THE AUTOMATED ECONOMY doc

THE AUTOMATED ECONOMY By Isuru Abeysinghe SMASHWORDS EDITION The Automated Economy Copyright © 2012 Isuru Abeysinghe INTRODUCTION This book is an analysis of the economic systems that persist today and the potential impact of automation and robotics with relation to addressing the shortcomings of the economic model. In this book I will first explain the core premise of the structural aspects of economic modeling and then propose a possible future whereby the economic model is severely modified to account for the impact of automation (either organically or through central planning.) I will present a discussion concerning the impact, benefits and risks associated with this scenario. The current economic model is based on two fundamental drivers – natural resources and human labor. The concept of money is simply a mechanism that addresses the equilibrium between these two primary factors, mechanizing the supply and demand against a backdrop of global relativism. Human labor can be thought of not simply as the availability of constructive resources, such as mining or agriculture, but also the availability and willingness of regulatory and political resources. As technology becomes more sophisticated the potential for removing human labor out of the equation becomes increasingly attainable – but the moral, social and cultural impacts of such a progression will present many challenges. PART 1: ECONOMIC GOALS ROLE OF THE ECONOMY When people talk about a healthy economy the general case is they are speaking from a position of personal self-interest. Value judgments are always being made concerning the state of the economy and in modern times that issue has surfaced as one of the most important political factors influencing society. The economy should be there to serve all; and yet different segments of the society will always have diametrically opposed interests. A person who fills the role of an employee would always like to see a low unemployment rate, since a low unemployment means that demand for employees will be high, jobs will be easy to find, higher paying and social maladies (such as crime) associated with unemployment will be reduced. On the surface this all seems very straightforward; however from the opposing end of the spectrum a labor shortage may eventuate that will stifle industries and reduce competitiveness. In order to consider the economy in an abstract way the essential property is the need to remove value judgments out of the discussion of economic prowess and consider it on a purely abstract level. Towards this end, I can only presume that there are two goals of an economy, be it domestic or international: The first and most fundamental role of the economy is to make goods and services accessible to the populace. Human beings have inherent needs and wants and the ability to satisfy those needs and wants through financial might is what we would normally term as “standard of living.” While any high school economics teacher will point out that “standard of living” is not necessarily synonymous with “quality of life” - a concept that can bring together many non-economic factors such as happiness or feelings of acceptance with society – it can not be disputed that a person who is starving due to economic dilapidation will most certainly have a diminished quality of life. As a result, the question of how to make people happy is a completely separate concern to what I will propose is the first role of the economy: to get people the goods and services they want or need. Economic efficiency in this sense must then be measured in the ability to convert money to goods and services as efficiently as possible: in other words “bang for buck.” If a hundred dollars can only buy a loaf of bread, is that good or bad? Well, it depends on what amount of money people earn! Subsequently, the “bang for buck” here is a quantitative principal of what people can acquire – and the availability of all goods and services that are desired - not the numerical value of money. SOCIAL ROLE OF THE ECONOMY Many who have read the above statement would immediately dispute this. They would claim, not without justification, that the economy also serves a social role – to provide fulfillment in life, to provide a minimum standard of living, to provide a system which allows for the nature human inclination towards competition, equal opportunity, stability, progress, environmental protection and other concerns. They are not wrong: the completely abstract view of economies as a system of supply is in it's own essence self defeating – because the loudest question is “why?” If economic greatness is not necessarily the same as quality of life, then why serve a system that will make the populace unhappy simply for the acquisition of material things? My answer to this is that the social role of the economy is not necessarily diametrically opposed to the abstract role (which I would term the primary role) and when executed properly should work to reinforce it. But social roles are abstract – they are not quantifiable – and ultimately can never be planned or maneuvered through economic engineering without first making some very presumptuous leaps concerning what it is that people actually want! To this end, while the social side of the economy is neither meaningless nor unimportant, it is not something that can be analyzed without trying to take every human perspective; ultimately a exercise in contradiction. What