From time to time we come back to robots during FORum talks. Last month we heard again of the Luddites in a talk by Ron Menich. As readers will recall, the Luddites were a group of economic terrorists who in 1813 England destroyed textile machines and killed factory owners and others because they believed that high paid, high skilled textile factory jobs would be lost to low paid, low skilled operators of new and improved textile machines. The disruption lasted for a few years. Of course, today, textiles are in abundance and everyone is satisfactorily clothed. Everybody can buy a nice business suit on Amazon for $90 (12 minimum wage hours, 1½ days of work). Many of us even deliver $1,000 of used clothes to Goodwill every year. Overall our standard of living in 2017 America is exponentially improved over that of 1813 England thanks to technological improvements.
Nonetheless, the Luddite fallacy lives on and the new target (no longer textile machines) is robots. “Robots will steal our jobs” is the new refrain. People forget the Luddite fallacy. People forget that automobiles replaced the horse and buggy to the great benefit of humanity. People forget that digital photography has replaced film photography for most of us. People forget that once we needed libraries and now we all carry around the Library of Congress and the Western Canon in our cell phones. Thousands of great new products have replaced thousands of now obsolete products to humanity’s great benefit.
So why do people still worry about technological progress? The simplest explanation is that we lack sufficient imagination. We cannot imagine what is to come when things change. We can see the loss of a job to a robot. We cannot foresee what the liberation of resources caused by improved technology will bring. So here we ponder the Luddite Fallacy one more time.
First, consider a not-so-hypothetical case of a worker being displaced by a robot.
Hypothetical Purchase of Burger Flipping Machine
Miso Robotics and CaliBurger have invented a burger flipping machine to replace a “hot and greasy job” according to a March 7, 2017 report. The creators have a product installation in Pasadena, CA where the minimum wage will be $13.25 in 2018, by city ordinance. At that minimum wage the Relative Value Pay Rate (RVPR) is about $31,500 per year. The RVPR is that value a worker must return to the business in order to make it worthwhile to employ her. The RVPR takes in to consideration mandated taxes and benefits that increase the cost of employment above the base wage. The value a Pasadena employee brings to the enterprise must therefore exceed $31,500 in order for employment of the worker to make economic sense. Of course, this fact is completely uninteresting to most government policy makers who are interested in re-election and not business viability, unemployment or the long-term viability of government programs.
We do not know the actual purchase price of the burger flipping machine, but assume that the purchase price is $31,500, the same as the employee’s annual RVPR. Assume that the machine has an 11 year life. The business owner can fire her employee and buy a burger flipping machine, paying for the new machine in one year. In the 10 years after the first year, amortizing the purchase price of a new machine on an annual basis ($3,150 per year), the machine will increase the profit of the business owner by $28,350 ($31,500 – $3,150 = $28,350) per year.
The minimum wage employee will have lost her burger flipping job. The entrepreneur will have gained $28,350 extra profit for years 2 through 11 after her purchase of the burger flipping machine.
What happens to the extra $28,350?
As a result of the purchase the burger output of the burger store will stay the same or increase and there will be $28,350 per year extra profit in the business woman’s pocket. Over 10 years, she will have an extra $283,500 profit. The entrepreneur can spend, save or invest her profit. If spent, the money increases general demand in the economy. If saved, the money is stored for future spending or investment. If invested, additional capital (e.g. another machine) comes into existence.
There are other possible (and more likely) economic outcomes. For instance, the higher profit earned by the entrepreneur might lure other investors into the hamburger business resulting in more competition and lower prices for the consumers. But for the sake of simplicity, let us retain our first assumption which is that the entrepreneur’s profit simply increases by $28,350 per year.
What happens to the fired employee?
Total wealth in the world increases upon the firing of the employee after the purchase of the machine. After being fired the employee still has her 2,000 hours (40 hours per week times 50 weeks per year) per year of labor available for use. She can use her 2,000 hours herself or she can exchange her hours for wages. The burger store output stays the same or increases, plus an additional $28,350 per year not spent on a human burger flipper in the entrepreneur’s pocket. From the stand point of society three values now exist: (1) an extra $28,350 per year in profits for the entrepreneur, (2) two thousand hours per year of unused labor capacity, and (3) the burgers produced by the business. Before the purchase of the burger flipping machine there was only one value, the burgers produced.
