The Luddite Fallacy Fallacy

I’ve spent a lot of time considering (here, here, here, and here) the notions of technological unemployment and the Luddite Fallacy: the idea that technologically driven productivity — machines — will replace, are replacing, human labor. I’d like to revisit that here.

My basic conclusion: the Luddites were obviously wrong at the time. But they’re right now — at least in the U.S. Even a stopped clock is right eventually.

I think the Luddite Fallacy argument ignores two things:

1. The limits to human capabilities. By definition, 50% of people have an IQ below 100. I don’t think anyone who’s reading (or writing) these words can begin to imagine how hard it would be to make a go of it in modern America with an IQ of 90 — to build a prosperous and secure life, raise a stable, happy family, or ensure that you can be self-sufficient in your waning years. Even getting through high school would be really hard.

The original Luddites weren’t hitting that cognitive limit — not even close. Today, tens of millions of people are slamming right into it (over time, hundreds of millions). Increasingly, only those at the right end of the bell curve are able to claim a decent (or any) share of the American pie. As the American economy is constituted (in its global context), diligence and hard work are not sufficient to give you that claim.

2. The declining marginal utility of innovation and consumption. As I pointed out in a post a while back:

Pretty much every important invention of the modern world – trains, planes, automobiles, air conditioning, antibiotics, painkillers, telephones, radio/television, computers – had already been invented and was in at-least-fairly widespread use when I was growing up in the sixties. The only thing since then has been the internet.

Post-’70 it’s just been distribution, improvements (i.e. cell phones over land lines), and price reductions — important stuff, no doubt, but compared to the germ theory of disease or the electric motor? (Arguably even the internet is just a distribution thing.)

The innovations that the Luddites were facing all delivered massive increases in human utility (via increasingly inexpensive and higher-quality goods and services). So while the losses to particular groups — and their required readjustments — were painful (sometimes horribly so), in the big picture they were overwhelmed by the overall increase in utility.

You just can’t say the same thing about Twitter, or inexpensive heated car seats. The human essentials that early innovations delivered (food, clothing, shelter, medicine, transportation, communication) were massively more valuable than the improvements we’ve seen in my lifetime.

Yes, the utility pie is still getting larger (far more slowly than it was in the past), but the slice that machines can’t provide — especially at the margin — is getting smaller, faster.

Combine these two realities to perceive a world in which:

1. A great (and increasing) proportion of human utility is, can be, delivered by machines.

2. Humans who do not (don’t have the wherewithal to) control those machines can only compete among each other to deliver an ever-decreasing slice of lower-utility goods and services. And they are compensated — given a slice of the pie — based on the steadily smaller amount of utility they can deliver. Left to itself, the market will provide many with a sub-subsistence level of compensation.

In the great log-rolling exercise that is our economy, an increasing number of people over the decades are falling off the log, and finding it hard or impossible to climb back on. Many — millions — are drowning.

And that magical log — which miraculously grows as more people climb on and have the sustenance to run faster — is not growing as fast.

Have I mentioned the Earned Income Tax Credit lately?

Cross-posted at Asymptosis.

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