone, but wasn’t.
To make it clearer – imagine we’re talking about a $1000 copy of Adobe Photoshop instead. How many of the people who would benefit from using it are willing to pay that much? Very few. Yet it would cost Adobe nothing at all to let them use it for free – if that didn’t discourage those few who would pay from doing so.
Of course, under the copyright system this loss is necessary to make the system work – otherwise no one at all would pay. And this is precicely the problem with the copyright system – it necessitates the deadweight loss to work.
As I implied in the letter, this wasn’t such a terrible flaw when copying was expensive anyway. Records couldn’t be produced for free; paying the artist a royalty only increased the price a little bit, so not much harm was done. But that’s not true in a world where copying is free.
So we need a new system to reward creators for successful creation that other people value. I can imagine a half-dozen ways to do it; so can you. It will take some experimentation and evolution to get there, but propping up the obsolete copyright system is not going make it come sooner.