The Lights in the Tunnel Automation Accelerating Technology and the Economy of the Future_8 docx

THE LIGHTS IN THE TUNNEL / 180 CopyrightedMaterial–Paperback/Kindle available @ Amazon meltdown.Oncethecurrentglobalcrisiseases,wecanbe surethatgovernmentswillturntothetaskofattempting tocontainthisriskinthefuturebyimposingregulationon themarkets.However,theimpactofadvancingtechnolo- gy willnotbeconfinedto justthefinancialmarkets. We will ultimatelyhave to address the issue of systemic risk throughouttheentireworldeconomy,andthiswilleven- tuallyinvolvetransitioningtoamorerobustmodel. The Market Economy of the Future The scheme that I have proposed above essentially in- volvesadoptingspecialtaxestorecapturetheincomefrom lost jobs and then having the government redirect that income according to individual incentives—without the requirement for traditional “work.” The conservative readerislikelytoviolentlyrecoilfromthisidea.Isthisnot theworstformofRobinHoodsocialism?AmInotpro- posingtostealfromthosewhohaveworkedhardtobuild abusinessandthensimplygivetheproceedstomassesof indolentpeopleinreturnfordoingnothing? IwillarguethatIamproposingnoneofthesethings. Putyourselfinthe placeof a smallbusiness owner. Re- memberthatwearestillthinkingintermsofourextreme future scenario with 75 percent unemployment. How wouldyourbusinesssurviveinsuchasituation? The special wage recapture taxes thatyou would be requiredtopayasabusinessownerwouldbeaninconve- nienceto you;youwould,ofcourse,preferthatyounot havetopaythem.(Thesamecouldbesaidofthewages youcurrentlypaytoyouremployees.)However,thewage Transition / 181 CopyrightedMaterial–Paperback/Kindle available @ Amazon recapture taxes paid by every other business will collectively powertheconsumersthatdriveyoursales(exactlyasthe wagespaidbyotherbusinessesdotoday). Wemustfindawaytoredirectincometolargenum- bersofconsumers,ormarketdemandwillnotbesustain- able. It is not necessaryto require workforthatincome becauseinanautomatedeconomysuchworkwillnotbe required.Therecipientsofthisincomewillnotdo“noth- ing;”theywill,infact,bemotivatedtobehaveinwaysthat benefitusall.ThenewtaxesthatIproposearesimplya replacementforthewagesthatwouldhavebeenpaidina lessautomatedeconomy. Without government intervention of this type, free market forces, together with increasing automation, will driveoursocietytowardanunsustainableconcentrationof income.Imagineamodern,industrializedsocietyinwhich 95percentofthepopulationisimpoverishedandleadsa subsistence level existence with little or no discretionary income,whiletheremaining 5percent receivesnearlyall theincome.Insuchascenario,themajorityofindustries now in existence would collapse. The businesses from which most wealthy people derive their incomes would fail. Whilethisisobviouslyanextremeexample,thereality isthateconomicdeclinewouldoccurlongbeforesuchan extreme concentration of income was achieved, and that declinewould be accompaniedbythedeflationofnearly allasset values. Thewealthywill notbeableto maintain their high incomes by selling things exclusively to each THE LIGHTS IN THE TUNNEL / 182 CopyrightedMaterial–Paperback/Kindle available @ Amazon other.Thedaysofthefeudaleconomyaregone.Wenow haveamassmarketeconomy. Aslongasanenormousmassmarketofviablecon- sumersispreserved,theprimaryincentivesthatdrivethe free market economy will remain intact. In the future, it willstillbepossibletobecomeextremelywealthybybuild- ing a new business or product. In fact, it may in some ways,beeasiertodosothantoday.Manybusinessstrateg- ists believe that future marketing will increasingly entail sellingcustomizedoruniqueproductstohugenumbersof small market niches. 52  Evolving online technologies will makeiteasiertoreachtheconsumersinthesetinyniches andofferthemhighlypersonalizedproductsandservices. This will likely create many opportunities for entrepre- neursandsmallbusinessestocreatenewproductsgeared towardspecific marketsegments.Itwill alsoenablelarge businessesandnewindustriestosellhugenumbersofdif- ferentproductsonahighlytargetedbasis. However,itshouldbeobviousthattheexistenceofa hugenumberofviablemarketnichesdependsonarobust and ever expanding universe of consumers. In order to provide future entrepreneurswith a richmarket for new ventures, we have to somehow ensure that the average consumers in our population have access to reliable in- comestreamsevenastraditionaljobsareincreasinglyau- tomatedaway. ConsiderthebusinessmodelofanInternetcompany likeGoogle.Googlereliesonrevenuefromonlineadver- tisementsthatarehighlytargeted.Theadvertiserswhouse Google’ssystemdosobecausetheyhaveconfidencethat Transition / 183 CopyrightedMaterial–Paperback/Kindle available @ Amazon their adswill attractviableconsumerswithadequate dis- cretionaryincome.Intoday’seconomy,nearlyallofthose consumersrelyonjobs.Ifatsomepointinthefuture,it becameobviousthattheuniverseofviableconsumerswas substantiallydiminished,advertiserswould befarlessin- terested and Google’s