The employee had been exchanging her labor for wages. The fired employee is no longer trading her labor for wages and she therefore has unused capacity, her capacity to work 2,000 hours per year. She can find another job or not. If not, she can use her 2,000 hours per year for herself. She can do things other not-employed-people do enjoying their free time: learn a new skill, raise children, look after aging parents, volunteer, learn a new language, read a book, travel, ad infinitum. If she needs to work, she can find a new job exchanging her 2,000 hours per year labor for wages or she can become an entrepreneur herself.
Note that the fired employee and the entrepreneur need not be different people in kind. In fact, they could be the same kind of person separated only by 20 years of life and experience. Assume that the fired employee is 18 years old and that she will be a successful entrepreneur in 20 years. Also assume that the entrepreneur was herself once an 18-year-old looking for a minimum wage job.
The Role of Government
Obviously, the fired burger-flipping employee was priced out of her employment by the minimum wage and a too high RVPR (which mostly contains government mandates). I say “obviously” though I failed to think about the role of government until day seven of the writing of this essay.
If wages are allowed to fluctuate according to market forces as opposed to government mandates then there is no systemic unemployment. The most well-known economic equation—supply equals demand at the market price—predicts this conclusion. If people are allowed to move to find new work and if employers are allowed to employ people on terms that are agreed to by the employer and the employee, then there is no systemic unemployment only frictional unemployment (temporary unemployment while transitioning between jobs).
The role of government is important because government price controls are the true source of the fear that there will be no more jobs at all. So, rather than “robots will steal our jobs”, the truth is that “government forbids free market employment”. The choices for those who must work in order to survive under government mandated minimum wages are minimum wage employment, welfare/charity or starvation. The government avoids negative publicity if and when the blame for systemic unemployment is shifted from government mandates (where it belongs) to robots.
Many current news stories about robots contain gloating references to the minimum wage. Memes along this line appear: “See what you get (robots) when you hike the minimum wage to $15 per hour? Ha!” Billionaire Bill Gates suggested in a recent interview that robots should be taxed. Obviously, increasing the price of a robot by taxing it only postpones unemployment or drives the burger entrepreneur out of business by making it economically impossible to flip hamburgers at all. Recall that the entrepreneur fired her employee because the employee was not worth her wages. If the entrepreneur cannot replace the human burger flipper with a lower cost robot, the job cannot be economically done at all. The business will close.
It is difficult to see a non-existent job, but there are hundreds of thousands on non-existent jobs in America today. Think, as one example, of the number of people who would be employed in homes as maids, butlers, drivers, gardeners, au pairs and adult care workers in the absence of employment regulations including the minimum wage. The government forbids free market employment.
Even in the absence of government interference in the economy, there will be technological advances. So some people may still complain that “robots will steal our jobs”.
Technological advances are almost always good. One might struggle to think of an example of a bad technological advance. Forced to do so, I might say that the replacement of libraries containing real books with libraries containing computer monitors is a bad technological advance. I recognized that reasonable persons will push back heartily on my claim accusing me of being an old fuddy-duddy.
On the other hand, some technological advances are spectacularly good. Imagine that a philanthropist discovers the cure for cancer, not just one particular cancer, but all cancers. Imagine that the cure is a simple mixture of easily obtained ingredients and that the philanthropist publishes the recipe on the Internet for everyone to see, mix at home, and self-administer for free. For those beyond the Internet, the philanthropist manufactures billions of doses and distributes the doses to the entire human population for their consumption.
The scientific achievement is fantastic, of course, but the political achievement might be even more fantastic. Venal politicians—those oppose Uber, the riding sharing company, and Airbnb, the home sharing company, in order to protect their moneyed constituencies—would be out in force opposing a total cancer cure. But let us momentarily suspend disbelief in science fiction and political fiction and assume that cancer is totally cured for all human beings on earth. (As a side note, the only disease ever to have been completely eradicated is smallpox in 1979.)
According to Internet sources, in 2015 healthcare was about 18% ($3.2 trillion) of the Gross Domestic Product. Research investigating the etiology of cancer, investigating new and improved cancer treatment drugs, and investigating new techniques and surgeries to treat cancer are a major industry today. Many doctors, nurses, technicians, pharmacists, and researchers spend their entire lives working to defeat cancer. Hospitals (there are about 5,627 total hospitals in the US), outpatient centers, research centers, universities, offices complexes, and other facilities are dedicated to the treatment and cure of cancer. Insurance companies and financial companies are invested in financing the treatment of cancer. The federal government spends twenty-five percent of its budget on healthcare generally.