do I see as the social role of the economy? Firstly, I see that the two primary needs are the preservation of liberty – freedom of choice - as well as the preservation of security (safety, human dignity.) In the end this is my own personal value judgment, though it is a premise that perhaps most people would probably agree with in general terms. However, it all becomes very muddy when one individual's sense of entitlement conflicts with another's desire and unencumbered drive for competition. In the end, a system whereby the aspect of labor is a factor in economic life necessitates this conflict – but what would happen if you removed human labor completely? The automated economy as a concept is just that. PART 2: ECONOMIC PRINCIPALS SUPPLY AND DEMAND Price is the balance between supply and demand. As demand increases, where supply remains the same, competition will force prices up. As supply increases, where demand remains the same, competition will force the prices down. The concept of affordability, whether is be for an individual, company or government, is the relative lower price against a relative higher income/revenue. The standard of living consequently must be synonymous with affordability! It then also follows that all standard of living is increased as supply gets higher (with respect to population.) In other words; the more “stuff” there is that is being made, the more “stuff” there is that people can get theirs hands on. This applies to services as well as goods. TECHNOLOGY TREE The concept of the “technology tree” is a term that I am borrowing from computer gaming, in particular strategy games. In these games the objective is to defeat another army or civilization by means of military or economic conquest. In order to achieve this conquest you must first develop technologies from the most rudimentary (discovery of metals, herbal medicine, religious theory, scientific theory) to the most advanced (nuclear fission, atomic weapons, genetic engineering.) In order to develop the more advanced technologies you must first have already developed the previous technologies that those are built/based on. In a lot of ways human civilization follows the technology tree paradigm as it advances. But, ultimately, those advances themselves are hinged upon an economic system that provides the funding and labor for those enterprises. Obviously, human ingenuity is also a very important factor! The availability or resources and labor is a necessarily component of every technological advance from the creation of spear heads out of rocks to the building of lunar rockets. SYSTEMS AND SUBSYSTEMS The economy should not be thought of as a flow of money but rather as a dazzlingly complex system of interdependent components. As with all systems of this nature, termed mathematically as dynamic systems, the denial of a single, perhaps seemingly unimportant, item of supply can have a dramatic impact on the system as a whole. The following diagram is a vastly oversimplified representation of an economic system of dependencies that can exist in the real world. Although this is only an extremely small fraction of the types of interconnected components that comprise an economy it is still sufficient to illustrate the nature of interdependence as whole. In this diagram the green lines represent some dependency between the abstract entities. Obviously this is not a complete set of connections (for example the production of electricity may depend on the production and availability of coal – nor is the granularity sufficient to accurately model the real world - there may be several car manufacturers who rely on different markets and sources of supply etc.) On the surface it would seem that the production of electricity is completely unrelated to everything else other than the people who buy houses and need to pay for their power. Let's ignore the fact that people who rent also need to pay their bills for the purpose of abstraction. Assume that some factor external to this diagram caused electricity prices to rise to levels whereby 10% of the people who already own houses could no longer afford to own their own home. They would default and they would not seek to buy another house. This results in a drop in the value of houses to the extent that the money lenders have now lost money on their loans. Due to tighter conditions in the lending market, they are unable to provide loans to people that would usually get a loan to buy a new car. The demand for cars has now dropped. The demand for iron ore has also dropped, since these were used to make the cars. In this fashion, although iron ore is not directly linked to the housing market, it has been effected. The subprime crisis is a real world example where a failing or shortcoming in the housing market, caused by bad regulatory policy and exploitative lending practices, being implemented domestically in the USA, let to a set of events that had worldwide implications. In reality, in order to model an economy in such a systematic nature we would require an extremely granular model of all the components, with each individual company as well as individual consumers and governments considered as separate entities. However, this does not diminish the hard fact that interdependence still exists and that seemingly unrelated shortcomings in one component can have flow on effects to the entire system. The situation gets even more complicated when you factor in the systems of financial