Friday, November 11, 2011

The Lights in the Tunnel

One other book I've finished recently is Martin Ford's The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. The book itself is an interesting story. Ford is a venture capitalist and software entrepreneur in Silicon Valley. He self-published this book in 2009, because, he says, developments which were plainly obvious and actively discussed in his circles in Silicon Valley seemed to be invisible in economics and policy circles. And even technology people are mostly thinking about how to get their immediate next product to market.

Now the book is getting serious attention in at least some economic circles, including respectful mention in the e-book by two prominent MIT researchers I was talking about recently.

Ford argues that the "Luddite fallacy" in economics - that technology ultimately destroys jobs - is itself wrong. Just because it has been true for 200 years, as technological advance always created more jobs than it destroyed, does not mean that will be true in the future.

One of the main reasons, he says, is technology is improving at an exponential rate. There is no reason to expect that is going to change in the near future.

Exponential growth has the property that it can appear to take a long time to get going by the standards of later growth. If you keep doubling a quantity, 2, 4, 8, growth is very rapid - but almost invisible by the standards of 20 or 30 moves later, when it is growing by a billion or several trillion each move.

Unfortunately, the purveyors of econometrics labor under the delusion that they are economists, when in fact they are historians. Statistics is well suited to measuring things which are relatively constant or which are changing gradually.

So if like a good econometrician you look back and study recent history, you may see virtually no sign of an exponential trend which will burst into almost overwheming prominence before long.

All the immense changes wrought by technology so far are just a small precursor, if advances keep going at their current rate. That's a matter of basic math.

And that means the labor market as we know it is in deep trouble, he says.

The reality is that the free market economy, as we understand it today, simply cannot work without a viable labor market. Jobs are the primary mechanism through which income—and, therefore, purchasing power—is distributed to the people who consume everything the economy produces. If at some point, machines are likely to permanently take over a great deal of the work now performed by human beings, then that will be a threat to the very foundation of our economic system.

Offshoring and outsourcing are just temporary distractions.

The point I am making here is that offshoring is really a precursor of automation. Offshoring is what you do when you have some technology, but not enough to fully automate a job. ... Offshoring is the small wave that distracts you. Automation is the big one further out that you don’t see coming.

Some of the traditional ideas about coping with change - more education puts you in a better position, or knowledge workers are the workers of the future - are also wrong, he says. Indeed, many high-skilled jobs, like radiologists, are much more likely to be automated.

Not only are their jobs potentially easier to automate than other job types because no investment in mechanical equipment is required; but also, the financial incentive for getting rid of the job is significantly higher. As a result, we can expect that, in the future, automation will fall heavily on knowledge workers and in particular on highly paid workers. In cases where technology is not yet sufficient to automate the job, offshoring is likely to be pursued as a interim solution.

Artificial intelligence and non-desktop technology like robotics are likely to be the next boom areas, he says. If the military can plan to use drones in highly uncertain and difficult wartime environments like Afghanistan, more use of robots to restock store shelves is easy. Down the line, nanotechnology is likely to deliver even more fundamental change.

At some point before long, he says, production is not going to be the problem. Consumption is. Production can get so capital intensive that a tipping point is reached and falling prices for consumer goods no longer deliver enough disposable income to other workers to raise consumption in general.

It may not be next year, or the next few years, but before long the basic job that we have known for several hundred years will be over. Structural unemployment could affect a majority of the population. At that point,

We need a mechanism that can get a reliable income stream into the hands of consumers. This of course, is a proposition that will be very difficult for most of us to accept; the idea that we must work for a living is one of our most basic core values.

What happens when technology reaches the point where most human labor is no longer essential? At that point, we will have to undergo a quantum shift in our value system. In order to preserve the free market system, we will have to come to the realization that while work (at least for most people) may no longer be essential, broad-based consumption is essential.

Is this realistic? There is no doubt that technological change has always delivered more jobs in the past. But I think we do have to confront seriously the possibility that it may not do so in the future. I found the Brynjolffson and McAfee book (linked above) very persuasive in that regard. Prices may not fall so low that it is profitable for some entrepreneur to reemploy the structurally unemployed at a livable wage.

We'd have to think about more fundamental change in society. And Ford has some interesting. if sketchy ideas about that, which I will talk about in the next post.

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