Future Technology and Economics
The unemployment situation is looking increasingly dismal. Is it possible that there’s something going on that no one wants to acknowledge?
There can be little doubt that computers, robotic technologies and other forms of job automation have been getting far more capable and that as this trend continues, more workers are certain to be displaced in the relatively near future. Most economists dismiss any concern that this might lead to long-term structural unemployment. At the risk of being labeled a “neo-Luddite,” I’d like to explore this issue a little further.
I think I can make a fairly strong argument that a very large percentage of jobs are, on some ...view middle of the document...
S. were employed in agriculture. Today, the number is around 2-3%. Advancing technology irreversibly eliminated millions of jobs.
Obviously, when agriculture mechanized, we did not end up with long-term structural unemployment. Workers were absorbed by other industries, and average wages and overall prosperity increased dramatically. The historical experience with agriculture is, in fact, an excellent illustration of the so-called “Luddite fallacy.” This is the idea–and I think it is generally accepted by economists–that technological progress will never lead to massive, long-term unemployment.
The reasoning behind the Luddite fallacy goes roughly like this: As labor-saving technologies improve, some workers lose their jobs in the short run, but production also becomes more efficient. That leads to lower prices for the goods and services produced, and that, in turn, leaves consumers with more money to spend on other things. When they do so, demand increases across nearly all industries–and that means more jobs. That seems to be exactly what happened with agriculture: food prices fell as efficiency increased, and then consumers went out and spent their extra money elsewhere, driving increased employment in the manufacturing and service sectors.
The question we have to ask is whether or not that same scenario is likely to play out again. The problem is that this time we are not talking about a single industry being automated: these technologies are going to penetrate across the board. When agriculture mechanized, there were clearly other labor intensive sectors capable of absorbing the workers. There’s little evidence to suggest that’s going to be the case this time around.
It seems to me that, as automation penetrates nearly everywhere, there must come a “tipping point,” beyond which the overall economy is simply not labor intensive enough to continue absorbing workers who lose their jobs due to automation (or globalization). Beyond this point, businesses will be able to ramp up production primarily by employing machines and software–and structural unemployment then becomes inevitable.
If we reach that point, then I think we also have a serious problem with consumer demand. If automation is relentless, then the basic mechanism that gets purchasing power into the hands of consumers begins to break down. As a...