regulation, including the printing of new money and the financial politics through every jurisdiction of the globe. Human beings have progressed through social evolution into a method of organizing themselves through systems and sub-systems. The financial world is a classic example of this, although by any means not the only example. Nations regulate domestic economies as well as the international economy through the systems of export and import, the currency exchange rate and international lending. It is becoming increasing clear in modern times that the economy as we call it is actually a global mechanism, and while politicians will happily take credit for, and then reluctantly face criticism for, it's fluctuations, it is actually a beast which is not really under any single point of control. The economic policies of a nation are almost always reactionary (and rarely proactive) – it is a reaction to prevailing global economic conditions and represent differing views on how to deal with them. Since the introduction of the free market and the abolition (for the most part) of tariffs and subsidies, it is increasingly becoming apparent to most that the decisions they make concerning their economic policies, through political representation, can be dashed at any instant by other decisions made by completely independent nations and companies on the other side of the globe. PART 3: CURRENT ECONOMIC SYSTEMS FREE MARKET The number of nations on the planet that do not hold to the principals of free market economics may now be counted on a single hand. The concept of free markets can mean different things to different people but in general it entails a philosophy whereby the level of administrative intervention into the fluctuations of the market, those interconnect systems of supply and demand, should be kept to a minimum. There are two primary reasons why free market economics can be beneficial: Firstly, the reduced need to regulate the markets, both on a domestic and international level, reduces the overhead and bureaucracy involved (and thus the cost) associated with running an economy. Secondly, the politicization of supply and demand will invariably lead to decisions that are not in the interests of a free flowing system of dependencies – the chronic shortages of goods in soviet Russia is a prime example of a controlled economy failing to provide for it's populace. In a free market system, individuals are left to decide which business ventures are viable, and in doing so naturally evolve a system of dependencies where, through survival of the fittest, efficient linkages are made. In free market economics all participants are given a level playing field in which to ply their trade, succeeding or failing as the market of consumers sees fit. It is a system whereby the most efficient at performing a particular function in the economy should by virtue of their inherent competitiveness come out on top. The pitfall of this approach, or perhaps the most obvious one, is that it leads to a high level of specialization. A particular country may soon gain the monopoly on a particular segment, for example manufacture, causing upheaval in those countries who's manufacturing (generally because of the cost of labor) is not as efficient. In this fashion, the system of dependencies that form a global economy become increasingly distributed. The danger in this approach is that some very core essentials of existence have become exclusive items of import for some nations, having no domestic capacity to supply that need. This means that critical components, when they go wrong, can and do have a global impact. CONTROLLING ECONOMY – THE MONEY SHOVEL From the discussion about the fundamental effects of free markets we can see that things can and do go wrong in the system. When such an event or crisis happens, what can be done about it? Assuredly the free market system should self-balance, but the chaos that is caused in the interim can be enough to cause social unrest and massive upheaval. To step in and “fix” the system, from a structural perspective, would be contrary to the principals of free market economics. Yet, when a crisis exists something needs to be done. The current approach is what I would like to term as “the money shovel”. During the global financial crisis, upon IMF recommendation, the Australian government implemented a stimulus whereby every taxpaying citizen was paid $900 to spend on whatever they liked. There was condemnation of this action from some segments of politics, who claimed that the money was better spent in the development of infrastructure. Yet, the supporters claimed, backed up by the IMF, that infrastructure projects would take time before they started putting money into the economy, and that the crisis was something that needed to be dealt with quickly. In reality, it was the retail sector in Australia that was under heavy pressure at the time, and while it was highly likely the the majority of the stimulus money ended up in China through their almost monopoly on consumers goods, it perhaps may have prevented a collapse of the retail sector which is in itself a large employer of the Australian population. Such a “money shovel” approach is also demonstrated when governments print money in order to lower their exchange rate and thus increase the competitiveness of their exports. But hang on – is all this kind of thing really “free market?” What's the difference between printing money and putting a tariff or