Grasping Reality on TypePad, by Brad DeLong

Mill’s brilliant, if two hundred years too early, insight was that the economic question was not distribution at all, but production:

Mankind, individually or collectively, can do with them as they please. They can place them at the disposal of whomsoever […] and on whatever terms. What a person has produced by his individual toil, unaided by anyone, he cannot keep, unless by the permission of society. Not only can society take it from him, but individuals could and would take it from him, if society did not employ and pay people for the purpose of preventing him from being disturbed in his possession. The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined are what the opinions and feelings of the ruling portion of the community make them, and are very different in ages and countries, and might still be more different, if mankind so chose….

Let’s now fast-forward to Kevin Drum’s utopian dream. Natural resource constraints are solved by ultra-efficient technologies. Your hot shiny masseuse is a robot. Everyone has chauffeurs, maids, butlers, and secretaries. But we’re living in a post-employment world of deep inequality. Enter Mill…. Governments are free to subsidize lavish basic incomes and fancy roads because incentives are no longer tethered to production, which is on robotic autopilot. In fact, counterintuitively, inequality will no longer meaningfully exist in the post-scarcity world. And what Drum ignores is, the Great Redistribution has already started. Our tax code was designed for a bygone era and, therefore, obscures the immense change technology has created in the past ten years. Redistribution in the form of pure consumer surplus. The web application system allows us, for the first time, to quench or materialistic desires for free. 3D printing is the logical extension of virtual surplus. Soon, we’ll have toys, books, furniture, televisions, and even education for free. Many who are on the computer all day, would pay thousands for Google. And many more thousands for Gmail. (By the way, this is why Robert Solow is wrong about the productivity statistics and, contra Drum, we’re not just “barely starting to see it”, but deeply benefitted for over a decade)….

And then the formerly-working masses will turn themselves to questions of higher importance: science, pure mathematics, abstract philosophy, art, and politics. Surely, as matters which by definition require high intelligence, many will fail. But the concerted and diligent effort, larger than ever before, to understand the human condition will surely create the most prolific intellectual work the world will ever have seen…. To the extent that production is still of material importance, the gloomier parts of Drum’s vision can never become true…. There is no “dimly lit tunnel”. There will be manual jobs: until there aren’t.

The future will be a cornucopia of thought, refinement, ideology, and science. For the first time, millions can enter the “thinking classes”, no longer tethered to labor as a need of production. No longer tethered to the capitalist machinery that hitherto made us rich. Thusly, we won’t be living in Fukuyama’s nostalgic sense of an ahistoric world, either. Rather, the rich social and intellectual interactions unlocked will generate the most amazing cascades of culture at a sophistication never-before-seen.

Paul Krugman:

Rise of the Robots: Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States…. Rampell cites another factor: robots. 'The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens. As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”' Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!

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. But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor.

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.

Matthew Yglesias:

Robots and wages: The more the merrier: Kevin Drum goes long on artificial intelligence but, when discussing the economic consequences, he gets a little ambiguous between falling absolute living standards and relative shifts…. If you imagine a world in which college credentials have little value and medical professionals have been replaced by intelligent machines, then you're talking about a world in which the most expensive items in the typical middle-class consumption bundle are now super-cheap. What's more, average everyday folks will be chauffeured around constantly by autonomous cars taking what's currently an unaffordable luxury and bringing it to the masses. Even those too poor to afford an autonomous car will be able to avail themselves of much more frequent and higher quality bus service than poor Americans currently put up with. There would be, in a sense, an enormous amount of income inequality. But income inequality breeds inequality in living standards because things are scarce and where scarcity exists the market allocates it to those with money.

Which means that I think the right thing to ask is what scarcities remain in robotopia…. Robots themselves will be plentiful and not all that valuable. But all the robots in the world won't change the fact that some parcels of land front onto lovely beaches. In the richer world of tomorrow, more people than ever will want a nice vacation at the beach but beachfront land will be as scarce as ever. You want to be the guy who owns that beachfront. You also want to be the guy who owns a nice juicy patent monopoly, or the copyright to Batman or Sgt. Pepper's Lonely Hearts Club Band. This is why the old ideas of the classical economists are becoming increasingly relevant again.

