Paul Krugman changes his mind on impacts of automation
In the past discussions at Angry Bear on the impacts automation might have on our lives, and the economics involved, gathered comments such as “You are a neo luddite”. As if widespread use of automated systems was automatically good for us overall because we would have access to ‘more higher wage and higher skilled jobs’, cheaper goods, and robots need a work force to maintain them…of course, there was no offering of numbers of jobs and whether the wage premium for a college education would be maintained. This is the time to pay more attention as ‘insourcing’ gains traction as a buzz word,
Paul Krugman calls for a new look at the economics of robotics and economics :
Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.
This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.
Twenty years ago, when I was writing about globalization and inequality, capital bias didn’t look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on “skill bias”, supposedly explaining the rising college premium.
If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.
I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.
But I think we’d better start paying attention to those implications.
Hat tip Martin Ford at Econfuture:
The really big deal in the U.S. will be when automation hits the service sector/white collar jobs. Impact on :manufacturing in China might also be very significant.
(Lifted from an e-mail from Martin Ford and pointing to Paul Krugman’s article).
Previously, on Angry Bear:
Maybe he’ll read my open letter of May 2011 now,
Probably not, they only wake up too late in the process.
I think Krugmanstill misunderstands the implications when he suuggests thatwe could learn from a standard Marxian model of capital and labor.> There are genuine implications for certain segmentsof laborthat are more profound than for actual ownership< except increasingly dogmatc intellectual property "rights."
Same old, same old. The monster sitting in the middle of the room is invisible, unremarked of and untouched by our supposedly most astute progressives (Krugman in this case): the cratering of the American labor market — and concomitantly middle class political muscle — via total deunionization.
Automation makes us more productive – as a society – no? Greater overall output/average earnings could – practicably – be distributed evenly just as – practicably – as it is currently distributed unevenly – no? Let’s say it would be unjust to distribute evenly but those evil, greedy, self-centered unionized workers forced even distribution (not re-distribution!): as a greedy, self-centered (non-union) worker, that sounds fine to me.
Practicable because technological and management advances will continue to advance at the same pace whether the top 1 percentile earners scoop up all the income gains or not. (FWIW, the top 90-97 percentile American earners – the hardest working, most intelligent — just kept pace with average income growth since 1968, suggesting so called “inequality” – Hemingway would prefer truer term like “Great Wage Depression” – is not a result of lower skill workers no longer competing.)
Would create only 4% direct inflation to double the minimum wage to $15/hr. Would make a minimum yearly wage of $30,000 today – could be $40,000, 12-15 years from now with normal productivity growth. The median wage stagnated as average income doubled since 1968 – now below $15/hr. Half the workforce very conservatively could be paid half as much more – practicably.
Outsourcing to my cabdriver economic brain is the equivalent of automation. (I know; I know: quickly updating product lines make it more profitable again to move production close to design again.)
What we have to do if we are ever going to stop the race to the pay and benefit – and political – bottom is to rebuild American labor’s bargaining (and political) muscle – German style: legally mandated, sector-wide labor agreements (listening Krugman and others?). Over the decades and around the world sector-wide negotiating is the only labor market system that yields both fairly balanced labor markets and political forums.
Everyone working the same job (e.g., retail clerks) in the same locale negotiating one common labor contract halts the race to the bottom dead in its tracks. Formerly well paid supermarket workers and endlessly squeezed airline flight crews would kill for sector wide contracts.
Over the centuries (think Middle Ages) and around the world (think Arab Spring) the middle class has classically been the only force to upend the squeeze from the top. The only way for American middle class (shouldn’t be any poor) to upend today’s squeeze is to join the smart nations (think French Canada) who have joined the legally mandated, sector-wide labor agreements club. If you have a better idea Krugman and others – or any other ideas at all …
Economists are much better at analyzing the past than at analyzing the present or predicting the future.
i agree with you. but you can’t expect economists who earn twice (?) the average wage to imagine that that is not due to their superior skills and contribution to the “economy.”
what’s funny is that if they had to clean their own bathroom they would count that against “opportunity costs”… what they “could have” earned in the same time at their day job. But they would never consider paying the cleaning lady anything approaching the money she enables them to make by freeing them from that mundane chore.
the only reason cleaning ladies make half of the average wage is that the “labor market” assures the “high end worker” that he can always find someone that will do it cheaper.
i don’t know much about “sector wide,” but i do feel that a union would help the cleaning ladies at least make enough to buy health insurance and hope to retire one day.
to be honest, i knew a cleaning lady at Oregon State University. She had to take the job because her high earning husband up and died on her without, you know, providing for the contingency. She was a good deal smarter than the professors I worked with.
But apparently she made too much money.. it was civil service after all…. so the University outsourced the “cleaning services” to a sweater (not the kind you wear) who paid minimum wage, no benefits, and no job security.
Meanwhile the professors are smug in their great contribution to society and the fact that they are irreplaceable…
er, maybe not so much if you have been watching the market for folks with PhD’s.
as for grocery clerks
the local Safeway has decided that automation has reached the point where they don’t need humans at the check out counter.
it only takes you five times as long to do it yourself as a checker would take… but, hey, Safeway is not paying for YOUR time.
now if only those laid off checkers get together and offer a “grocery shopping service” they can stand in line for you and free up your very valuable time to make the big bucks so you can afford to have someone else do your shopping for you.
heck, with your big brain, eventually they can just hook you up to a feeding tube, and you can make tons and tons of money while folks in gray clothes take care of your every need… at minimum wage.
Speaking of grocery stores, just for kicks I used the BLS calculator to tell me, in today’s dollars, what I was making as a part-time grocery store stock boy while going to school in 1974. The calculator says my hourly pay was about $25/hr. Shelves still don’t fill themselves. The same job in the same city pays about $9-10/hr on average today.
Automation and robots? Skills mix and college premium? Lower demand for groceries? Other economic explanations? How about political explanations, like a declining real minimum wage, a continuous weakening of union power, or tax subsidies to non-union competition owned by the politically powerful?
In this part of the world many of the groceries and Wal-mart are reducing or eliminating self-checks because 1) the machines break and 2) some people are too dumb or too feeble to work the machine.
I can check very fast but I usually get in line behind the too dumb shopper.
PJR, I believe that Nixon raised the minimum (from wherever it had fallen) to $9/hr in today’s money — in one jump. Average income has increased 66% since 1974 I also believe.
Yes, Denis Drew, that’s what a new employee made on day 1 at the store back then. Their average pay was much higher because they got scheduled raises with experience. Today, they start on day 1 at a little under $8/hr and they average under $10/hr. Their boss doesn’t make $25/hr.
i am the dumb shopper. i talk back to the machine.
the dumb ye shall have with you always.
but before you decide on a final solution, think a minute. with global warming or something, strong backs may come back in style.
True automation mimics the labor that it replaces. That is why a customer must come up to speed as a clerk in order to operate most versions of so-called automation. In reality, the automation I have seen on the do-it-yourself side is not a new step in automation but a new step in reducing services done by human employees.
There is pure automation, there is technology that drastically increases productivity of the worker and there is technology that changes how things are done and what kind of person does it. For an example of the latter consider that there is a lot of work being done on software that will allow non-programmers who understand business rules and data to accomplish the same kinds of tasks that programmers and database analysts do today. There is also software that is meant to drastically reduce the hours it takes a programmer to produce applications. Enough of a reduction means fewer programmers needed so there are fewer good tech jobs, reducing the validity of the arguments for more education.