business model would clearly be threatened. Historyhasshownthatonlyaselectminorityofthe populationhasthecombinationofskill,entrepreneurship, accesstocapital,andluckthatisrequiredtostartandrun a successful business. This reality will not change: most people aredestined to bebuyers rather thansellers.The individualswho do succeed inbuilding businesses inthe future will likely find that wages paid to employees ac- countforafarsmallerfractionoftheirexpenses.Howev- er, they will have to pay higher taxes to compensate for this;otherwise,theywillnotenjoyvibrantmarketdemand fortheproductsandservicestheycreate. An International View Manypeoplemightobjecttotheideaspresentedhereon the grounds that if acountry, such asthe United States, weretoraisebusinesstaxessubstantiallyitwouldbecome less competitive relative to other countries and would thereforeattract less investment. Ifyou look backat the table on page 165, which showed how a wage recapture taxmightaffecttheunitcostofahypotheticalproductor service,theunitcostisclearlyhigheraftertaxestorecap- turelostwagesareimplemented.Forproductsorservices thatfaceinternationalcompetition,thiswouldconstitutea THE LIGHTS IN THE TUNNEL / 184 CopyrightedMaterial–Paperback/Kindle available @ Amazon problem.One solution might be to relymore on acon- sumptiontaxratherthatadirectbusinesstax.Incountries such as the United States, of course, the manufacturing sector has already largelymigrated overseas and employ- ment has become increasingly service oriented. In the U.S.,thegreatestdangerisgoingoccurwhenthe service sectorautomates,anddirectforeigncompetitionislessof anissueinthatarena. In the long run, job automation will clearly be a worldwide phenomenon. No country will escape its im- pact,andthisincludesdevelopingnationswithlowwages. AsIpointedoutinthepreviouschapter,wearelikelyto seeashiftintheincentivesthatdrivebusinessestochoose wheretheyinvest.Politicalstability,minimizedtransporta- tion and energy costs, and proximity to sustained con- sumptionmarketswillbeprimaryissuesinthefuture. Inthebroader sense,wecanspeculate thatanauto- matedeconomywould,inmanyways,redefinethenature ofglobaltrade.Sometradebetweencountriesoccursbe- causeoftheavailabilityofnaturaloragriculturalresources (oilorFrenchwine,forexample),butmuchtradeoccurs becauseoflabordynamics.Ifaparticularcountryhaslow wagesand/oraparticularlyskilledworkforce,itcurrently enjoys an advantage that will lead to trade. In an auto- matedeconomy,whereworkersplayafarlesssignificant role,thistradedynamicwouldobviouslybelessimportant. There are really only two primary reasons that the government ofa country would want to attract factories andbusinessinvestment:jobsandtaxation.Asautomation reducesthenumberofjobs,taxationwillbecomeincrea- Transition / 185 CopyrightedMaterial–Paperback/Kindle available @ Amazon singly important. It seems likely that once this issue be- comesapparent,somedegreeofcooperationbetweenna- tions will develop. Perhaps international entities such as the World Trade Organization will address this issue by settingstandardsfortaxation.Wecannotexpectthatthe transitiontoanewmodelwouldbeentirelysmooth,and perhapsinsomecases,protectionistmeasureswillbene- cessary.Whilefreetrademaybedesirable,itshouldclearly bealowerprioritythanthepreservationofourentireeco- nomicmodel. Transitioning to the New Model Now that we have seen how the government might be abletosupporttheconsumersofthefuturebyredirecting incentive-based income streams captured through taxa- tion, we can begin to thinkabout howto transition into thisnewmodel.Theprimaryproblemwefaceisthatthe currenteconomyisstillhighlyreliantonhumanlabor.We needtodevelopasystemthatavoidscreatingadisincen- tivetoperformnecessarywork.Inotherwords,wedon’t wanttocreateinequitiesbyrequiringsomepeopletowork andnotothers,andwedon’twanta“moralhazard”that pushes people to avoid work and seek government sup- portinstead. The answer must be sometype ofjob sharing solu- tion.Theexactmechanicsofthissolutionwouldneedto vary depending of the nature of the job. For many job types,itmightbepossibleto simplymovetowardapart time work schedule so that more people are employed doingthesameamountofwork.Forjobsthatdonotlend THE LIGHTS IN THE TUNNEL / 186 CopyrightedMaterial–Paperback/Kindle available @ Amazon themselvestoparttimework,arotationschemecouldbe used. A worker might rotateinto a job on a monthly or evenayearlybasis.Jobscouldbesharedbygivingworkers asabbaticalatdifferenttimesoftheyear. Ineachcase,workerswouldbesupportedbysupple- mentary incentive-based income streams from the gov- ernment. As automation progresses and more jobs are eliminated,thissupplementaryincomestreamwillbecome anincreasinglyimportantcomponentoftotal income. In largecorporationsandorganizations,itmightbepossible tohandlejobrotationsinternally.Insmallerbusinesses,it would probably be necessary to set up external mechan- ismssothatworkerscouldrotatebetweenemployers.Ob- viously, regulationsand/or incentives * wouldberequired toimplementthesejobsharingschemes. Needless tosay, the businesscommunityis likelyto initially opposethis idea and dismiss it as expensive and unworkable.AsI’vepointedouthowever,businesseswill ultimatelyhave to choose betweengovernment interven- tion and taxation and the existence of a robust market. Oncethistradeoffbecomesclear,oppositionwillbeless vigorous.Weseeasimilarphenomenoninthehealthcare arena, where many industries that opposed efforts at reform in the 1990s nowat least recognize the problem andhavelinedupbehindthegeneralconceptofreform— althoughnoconsensushasyetbeenreachedonasolution.   * Thetaxcodecouldbeusedtoprovideanincentiveforparticipation inajobsharingscheme.InthepreviouschapterIsuggestedtheidea of“progressive”deductionsforwagespaid.Inasimilarfashion,high- erdeductionscouldbeprovidedtobusinessesthatagreedtoincorpo- ratejobsharingintotheirbusinessmodels. Transition / 187 CopyrightedMaterial–Paperback/Kindle available @ Amazon Onethingthatisabundantlyclearisthat,inaworld where traditional jobs are disappearing, access to health careinsurancecannotbecoupledtoemployment.Oneof theprimaryneartermgoalsfortheUnitedStatesshould be to establish auniversal healthcare system thatisnot tied to jobs. Additionally, as I pointed out in Chapter 3, payrolltaxes will become increasinglyunsustainable. The firststepsintransitioningtoanewmodelwillhavetobe toshifttheburdenformaintainingsocialprogramsaway fromtaxesonindividualjobsandtowardabroader,more sustainablemodelwhichfallsmorefairlyoncapitalinten- siveindustriesthatemployrelativelyfewpeople.Thebur- den that falls on a business should depend not on how many workers it employs, but on how successful that businessisatderivingwealthfromthemarket. Onceasystemisputinplacethatallowsworktobe shared on an equitable basis, it should be possible to achieve a relatively smooth transition into an automated economy.Overtime,theincentive-basedincomestreams provided by the government would increase, and the amountoftraditionalworkperformedwoulddecrease.As jobautomationincreasesandthewagespaidbybusinesses fall, the special taxes that have been put in place would needtobegraduallyincreasedtorecapturetheincome. Inadditiontotheprimaryeconomicobjectiveofsus- taining consumer demand, this would of course, have manypositiveimpactsonsociety.Individualswouldhave moretime forfamily,leisure,personalhealth andeduca- tion. Better educated consumers with more leisure time andmoreconfidenceintheirfutureincomeswouldresult THE LIGHTS IN THE TUNNEL / 188 CopyrightedMaterial–Paperback/Kindle available @ Amazon insustainedconsumerspending,vibrantdemandfornew products and services, and long-term economic growth. As incentive-based income became more important rela- tivetotraditionalwages,individualswouldseeincreasingly potent incentives to act in environmentally conscious ways,andthatwouldpotentiallyhaveasignificant,favora- ble impact on climate change and other environmental challengesinthecomingdecades.   Transitional Economy Average Income              Time Machines Becoming Autonomous Consumers and Workers Decoupled Machines Getting Better Value Transition / 189 CopyrightedMaterial–Paperback/Kindle available @ Amazon Keynesian Grandchildren While few contemporary economists seem particularly concernedabouttheseeminglyinevitabletransitiontoan automated economy, one legendary economist did have remarkableinsight into the future.In1930, as the world plungedintotheGreatDepression,JohnMaynardKeynes wrote an essay entitled “Economic Possibilities for our Grandchildren.” 53  In his essay, Keynes coined the term “technologicalunemployment,”writing:  Wearebeinginflictedwith anewdiseaseofwhichsome readersmanynotyethaveheard thename,butofwhich theywillhearagreatdealintheyearstocome—namely, technologicalunemployment.Thismeansunemploymentdueto ourdiscoveryofmeansofeconomisingtheuseoflabour outrunningthepaceatwhichwecanfindnewusesforla- bour. *   Keynesrecognizedthat,in1930,technologicalunem- ploymentwouldbeatemporaryphenomenonandthatthe economywouldeventuallyabsorbtheexcessworkers.The mainthrustofhisessaywastoattempttolookmuchfur-   * Today,wheneconomistsdiscussthecausesoftheGreatDepression, they tend tofocusalmostexclusively on themonetary policyofthe FederalReserve.Whilethereislittledoublethattheoverlyrestrictive policies of the Fed prolonged the Depression and perhaps turned a runofthemillrecessionintoadisaster,itshouldnotbeforgottenthat therewasawidespreadbeliefatthetimethatthetechnologicalunem- ployment(andtheresultingplungeinconsumerdemand)thatKeynes spoke of played an important role. Even Albert Einstein expressed thisopinionwhenaskedforhistakeonthecausesoftheDepression duringavisittotheUnitedStatesin1933. [...]