subsidy? LABOR If the stability of raw materials in an economy can't always be guaranteed, then the stability of labor is orders of magnitude far more unpredictable. In the first instance, we live in a society whereby the individual is free to choose their occupation; which by its inherent nature means that some professions and trades will be in higher supply than others. It is sometimes considered an entrenched human right that people who have chosen a particular career in life is entitled to the preservation of that career. This is strongly mandated by the unionist position. While I am not going to argue the moral correctness of this position, since clearly this falls into the realm of quality of life issues, I will definitely assert that such a reality is not intrinsically geared towards the efficient running of an economy, from the purely quantitative definition of economic prowess. When people believe they are entitled to a particular industry, colloquially termed “way of life”, and when prevailing conditions render that industry obsolete, a purely implemented free market system would consider their services only another component of the economic system which has become inefficient and needs to be changed. The reality is that as soon as you add human labor into the mix the environment suddenly becomes highly politicized. If coal is a polluting industry, and other methods of generating electricity are available, perhaps even for a fraction of the cost, supplying electricity to consumers at a greatly reduced price, should not the logical thing be to simply move towards those alternative industries. People argue that the economy would be hurt because jobs would be lost – but they ignore the fundamental supply and demand realities that other jobs would be created elsewhere, and that reduced cost on the consumers would result in more money in their own pockets, which should theoretically create jobs in even unrelated industries. Yet, the reality is that labor is human. PART 4: SECOND RENAISANCE? AUTOMATED PRODUCTION AND ROBOTICS As I mentioned at the start of this book, the aim is to analyze a scenario whereby human labor is completely removed from the economy in it's entirety. At the moment, the only mechanism by which such a feat could be accomplished is through automation and robotics and the advancement of such. Obviously this kind of automation is not currently within the reach of humanity. Perhaps more obviously is that fact that such a scenario will expose several powerful problems and risks, partially on concerns of the technology itself, and the other part upon concerns on human nature and it's reaction to such a revolutionary change. If machines could be developed that could fulfill all the capabilities of human beings, including the creation and maintenance of the machines themselves, then surely we would be faced with a situation whereby nobody is required to work. Anybody who has watched a science fiction film would automatically detect the critical concerns arising from such a scenario, namely the taking over over humanity by machines. While the viability of such a proposition would be dependent on several factors, especially whether or not the machines are either one of complicated automatons vs artificially intelligent “beings”, this is by far not the only pressing concern regarding this scenario. From a humanities perspective there is the issue of what people are going to do with their time after such a revolution has taken place. Human beings are instinctively competitive in nature, would they somehow succumb to deep psychological desperation if suddenly deprived of this biological imperative? Can a person who does not have to work be happy? Would they find other ways of configuring their society so as to maintain the competitive facet of existence without resorting to forms of brutality? If you ask my opinion I can see the situation going in either direction – so the next pressing question is: is an automated economy one day going to be necessary as opposed to desirable for the continued wellbeing of humanity? AUTOMATED ECONOMY If labor is removed completely from the equation then the issue of human choice, from the supply side of things (but hopefully not the demand) will then also be removed. This means that the preservation of occupation concern is no longer persistent. In such a system, the production of goods and services could be easily organized centrally. In conjunction with the complete removal of paper money (leaving only electronic money) and a central repository of all financial transactions as they occur, a electronic system can easily be designed to derive the most efficient pathways in the production/supply side of the economy which could lead to a greatly increased standard of living – perhaps even an equal standard of living – for all Earth's inhabitants. Such a system could eventually set the global economic system into a state of complete equilibrium, such the the prices of goods/services and income of citizens would be always maintained at a constant level relative to the growth of the population. In conclusion, it would either be a utopia or a hell. *** . for the continued wellbeing of humanity? AUTOMATED ECONOMY If labor is removed completely from the equation then the issue of human choice, from the supply. concerning the state of the economy and in modern times that issue has surfaced as one of the most important political factors influencing society. The economy