In a flash all of these cancer-related services would be rendered economically obsolete. Just as the automobile put the horse and buggy industry out of business, so too a total cure for cancer would put millions of people out of work and render useless trillions of dollars of capital resources, land and equipment. Yet, only a small percentage of people—venal politicians and their sociopathic moneyed constituencies—would lament this outcome. Does any reader suspect that these now unemployed economic resources and workers would find no employment in the future? Of course, not. The healthcare industry would immediately retool and refocus their efforts on other diseases within weeks.
The purpose of this example is to illustrate that technological advances eliminate human obstacles, like burger flipping or cancer. In the case of cancer it is very easy to see that a total cure for cancer is an unmitigated good. After the invention of the burger flipping machine, no human is needed to flipper burgers. After the cure for cancer, an entire industry (the cancer treatment industry) is eliminated. Both of these events are good and humankind will be free to do other wonderful things. We simply lack sufficient imagination to predict them.
The Robot Problem Restated
People who anguish about robots generalize from a single instance (the example above) to a societal circumstance in which all jobs are taken by robots. There is a logical fallacy in this angst which it is the goal of this essay to root out.
Science fictional imaginings about robots vary. In Passengers, the 2016 film with Chris Pratt and Jennifer Lawrence, the robots are hardworking, nearly perfect friends of humanity. In The Terminator, the 1984 film starring Arnold Schwarzenegger, the robots are mortal enemies of humanity warring to destroy us. In the new HBO series WestWorld the robots are thinly veiled metaphors for human slaves who are tortured, raped, and murdered by “vile” Western consumers. We have identified three robot types: helpers, mortal enemies, and slaves.
In Passengers (the film with helper robots) Chris Pratt’s character, a mechanic/handyman, says that his reason for joining the colony spaceship is that on earth people do not repair things, they replace them. On the new planet his mechanic/handyman skills will allow him to be productive. This problem is related to our present discussion. The mortal enemy robots are not different from science fiction stories that imagine aliens bent on destroying humanity. We will just have to defend ourselves against such entities—not our present subject. The victim robots are uninteresting for our purposes. The victim robots are a thinly veiled “I-hate-Capitalism” or “I-hate-Humanity” political metaphor not to my taste.
None of these robots—helpers, mortal enemies, slaves—seems to be the type of robot about which this essay is concerned. Our robots are more like kudzu, an invasive, noxious weed.
Escaping to Eden
Human beings not only desire survival, they desire meaning. We have survival needs and meaning needs. The combination of survival and meaning is called flourishing.
Christ Pratt’s character in Passengers is going to a new planet because he anticipates that his particular skills as a mechanic/handyman will be needed there. He will be needed and productive. He will flourish.
Christ Pratt’s character’s back-to-nature strategy is among the answers to our “robots will steal our jobs” problem. In a future world in which the problem of survival has been solved by technology, meaning might be achieved by removing oneself from the “safe” world. Star Trek is all about this answer to the problem of technology. Even in our present world, the Amish shun technology and live relatively isolated lives on their farms in various communities in Ohio, Indiana, and Pennsylvania. Roughing it” has always been and will continue to be in demand.
Still, the core of the angst is not addressed by this solution. This solution assumes that people will have sufficient assets to buy passage to a new space colony or to set up independent farming communities on earth. The real worriers anticipate that “robots will steal our jobs” and leave us destitute.
When was the last time you purchased a pen? When was the last time you purchased a coffee cup? Every pen in my house, save the red ones which I use to grade papers and have to buy, is a gift from some marketer. The same is true of most of my coffee cups. Most Internet content is a gift from some marketer. Broadcast television has always been a gift from some marketer. Most of us will never have to buy another pen or coffee cup in our lifetimes. Many household capital items, like cutlery, dishes, pots and pans, and kitchen tools, can be purchased once for less than $100 and used for decades. Household appliances are so cheap that once broken after years of service, they are cheaply replaced. (Walmart sells a toaster for $7.44). Access to the Library of Congress and the Western Canon is free online. A university education is free online. Dozens of foreign languages can be learned for free online. One can change one’s own car brake pads for the cost of the parts by watching a YouTube video. For $50 per month we have access to instantaneous worldwide communication, unlimited free entertainment and enormous computing power.
Technology brings price reductions. Like the price of pens, the marginal cost (the cost to produce one more instances of the item) of everything approaches zero. Rather than worrying about a world in which robots do many jobs, imagine a world in which everything we want is a gift from some marketer.
