The Road to Serfdom: Where the Robots Are Taking Us

Not Hayek's "The Road to Serfdom". Rather this is a journey back to medieval society where all income is subject to taxation by the Church or the manor or both. At least in the current case it is freehold rent which is paid in cash rather than the labor rent that villeins and serfs owed their liege.

Let me explain.
On Satuday Worthwhile Canadian Initiative had a post "Capital-biased technical change vs low interest rates?" about the flow of income from productivity gains accruing to capital in larger and expanding proportion rather than to labor:

Paul Krugman says that recent technical change has been capital-biased. That robot story sounds plausible to me too. But if so, why are real interest rates so low? (Yes I know there's a global recession on, but real interest rates were falling even before the recession). Maybe we are forgetting a third factor, land, and land rents are rising?

Suppose there were a new technology that caused both wages and interest rates to fall. Why wouldn't capitalists and workers say "Stuff that, let's go back to the old technology!"? Any individual firm, or group of firms, that went back to the old technology, while borrowing at the new low interest rates and paying the new low wages, would make super-normal profits. And all the other firms would eventually choose to, or have to, follow it back....MORE

One of his commenters made a very sharp observation:

Nick,
This is right (and krugman is right). Asymptotically, when robots do all the work including the development and manufacturing of robots, all rents will flow to the owners of land just like a few hundred years ago. At that point the prescriptions of Henry George will be self evidently true. Until then a great deal of rents will flow to the owners of non-land capital. Watch for ever broadening, ever lengthening IP protections, and continuing income polarization.

Posted by: K | December 08, 2012 at 03:25 PM

That's where I went all medieval on folks around me.
The story was advanced by Izabella Kaminska yesterday. From FT Alphaville:
The robot economy and the new rentier class

It seems more top-tier economists are coming around to the idea that robots and technology could be having a greater influence on the economy (and this crisis in particular) than previously appreciated. Paul Krugman being the latest.

But first a quick backgrounder on the debate so far (as tracked by us).

Probably the first high-profile advocate of the idea — in recent times — that “technology and computers were changing the economy in weird ways” was Alan Greenspan in the 1990s, when he attributed a mysterious lack of inflation, high productivity and low unemployment rate to the arrival of a technologically rich “New Economy”.

As we’ve written before, once the tech bubble burst — and Greenspan was supposedly proved so very wrong — the whole idea of technology being a fundamental force in the real economy was abandoned. This is well illustrated by the sudden fall in references to technology in FOMC meetings (as tracked by us)...

She's being modest. Ms. Iz has been on the story and the implications for at least a year. She is also being kind to Professor Krugman who should have had at least a comment on this months if not years ago.
Kaminska then does a quick primer on intellectual property and patent trolls as imposers of artificial scarcity (while I was chasing Land Patents, another type of land ownership conveyance)
Continuing:

 ...Which brings us neatly to the latest offering on the technology factor, this time from Paul Krugman — who seems to have spent a large portion of the week thinking about the issue, with no less than two robot-themed postings.

But it’s his last one which presents the monopolisation effect best, as he considers what’s driving the share of non-farm business sector output downwards so rapidly:

But there’s another possible resolution: monopoly power. Barry Lynn and Philip Longman have argued that we’re seeing a rapid rise in market concentration and market power. The thing about market power is that it could simultaneously raise the average rents to capital and reduce the return on investment as perceived by corporations, which would now take into account the negative effects of capacity growth on their markups. So a rising-monopoly-power story would be one way to resolve the seeming paradox of rapidly rising profits and low real interest rates.

In our opinion that one paragraph explains today’s reality perfectly.

So, robot and technology power is reducing the natural employment rate. But rather than our subsidising those who have lost jobs to technology, so as to spread that manna wealth that’s literally dropped onto the surface of the earth at no-one’s physical disadvantage, companies are using monopoly power to extort rents on the capital that is creating all that free wealth.

That’s why inequality is rising.

As technology proceeds in a patent-obsessed world, the fruits of innovation flow to the owners of the capital and invention, forming a whole new rentier class. The financial assets/debts that back the innovation technology, meanwhile, get disproportionally valuable as their purchasing power gets completely out of whack with the output they radically accelerate....MUCH MORE

Do read on and check out the comments, They are on target from the very first:

ChrisJCook | December 10 11:05am | Permalink The massive growth in the value of Intellectual property is one part of the equation,and of course the Starbucks issue -where IP is parked in a low-tax jurisdiction and rents extracted out of high tax jurisdictions - is relevant here.

But another factor is direct instantaneous communication and increasing collaboration of those with marketable skills and knowledge.

The mobility of such individuals, and of IP, is already leading to what I call Market 3.0 - the networked, decentralised and dis-intermediated markets of the future.

In my view this will lead to a Flight from the Cities, as new knowledge and techniques are developed spread to replace energy intensity....MORE

Alphaville will be getting pretty far afield if they pursue the story to its full extent, it should be fun to watch.
In the meantime a flashback to an October post that will end up being highly relevant to the policy questions:
"Being a Patent Troll Now Patented" and "Nathan Myhrvold's Cunning Plan to Prevent 3-D Printer Piracy"