While at the H.L. Mencken annual conference in Baltimore, Maryland this past weekend, I participated on a number of panels. During one of the panels, a participant raised concerns with regard to robots and the unemployment it would cause.
I suggested this view was a result of the failure to understand basic fundamental supply and demand economics. I said there would be no employment problem. That there would be plenty of jobs. Indeed, that a massive number of unemployed would be an internal contradiction.
If there were suddenly tens of millions unemployed because of robots, wouldn’t they start providing goods and services to each other, starting with food? Or would they just all decide to starve to death?
The real problem with the participant's comment was his seeing the economy in a very narrow manner zero-sum game rather than the very complex system it is.
At the heart of Henry Hazlitt’s classic Economics In One he was really addressing this complexity in economics, where there are seen in and unseen consequences that must be considered.
F.A. Hayek was making pretty much the same point when he wrote in The Fatal Conceit:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
Every sound thinking economist should have a t-shirt that says:
Economics is much more complex than you think.
In the case of robots, the simple view is:
OMG, robots are going to replace laborers. They will never be able to find jobs. All the profits are going to go to the capitalists,
Here’s the complex understanding of what is going on:
Robots must be more productive than the laborers they replace otherwise, they wouldn’t be replaced by laborers. But more productive robots means more product. Robots will for sure be employed in producing for the mass markets (or those in those sectors won’t even face unemployment.)
If more product is available for the masses, it is a general improvement in products available in a given economy. This, however, doesn’t mean there aren’t jobs available for those that must find jobs after being replaced at a particular type of job by robots.
We are not in the Garden of Eden where every product is at our beck and call.
If robots are more productive in a given sector, then the laid off laborers find other jobs. We then end up with more product from the robots AND new services provided by the new jobs the laborers take. That is more products and services to bid for labor. It is dangerous to do this because it can be stretched and misunderstood, but from one perspective, money is just a veil where it is products and services that are bidding for labor. This is at the heart of Say’s Law that supply creates its own demand.
Consider a situation where robots are created that can produce mass amounts of caviar, champagne, mansions, and personal private jets and that all the laborers in these industries are laid off. They would have to find new jobs but there would be massive amounts of new product available for the many, including them. That is, the laid off when they find new jobs would find more product being offered for their services.
The downward pressure on prices because of such mass production would be enormous. We need more robots, a lot more!
At the Mencken conference, I said that if the participant expected mass unemployment, I would bid for 5 servants paying them each $5.00 a day.
In thinking about this more now, I really do need 5 servants, a manservant to make me a Spahire tonic when I get home and to know when I want the TV turned on (like when the Knicks are playing) and to turn it on for me.
I need a beautician to keep me with a fresh manicure and pedicure and to keep my hair groomed and to shave me every morning followed by a hot towel massage on my face.
I need a maid who keeps the pace clean and puts the toothpaste on my toothbrush whenever I want to brush my teeth.
I need an errand boy, well, to run errands.
And I need a body man to hand me gum when I want it and carry my cash and credit cards.
Right now, I only have a maid who comes in once a week. This means that laborers have better alternatives than what I have to offer. (With government welfare programs a complicating factor, preventing some with an incentive not to work.) If prices of labor ever did drop so low because of robots that I will be able to afford 5 servants as described above (working as independent contractors to get around minimum wage laws), robots would be producing so much product that my servants would all be living like kings!
The world needs to start understanding complex economics, failure to do so means that the foundations of prosperity will not be understood and that impediments will be put in the way of moving toward greater prosperity.