Every productive person on earth is constantly striving to lower costs and increase output. The goal of this human activity is to make everyone rich beyond our wildest dreams. That dream is coming truth.
Everyone has a long list of things to do. The list is prioritized and we work on high priority items in the present. There are some items, called the bucket list, that are known, but not being addressed in the present. There are other items, yet unknown, that have not been formulated. A person who wins the lottery may find many new items, previously unknown, to put on his list. Sometimes we forget this fact because we are totally occupied working on our current list.
Psychologist Abraham Maslow (1908-1970) identified a list of human needs in a famous paper entitled A Theory of Human Motivation (Psychological Review 1943). Maslow proposed a hierarchy of needs. The most basic needs are physiological needs: air, water, food, clothing, shelter and sex. Next up are safety needs: personal security, financial security and health. Third highest are the need to belong: friendship, romance and family. The penultimate set of needs pertain to self-esteem. Maslow’s ultimate need is self-actualization, the desire to be all that one can be. Maslow asserts that people move up the list from most urgent (e.g. air, water, food) to less urgent (e.g. self-actualization).
We all can make a list of things to do that goes beyond the things we are working on presently.
For example, the writer currently spends much of his time performing maintenance tasks for his disabled son. If robots existed to change diapers, to prepare daily meals, to clean up food debris after eating, to wash his soiled clothing, to monitor his safety 24/7, then our family might enjoy more of the following activities: read more, teach more, nurture the Fellowship of Reason more, go to the gym, jog more regularly, attend the opera, the symphony, the theatre, travel, hike the Appalachian Trail. We might learn ancient Greek and Latin. We might read the Western Canon. We might create a free college using retired professors to teach the Great Books to a new generation of freedom loving young people.
The point is that everyone has a long list of things to do beyond her active list. If one or more of our current needs is fulfilled we can go down the list and begin working on another item.
Interesting factoid: in 1870 50% of the U.S. population was engaged in agriculture. In 2008, less than 2% of the U.S. population is engaged in agriculture. This improvement is entirely related to technology. Furthermore, U.S. population was 38.6 million in 1870. World population was 1.3 billion. Today, U.S. population is 326.5 million. World population is 7.5 billion.
Factors of Production
Human beings produce things because the means of our survival is not given to us by nature. We must work in order to live. The four factors of production are labor, capital, land, and entrepreneurship. Labor earns wages. Capital earns interest. Land earns rent. Entrepreneurs earn profits. A man (consumer) needs food. He locates (entrepreneurship) a good hunting ground (land). He takes his bow and arrow (capital). He hunts (labor). He eats (consumer).
In economic terms, the worriers worry that capital will eliminate the entrepreneur’s demand for labor.
Can capital eliminate the demand for labor? In a particular case, yes. The Pasadena, CA hamburger store no longer needs a burger flipper, having replaced that human job with a robot. Can capital replace all demand for labor?
Remember that people produce (labor) for two reasons: (1) survival, and (2) meaning. Survival needs can be met without labor for a subset of people. Many people survive without labor, for example: retired people, independently wealthy people, people on welfare, children and disabled adults being supported by family. Meaning needs however cannot be met without productive work. In the absence of meaning, people cannot flourish. The consequence of lack of meaning is unhappiness. Unhappiness can lead to substance abuse, criminal behavior, or suicide. The absence of work for immigrants into Europe is an important cause of societal dysfunction there. All people surviving without labor must still produce in order to flourish.
Capital, therefore, cannot eliminate the human need for productive work as the need for labor (to supply meaning) is part of human nature. Still, the worry that “robots will steal our jobs” is not solved. Simply because people must produce in order to have meaning, to flourish, and to be happy, does not necessarily imply that survival needs will be met by personal savings or the generosity of others. It is still possible to imagine a world without opportunities to make a living. Look at Venezuela today where people are rooting through garbage to find food to eat. Of course, Venezuelans’ problem is their socialist government, not an overabundance of technology.
Perpetual Motion and The Matrix
Can capital completely replace labor? How much like the chimerical perpetual motion machine is the technology worrier’s worry? Perpetual motion machines are believed to be impossible.