... and green, the green light gradually comes to predominate While the color rotation among the lights captures our interest for a time, the most striking realization is that nothing else has changed in the tunnel As we watch, we see that the lights continue to softly impact the panels on the walls of the tunnel as consumers purchase products and services The businesses in the tunnel make no distinctions... the color of the lights Over time, the process of creative destruction continues just as it always has Inefficient businesses fail and newones rise up to take their place Among the multitude of lights in the tunnel, we can see that there are still a significant minority which shine with intense white light The wealthiest people in the tunnel may be subject to somewhat higher tax rates, but the businesses... demand in the economic sense, which means desire for a product or service combined with the ability and willingness to pay for it No business will invest in production unless there is either existing market demand or the reasonable expectation of such demand in the foreseeable future The idea that production responds to demand is one of the defining characteristics of capitalism Removing the Constraints... benefit of their country as a whole In the final analysis, it comes down to individual incentives People are primarily motivated to do things that they are paid to do Making an arms length investment in a country and somehow insuring that that investment creates appropriate and sustainable incentives throughout the economy is an extraordinary challenge.54 A second issue we face in confronting poverty is the. .. Partly, the reason is that figuring out how to invest in a developing country in such a way as to ensure that the investment results in sustained growth is extraordinarily difficult A common problem is, of course, corruption among officials in the country These people very often act primarily for their own benefit and, in particular, in ways that preserve their positions and power—rather than for the benefit... in the major industrialized and emerging economies Things have progressed to the point where the majority of people in the developed world no longer work full time Most consumers now receive a substantial portion of their income from incentive-based income streams Based on their particular interests and abilities, people pursue higher education, work in the community and make choices that benefit the. .. we begin to automate the jobs held by many of the average lights As this happens, the impacted lights grow dimmer and in many cases disappear completely Now, however, we notice something new in the tunnel A green light has appeared As we watch closely, we see that many more lights gradually begin to shift in hue The intensity of the lights remains unchanged, but the color rotates between white and green... simply soar toward infinity? Obviously, there are things that limit production Let’s make a list of the most basic factors that act to constrain economic activity: 1 Labor In today’s economy, human labor is required to some degree in the production of nearly everything The availability of workers, the cost of employing them and the specific skills that they possess is an important constraint on economic... by the harmful effects it perpetrates on the envi- Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS IN THE TUNNEL / 202 ronment: including toxic pollution, over use of public resources, and, of course, the climate change effects associated with the emission of carbon dioxide and other greenhouse gasses 3 Technology Production is also limited by the sophistication of the machines,... consumer demand, but also drive people to act in ways that benefit us all and provide each person with the possibility of advancement and a higher income in the future This hope for the future the idea that by striving to complete goals one can attain a better standard of living— is critical to both individual and collective stability It offers a way to avoid the enormous problem of an ever increasing, impoverished, . maintain their high incomes by selling things exclusively to each THE LIGHTS IN THE TUNNEL / 182 CopyrightedMaterial–Paperback/Kindle available @ Amazon other. The days of the feudal economy aregone.Wenow haveamassmarket economy.  Aslongasanenormousmassmarket of viablecon- sumersispreserved, the primaryincentivesthatdrive the free. conservative readerislikelytoviolentlyrecoilfromthisidea.Isthisnot the worstform of RobinHoodsocialism?AmInotpro- posingtostealfromthosewhohaveworkedhardtobuild abusiness and thensimplygive the proceedstomasses of indolentpeople in returnfordoingnothing? IwillarguethatIamproposingnone of thesethings. Putyourself in the place of . captures ourinterestforatime, the moststrikingrealizationisthat nothingelsehaschanged in the tunnel. Aswewatch,we seethat the lights continuetosoftlyimpact the panelson the walls of the tunnel as consumers purchase products and services. The businesses in the tunnel make no dis- tinctionsbasedon the color of the lights. Overtime, the process of creativedestructioncontinuesjustasit