Thursday, May 25, 2017

The Big Issue

One of the biggest issue from now on is going to be how people will be able to earn a living in a world increasingly dominated by computers. But you would not know it from listening to politicians, especially Democrats, who claim to speak for the little guy.

Even though computers and the uses to which they are put--such as Artificial Intelligence (AI) and robots--will not likely displace all jobs, the number of jobs they will eliminate could very well plunge the whole world into a state of economic uncertainty, if not outright permanent depression.

Am I overstating the risk? Isn't it true that ever since the Industrial Revolution, jobs displaced by changing technology have been replaced by even more jobs in other lines of work? Won't retraining for jobs alongside the computer "maintain the equilibrium," i.e., create as many or more jobs than are replaced?

Not necessarily, or even likely. 

A recent report by Professors Daron Acemoglu and Pascual Restrepo, Robots and Jobs: Evidence from U.S. Labor Markets, published by the National Bureau of Economic Research, analyzes the effect of the increase in industrial robot usage between 1990 and 2007 on US local labor markets. Note that this is not a study of the overall effect of automation and computerization on jobs; it is just the effect of robots, which the report defines as 
fully autonomous machines that do not need a human operator and that can be programmed to perform several manual tasks such as welding, painting, assembling, handling materials, or packaging. Textile looms, elevators, cranes, transportation bands or coffee makers are not industrial robots as they have a unique purpose, cannot be reprogrammed to perform other tasks, and/or require a human operator.
The authors note that their report is only "a first step in a comprehensive evaluation of how robots will affect, and are already affecting, the labor market equilibrium, . . . because our methodology directly estimates only the effect of robots on employment in a commuting zone relative to other commuting zones that have become less exposed to robots." But the authors offer a convincing basis for believing that this is a necessary first step and has validity. 

The bottom line? Sizable net loss of jobs and more in the future:
Because there are relatively few robots in the US economy, the number of jobs lost due to robots has been limited so far (ranging between 360,000 and 670,000 jobs, equivalent to a 0.18-0.34 percentage point decline in the employment to population ratio). However, if the spread of robots proceeds as expected by experts over the next two decades (e.g., Brynjolfsson and McAfee, 2012, especially pp. 27-32, and Ford, 2016), the future aggregate implications of the spread of robots could be much more sizable.
A recent UK-oriented report by PriceWaterhouseCoopers, Will robots steal our jobs? The potential impact of automation on the UK and other major economies, attempts a more ambitious task: measuring the effects on employment in major Western economies, principally that of the UK. The methodology is to analyze the effect of automation on specific tasks within jobs. These are the "Key Points":

• Our analysis suggests that up to 30% of UK jobs could potentially be at high risk of automation by the early 2030s, lower than the US (38%) or Germany (35%), but higher than Japan (21%). 
• The risks appear highest in sectors such as transportation and storage (56%), manufacturing (46%) and wholesale and retail (44%), but lower in sectors like health and social work (17%). 
• For individual workers, the key differentiating factor is education. For those with just GCSE-level education or lower, the estimated potential risk of automation is as high as 46% in the UK, but this falls to only around 12% for those with undergraduate degrees or higher. 
• However, in practice, not all of these jobs may actually be automated for a variety of economic, legal and regulatory reasons. 
• Furthermore new automation technologies in areas like AI and robotics will both create some totally new jobs in the digital technology area and, through productivity gains, generate additional wealth and spending that will support additional jobs of existing kinds, primarily in services sectors that are less easy to automate. 
• The net impact of automation on total employment is therefore unclear. Average pre-tax incomes should rise due to the productivity gains, but these benefits may not be evenly spread across income groups. 
• There is therefore a case for some form of government intervention to ensure that the potential gains from automation are shared more widely across society through policies like increased investment in vocational education and training. Universal basic income schemes may also be considered, though these suffer from potential problems in terms of affordability and adverse effects on the incentives to work and generate wealth.
These are just two of many reports and studies in the recent past. More research needs to be done, but it is extremely dangerous to fall back on the nostrum that all will be well because people will be retrained. The chances are substantial that, instead, we will end up with more and more income and wealth going to the most highly educated (which usually correlates with the accident of people's birth) and the great mass fighting among themselves for reduced income from fewer jobs.

The question is, do politicians start talking about this or do they wait for the effects to be solidified? 

From my experience in past Democratic Congressional campaigns, the consultants will solemnly state that candidates can't talk about issues this complicated. So, stick to yelling "Hands Off My Medicare!" while ignoring the long-term threat to Medicare and Social Security solvency. 

Donald Trump taught us one thing: politicians who talk--even (or especially, I fear) dishonestly or ignorantly--about issues that people see and feel for themselves can attract voters. By contrast, when Hillary Clinton was asked at the debates what economic policies she advocated, she immediately started talking about infrastructure spending--a necessary program but not focused on the long-term problems of the process of hollowing out in small towns and cities throughout the U.S. In other words, uninspiring and tone deaf to people's feelings.

The conclusion from the PwC report about the need for a societal response is a warning to politicians that sitting idly by and waiting for automation to wreck people's lives is bad policy and bad politics. 

I am waiting for Democratic candidates and think tanks to start talking about this issue openly and vigorously. It is a hell of a lot better way of demonstrating to people that "we care" and "we hear you" and "we feel your pain" than (a) emitting these hackneyed phrases or (b) talking only about infrastructure programs. 

Being a realist, I expect to have a long and lonely wait.

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