Karl Smith foresees the trumph of Robot Malthus:

Inequality In The Robot Future: Kevin Drum has a new column that echoes most of my thoughts on the robot future…. Most economists miss the importance of such a change because they lump fears of mass robot unemployment in with similiar fears at the dawn of the industrial revolution. The robot future is an entirely different matter, however…. Broadly speaking, you need two things to do this –  a power system to overcome the gravitational and electromagnetic forces that tend to hold atoms in their relative positions and a control system to guarantee that atoms wind up in the right place. The industrial revolution was about one thing – more power! But more power means the need for more control. Hence, the Industrial Revolution meant a rapid increase in the demand for human brains, not decrease.

It was not so with all living things. The population of horse in the Western World peaks at around the turn of the 20th Century. Before the Industrial Revolution horses were one the principle power systems of the economy. As the economy grew, so did the demand and hence the population of horses. As the new machines of the Industrial Revolution were able to supply power with greater and greater efficiency  the relative demand for horses fell. At first, the economy was growing so fast that the total demand still rose, and so did the horse population. But, the share of national income going to horses continued to fall. The effect of a falling share eventually outstripped the effect of a growing economy pie, and horses went into decline. When factors of production can no longer earn enough income to support themselves they die off. And, so horses began to die off.

In a pure market equilibrium this is exactly what would happen to most humans…. But, with any luck that’s not what’s going to happen. What’s going to happen is massive income transfers to flesh and blood human beings…. This will make complete social sense once you realize that most of the beings on earth will be robots and therefore not-of-birth….

The concern, as I see it, is over accepting the dual truth that robots will in all likelihood be sentient beings with an inner life just as ourselves, and they will live in grinding inescapable poverty. Some – probably most – will deny the first. Those that accept it will consume themselves with fantasies of robot liberation. There will be no such liberation. Robots will likely be sentient because the easiest way to get a human intelligent robot is to take human brain, slice it apart and copy all of the connections into an electronic format. This may not be the most humane, noble or intellectually satisfying way of creating Artificial Intelligence. But it is the easiest and someone somewhere will do it. Once, it done. It is done. Copying the digital copy will be trivial…. They will be people as much as anyone else. Just not-born and hence with no birthrights, and none of the privileges given to flesh and blood humans.

They also have no chance at a golden age of relative income equality…. If by some miracle the income to robots were to rise above subsistence, that would imply an entrepreneur could churn out robot slaves at a profit. And, someone somewhere would do so.

Our future is one of massive perpetual inequality. Our task is to be prepared to handle such a future with grace and kindness, and to above all, ease suffering.

Kevin Drum:

Welcome, Robot Overlords. Please Don't Fire Us?: When we think of human cognition, we usually think about things like composing music or writing a novel. But a big part of the human brain is dedicated to more prosaic functions, like taking in a chaotic visual field and recognizing the thousands of separate objects it contains…. Moore's Law may break down in the near future and constrain the growth of computing power. We also probably have to break lots of barriers in our knowledge of neuroscience…. We have to figure out how to make petaflop computers smaller and cheaper. And it's possible that the 10-petaflop estimate of human computing power is too low in the first place. Nonetheless, in Lake Michigan terms, we finally have a few inches of water in the lake bed, and we can see it rising. All those milestones along the way—playing chess, translating web pages, winning at Jeopardy!, driving a car—aren't just stunts. They're precisely the kinds of things you'd expect as we struggle along with platforms that aren't quite powerful enough—yet…. In other words, by about 2040 our robot paradise awaits….

And at this point our tale takes a darker turn.… Two centuries ago this year that 64 men were brought to trial in York, England. Their crime? They were skilled weavers who fought back against the rising tide of power looms they feared would put them out of work. The Luddites spent two years burning mills and destroying factory machinery, and the British government was not amused. Of the 64 men charged in 1813, 25 were transported to Australia and 17 were led to the gallows. Since then, Luddite has become a derisive term for anyone afraid of new technology. After all, the weavers turned out to be wrong. Power looms put them out of work, but in the long run automation made the entire workforce more productive….

