Tuesday, December 18, 2012

A Roundup on Robots, Capital-biased Technological Change and Inequality (plus how to tell if a person is a fiduciary)

From the Bruegel blog:
What’s at stake: What started as a discussion about the rise of automation in manufacturing – and its potential impact on “re-shoring” manufacturing to the U.S. by some firms – has turned into a broader discussion about the impact of capital-biased technological change on the future of jobs and inequality. The discussion also touches on the role of increasing mark-ups in the shift in income away from labor.

Humans and robots

In his NYT column, Paul Krugman (HT Mark Thoma) writes that skill bias may be yesterday’s story. The wage gap between workers with a college education and those without, which grew a lot in the 1980s and early 1990s, hasn’t changed much since then (see here). Indeed, recent college graduates had stagnant incomes even before the financial crisis struck.
Paul Krugman writes twenty years ago, when he was writing about globalization and inequality, capital bias didn’t look like a big issue. But, in fact, profits have been rising at the expense of workers in general, including workers with the skills that were supposed to lead to success in today’s economy. What has happened is a notable shift in income away from labor.

Source: Paul Krugman
Moshe Vardi – a professor of computational engineering at Rice University – writes in The Atlantic that it is in the context of the Great Recession that people started noticing that while machines have yet to exceed humans in intelligence, they are getting intelligent enough to have a major impact on the job market. Such concerns have gone mainstream in the past year, with articles in newspapers and magazines carrying titles such as “More Jobs Predicted for Machines, Not People,” “Marathon Machine: Unskilled Workers Are Struggling to Keep Up With Technological Change,” “It’s a Man vs. Machine Recovery,” and “The Robots Are Winning.” And the question deserves not to be ignored as it is not clear what humans will do if machines are capable of doing almost any work humans can.
Owen Zidar reports that Larry Summers recently engaged his audience with a thought experiment along similar lines. Suppose that a new technology called “the Doer” will be created tomorrow. Doers can do anything flawlessly. They can build a house, give a massage, or make a guitar. What would the world of Doers look like?
  1. Cheaper, high quality goods would proliferate.
  2. The price of raw materials would increase as raw inputs for doers would become more scarce and thus more valuable
  3. People who can think of new things for Doers to do or of new ways for Doers to do things will make a lot of money
  4. For everyone else, the value of working for an hour will be nearly zero (since Doers can do everything already, no extra value is created). Therefore, hourly wages will go to zero.
Citing 3D printers and Google’s driverless cars, Summers argued that while we aren’t quite living in the world of Doers, we are perhaps 15 or 20% of the way there.
In a 2011 post, Brad DeLong wrote that the question of what humans will do in the future as machines replace more and more jobs has worried economists since the eighteenth-century French physiocrats tried to figure out how an economy could avoid mass unemployment if the agricultural share of the labor force ever fell below two-thirds. The physiocrats were, of course, wrong. We found lots of useful things that people could do not just to transform but to create value as the agricultural share of the labor force headed down to its current 2% or so share. But what happens next as hardware robots take over manufacturing, mining, and transportation and as software 'bots take over the routine paper shuffling?

Automation, manufacturing and the number of jobs

Econfuture (HT Angry Bear) writes that manufacturing in the U.S. has become dramatically more productive and requires fewer workers. If technology is the primary driver behind the decline in manufacturing employment, then employment in China must inevitably follow the same path. In fact, there are good reasons to believe that manufacturing employment’s downward slope will be significantly steeper for China....MORE
HT: Rumpelstatskin at Macroblog who writes:
Robots confusing economists
Chatter on the econosphere has been abuzz on robots and income inequality recently, stirred into action by Paul Krugman’s NYT piece last week, and subsequent follow up.

We have Nick Rowe using this talk to support a general equilibrium approach to economics and make the mathematical case here.  Previously we have seen Google Chairman Eric Schmidt explain how robots will may result in income inequality.  A good summary of the whole blog-versation is here.

Debates like this, which used to take place in coded and mathematical language inside economic journals, are now raging online for all to see.  And it reveals the usual shallowness and confusion of economic thought on very critical matters – matters on which the common person assumes economists are experts.

Any economist who sees robots as anything more than another incremental change in the technology embedded in our capital stock is utterly confused. Similar debates raged a century ago when people called their contemporary robots ‘machines’.  But it is these very machines, the modern incarnations we might call robots, that are the methods by which we increase our productive capacity.

Detailed productivity analysis shows that it is primarily capital deepening, or the investment in a larger stock of capital, that leads to improved productivity.  New technology is the residual, or error term, after we account for our increased stock of capital – including machines and robots. Growth is a process of capital investment....MORE
When I read stuff like "any economist who..." I get the denotation but I also get the meta-message that this person does not make real money decisions in an arena that requires you make those decisions armed with incomplete information.

More particularly you can tell that this person is not a fiduciary.

You'll notice among people who actually have line authority in dynamic situations a lack of dogmatism.
Dogmatism costs money or lives.

The problems that the widespread introduction of manufacturing robots present us with are unique and even though the facile argument is to make some reference to Ned Ludd as an analogue, the truth is we don't really know where all this is going to lead.