Technology and the Economy of the Future_6 pot

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. [...]... as the wages paid to average workers decrease (as a percentage of revenue), these taxes would be gradually increased to recapture at least a portion of this income The overall objective is to recapture just the optimal amount of income and then get it into the hands of consumers so that there will be sufficient consumer demand to continue driving the economy Once the income has been collected, I then... Demand Viable consumer demand is also an absolute limiter of production in the free market economy We are, of course, speaking here of 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. .. products and services In our current economy, it takes a great deal of human labor to produce those products and services Therefore, it is fair to say that the value of money is tied very closely to productivity, or the general efficiency of production If in fact, the economy of the future is highly automated and requires few workers, then Copyrighted Material – Paperback/Kindle available @ Amazon THE LIGHTS... workers, the cost of employing them and the specific skills that they possess is an important constraint on economic output Obviously, the point of this book has been that this constraint is likely to become far less important as automation technology progresses 2 Energy, Land, Natural Resources and Environmental Impact Clearly, production is constrained by the availability of energy and of the raw... Amazon The Green Light / 199 other countries would try to ramp up to meet this new demand They would have to find and hire workers for this We can easily imagine that shortages of skilled workers might develop and that wages would therefore increase In short, the economy s ability to produce real goods and services would not be able to keep up with all the new money now in the hands of consumers The result,... between white 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.. .THE LIGHTS IN THE TUNNEL / 190 ther into the future Keynes argued that over the next hundred years (in other words, by the year 2030), the economies of developed nations would grow dramatically He showed that, over time, economic growth would operate much like compound interest in a bank account and make the society of the future far more wealthy Keynes had a very optimistic view of the long-term... The result, of course, would be inflation: the value of all this new money would fall, and prices and interest rates would increase, perhaps dramatically But what if the entire economy were highly automated? Then, no new workers would need to be hired, and there would be few if any labor shortages There would be a need for additional capital investment in technology to meet the new demand, but this... gradually begin to shift in hue The intensity of the lights remains unchanged, but the color rotates between white and green Some lights rotate rapidly between green and white light, while others shift their color much more slowly The green light, of course, represents the purchasing power of consumers who are supported by incentivebased income streams rather than traditional jobs The lights rotate in color... may choose to engage in profitable hobbies or part time businesses that augment their income Prosperity has been preserved in the developed and emerging economies Our next task is to think about how this new system might be extended to the poorest regions of the world Attacking Poverty Most of us understand that there is a basic inequity in the fact that the vast majority of the world’s wealth resides . elimi- nates the jobsthatprovideincometoconsumers. The es- sentialideaisthatweshouldimposesomecombination of aconsumptiontax and/ oraspecialdirecttaxonbusiness thatcaptures the incomewhich,inanon-automatedecon- omy,wouldbepaidoutinwages.Overtime,as the wages paidtoaverageworkersdecrease(asapercentage of reve- nue),thesetaxeswouldbegraduallyincreasedtorecapture atleastaportion of thisincome. The overallobjectiveisto recapturejust the optimalamount of income and thenget itinto the hands of consumerssothattherewillbesuffi- cientconsumerdemandtocontinuedriving the economy.  Once the income. 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. and emergingeconomies.Ournexttaskistothinkabouthow thisnewsystemmightbeextendedto the poorestregions of the world. Attacking Poverty Most of usunderstandthatthereisabasicinequityin the fact that the vast majority of the world’s wealth