But that was then. During the Industrial Revolution, machines were limited to performing physical tasks. The Digital Revolution is different because computers can perform cognitive tasks too, and that means machines will eventually be able to run themselves. When that happens, they won't just put individuals out of work temporarily. Entire classes of workers will be out of work permanently. In other words, the Luddites weren't wrong. They were just 200 years too early….

Guess who will own all these robots? People with money, of course. As this happens, capital will become ever more powerful and labor will become ever more worthless. Those without money—most of us—will live on whatever crumbs the owners of capital allow us. This is a grim prediction. But it's not nearly as far-fetched as it sounds…. Economist David Autor has suggested that the first jobs to go will be middle-skill jobs. Despite impressive advances, robots still don't have the dexterity to perform many common kinds of manual labor that are simple for humans—digging ditches, changing bedpans. Nor are they any good at jobs that require a lot of cognitive skill—teaching classes, writing magazine articles. But in the middle you have jobs that are both fairly routine and require no manual dexterity. So that may be where the hollowing out starts: with desk jobs in places like accounting or customer support. That hasn't yet happened in earnest because AI is still in its infancy….

Solutions to this will remain elusive…. The simplest, because it's relatively familiar, is to tax capital at high rates and use the money to support displaced workers. In other words, as The Economist's Ryan Avent puts it, "redistribution, and a lot of it." There's not much question that this could work, but would we be happy in a society that offers real work to a dwindling few and bread and circuses for the rest?… The ancient Romans managed to get used to it—with slave labor playing the role of robots—and we might have to, as well. The history of mass economic displacement isn't encouraging….

So far, though, the topic has gotten surprisingly little attention among economists. At MIT, Autor has written about the elimination of middle-class jobs thanks to encroaching technology, and his colleagues, Erik Brynjolfsson and Andrew McAfee of MIT's Center for Digital Business, got a lot of attention a couple of years ago for their e-book Race Against the Machine, probably the best short introduction to the subject of automation and jobs. (Though a little too optimistic about the future of humans, I think.) The fact that Paul Krugman is starting to think about this deeply is also good news.

But it's not enough. When the robot revolution finally starts to happen, it's going to happen fast, and it's going to turn our world upside down…. A robotic paradise of leisure and contemplation eventually awaits us, but we have a long and dimly lit tunnel to navigate before we get there.

Paul Krugman reads David Autor:

Autor! Autor!: Autor, Levy, and Murnane… argued that the crucial difference in terms of possible replacement of humans by machines was one of routine versus non-routine, rather than white-collar versus blue-collar, and that computerization was if anything likely to increase demand for some “low-skill” occupations and reduce demand for some traditionally well-paying white-collar jobs… increasingly looks as if “medical diagnosis” should be moved from the right column to the left. And you can actually see this happening in the data. From the recent Autor-Acemoglu…. In the 80s, the higher the skill required for an occupation, the bigger the employment gains. In the 90s, there was “hollowing out”, with the middle-skill occupations losing relative to both ends. And most recently, the hollowing seems to have spread further up the scale. This is real, and it calls some of our favorite platitudes into question.

And John Maynard Keynes:

Economic Possibilities for our Grandchildren: I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not – if we look into the future – the permanent problem of the human race…. Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes….

For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. We shall do more things for ourselves than is usual with the rich to-day, only too glad to have small duties and tasks and routines. But beyond this, we shall endeavour to spread the bread thin on the butter – to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us!…

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.

Of course there will still be many people with intense, unsatisfied purposiveness who will blindly pursue wealth – unless they can find some plausible substitute. But the rest of us will no longer be under any obligation to applaud and encourage them….

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight….

The pace at which we can reach our destination of economic bliss will be governed by four things – our power to control population, our determination to avoid wars and civil dissensions, our willingness to entrust to science the direction of those matters which are properly the concern of science, and the rate of accumulation as fixed by the margin between our production and our consumption; of which the last will easily look after itself, given the first three.

Meanwhile there will be no harm in making mild preparations for our destiny, in encouraging, and experimenting in, the arts of life as well as the activities of purpose. But, chiefly, do not let us overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance.

Further Further Reading:

• Ryan Avent: Labour markets: Real robot talk
• Noah Smith: The End of Labor: How to Protect Workers From the Rise of Robots
• Erik Brynjolfsson and Andrew McAfee: Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy