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Much like the suits at Cyberdyne Systems, James Sherk and Lindsey Burke of Heritage do not fear the rise of the robots. From their new paper “Automation and Technology Increase Living Standards”:
Automation reduces both labor costs and prices. Lower prices leave customers with more money to spend elsewhere, increasing the demand for labor elsewhere in the economy. Automation changes where and how people work, but it has not historically reduced the overall need for human employees. Little empirical evidence suggests this time is different. … Businesses do not appear to be automating human tasks at a faster rate than before. If they were, this would increase measured labor productivity growth. This has not happened.
And their chart to partially support the above point:
I dunno. For one thing, I am not sure whether I believe that chart’s ability to reflect accurately what’s happening in the digital economy. More importantly, I think it’s easy to fall into the trap of believing that just because automation so far has not eliminated the need for lots of human workers means it won’t in the future. It’s a comforting thought. Sherk and Burke offer the textbook, Econ 101 answer: “Automation reduces the need for humans in particular tasks, but employees have historically moved to new or different sectors of the economy as a result. Little evidence suggests this time is different.” Yet even if they are correct, this process can be a wrenching one. As my colleague Michael Strain has explained:
Today, real wages and per capita income are both enormously higher in the West than they were when the Luddites were destroying labor-saving machines during the Industrial Revolution, and to date the machines have not eliminated the need for human workers. Why would a technological revolution today have a different outcome than the Industrial Revolution? No need to worry, argue many economists.This dismissal is too flip.
Even if the standard economist’s answer is correct when comparing the 21st century to the 19th, it omits the fact that living through this period of transformation was wrenching. Many economic historians believe that the British working class had to endure decades of hard labor with little improvement in their quality of life before they were able to enjoy the benefits of the new economy. Real wages fell dramatically for some occupations. Many who held those occupations couldn’t be retrained to compete in the new economy. Lives were shattered. Some families suffered across generations. People flocked from the countryside to dirty, disease-infested cities. For decades, there was deep social unrest. British society was shaken to its core.
Just think about the progress made in autonomous vehicles and the fact that the most common job in most states is that of truck driver. A rising technological tide may not lift all boats, at least over the short and medium term. And even if most Americans eventually prosper, many Americans may not. That matters. Indeed, if you believe the Great Stagnation scenario put forward by Tyler Cowen, a large majority will not flourish in the new economy. Sherk and Burke do offer a few solid policy ideas such as occupational licensing and education reform. But if markets do not provide an acceptable living standard, then society through government may need to respond more directly, such as through large income subsidies that make work pay more. It is a policy direction that many on the right are squeamish about, despite the success of our existing wage-subsidy program, the Earned Income Tax Credit. And that may create a bit of a blind spot when thinking about the challenges — as well as the opportunities — from advancing technology.