The 1999 film The Matrix postulates that human beings are the slaves of robots who use humans, held within bio-support pods supplying all survival needs, as an energy source. The consciousness of all human beings exists within a computer-generated reality called The Matrix so long as the individual is connected to his bio-support pod. The computer-generated reality provides individuals with “meaning”. These robots are related to the “mortal enemies” robots identified above. However, these robots have a use for humankind. Human body heat is the robots’ power source. The pure “mortal enemies” robots have no use for human beings and war (in science fiction) against them unto death.
In diametric contrast to The Matrix and the human slave holding robots, I am reminded of the original Star Trek TV series episode The Menagerie, a two-parter first broadcast on November 17 and 24, 1966. The story concludes with Captain Christopher Pike, totally disabled and wheel-chair bound, being taken in by benevolent aliens who provide him an imaginary mental existence with beautiful young woman named Vina, who is real, but also damaged. Pike’s survival needs are met by his life-supporting wheel-chair. His meaning needs are supplied by the aliens in his imagination. Captain Pike “flourishes”.
The worriers worry about a kudzu-like robot population that completely overtakes all opportunities for human labor. The worriers would go even further. The worriers anticipate Artificial Intelligence (AI) that will take over even the role of the human entrepreneur. At this point, the kudzu-like robot population looks very much like the “mortal enemies” robots.
In these conditions, one might imagine a complete split between the kudzu robots and humankind. Unless forced to live with kudzu robots as in The Matrix, why would not humankind simply ignore them or move away. In the language of The Matrix, many would simply take “the red pill”. No doubt many more would choose to remain in The Matrix.
Who will buy the Product?
So, can capital replace the demand for labor? Remember, there are four factors of production: labor, capital, land, and entrepreneurship. The entrepreneur is the person who organizes labor, capital, and land in order to produce products or services. She does so in order to trade with others to meet the entrepreneur’s own needs. The entrepreneur wants products and services for herself. She is a consumer, too. In order to obtain products and services for herself she utilizes her entrepreneurial skills (plus labor, capital, and land) to make a product or service that she can trade for other products and services that she wants. The entrepreneur therefore needs other productive people, either entrepreneurs or laborers, with whom to trade.
The entrepreneur’s SuperPower, if you will, is the ability to see economic opportunities. She can detect that if she takes such-and-such steps that the cost of her product or service will be less than the selling price. She foresees that she will make a profit by arranging labor, capital, and land in such-and-such ways. She acts. She produces. She sells. She profits. She succeeds.
If the entrepreneur fails, she will lose her investment. If she fails enough, she will be bankrupt and no longer an economic factor, i.e. an entrepreneur. She may be demoted to laborer, retiree, or welfare/charity recipient.
Generally speaking an entrepreneur seeks a larger market. She seeks to sell to more people. Part of the entrepreneur’s SuperPower is intimate knowledge of her market. If she sees that a particular population will be unable to buy her produce, she will not produce for that market.
Using a concept while denying the validity of early concepts upon which the concept logically depends. Production assumes consumption. One only produces for consumption either now or in the future.
The purpose of technology in general and robots in particular is to increase production. Increased production always means lower prices for consumers and a better standard of living. An entrepreneur makes an improvement precisely because she anticipates that her costumers will like the improvement.
(1) This essay has restated the Luddite Fallacy, the fear that technology will take all of our jobs. (2) We have given a real-life example of a burger flipping machine replacing a human burger flipper in California. We have argued that upon the replacement of the minimum wage employee with the machine, three values now exist in the world—extra profit, additional labor, and burgers—where before only one existed, burgers. (3) We have asserted that government interference in free market employment is the cause of the job loss. (4) We have shown, using the example of a complete cure for cancer, that technological improvement is an unmitigated good and that the assets once used to fight cancer will be immediately redeployed to other productive uses. (5) We have restated the robot problem by identifying three types of robots: helpers, enemies, and slaves. Our “problem” robot though is more like the invasive plant kudzu. (6) We have shown that human beings have survival needs and meaning needs. Survival and meaning together are human flourishing. We have shown that human beings have always imagined escaping from the “safe” world to Eden. (7) We have shown that technological improvements result in price reductions toward zero, giving the example of the gift of pens by marketers. (8) We have shown that demand is unlimited and that as human problems are solved, more tasks will present themselves for solving ad infinitum. (9) We have identified the four factors of production: labor, capital, land, entrepreneurship. We have shown that capital cannot completely replace labor.
Perhaps now some worriers will stop worrying that “robots will steal our jobs”. For those readers who are not yet persuaded, perhaps you will agree that the burden of proof has shifted to you. Please present your arguments in a future edition of this newsletter.