Monday Smackdown: Yet More Chapter 11 of David Graeber's "Debt" in Chapter 7: (Definitely Not) the Honest Broker for the Week of October 3, 2014
Morning Must-Read: Stephen Golub et al.: The Federal Reserve in the Run-Up to the Global Crisis

Over at Project Syndicate: Need We Fear the Robot Uprising?: Monday Focus for September 29, 2014

Over at Project Syndicate: The extremely sharp but differently-thinking Peter Thiel:

Peter Thiel: Robots Are Our Saviours, Not the Enemy: "Americans today dream less often of feats that computers will help us to accomplish...

...[and] more and more we have nightmares about computers taking away our jobs.... Fear of replacement is not new.... But... unlike fellow humans of different nationalities, computers are not substitutes for American labour. Men and machines are good at different things. People form plans and make decisions.... Computers... excel at efficient data processing but struggle to make basic judgments that would be simple for any human.... [At] PayPal... we were losing upwards of $10m a month to credit card fraud.... We tried to solve the problem by writing software.... But... after an hour or two, the thieves would catch on and change their tactics to fool our algorithms. Human analysts, however, were not easily fooled.... So we rewrote the software... the computer would flag the most suspicious trans­actions, and human operators would make the final judgment. This kind of man-machine symbiosis enabled PayPal to stay in business.... Computers do not eat.... The alternative to working with computers... is [a world] in which wages decline and prices rise as the whole world competes both to work and to spend. We are our own greatest enemies. Our most important allies are the machines that enable us to do new things...

Let us start with my six-fold schema about how humans have, historically, added economic value--via our legs, our fingers, our mouths, our brains, our smiles, and our minds:2

  1. Our legs and other large muscles have moved things to where we need them to be.
  2. Our fingers have rearranged things into patterns that we need.
  3. Our brains have served as ideal cybernetic control loops for keeping all kinds of economic matter-and-energy-manipulation and information-flow processes on track.
  4. Our mouths (and, later, our fingers via writing) have informed and entertained us all.
  5. Our smiles have pleased one another, and also helped keep us all pulling roughly in the same direction.
  6. Our minds have thought up new important and interesting things to do, and genuinely new ways to do old things.

In this schema, the very smart but differently-thinking Peter Thiel's makes his argument that robots are not our enemies but our saviors.[[1]][1] It is thus: Globalization made it possible for workers elsewhere in the world to compete for slots using our legs (1) and our fingers (2) in the global division of labor that had previously been near-exclusive property of American workers, and had allowed workers elsewhere in the world to use their new-found bargaining power to extract resources for their own consumption. This was to the detriment of America's blue-collar working and middle classes.

Computers and robots, however, are different. They do not consume anything except a little electricity. Robots and computers are becoming able to substitute not just for human legs and fingers but also for human brains as cybernetic control loops (3)--instead of having humans scrutinize every item in every batch of 1,000,000 transaction for indicia of fraud, PayPal can have computers approve the first 999,000 of the batch and then pass the 1,000 that might be fraudulent on not for mindless screening but for thoughtful consideration. One worker can thus do what PayPal would have had to hire a thousand workers to do a generation ago. And because computers do not eat, that thousand-fold increase in productivity will redound to the benefit of America's white-collar middle class. Globalization lowered the wages of America's blue-collar workers because it meant others could and would do what they did more cheaply, and then themselves consumed the value created. But computers mean that America's white-collar workers--and the surviving blue-collar workers who oversee the large robotic factories and warehouses--can do more valuable stuff, and the computers that assist them do not consume anything.


It is my sense that Peter Thiel is running, in a sophisticated and non-obvious way, into the old diamonds-and-water economic paradox. The way the eighteenth century economists phrased it: Without water we all die, while without diamonds we all live happily, yet water is free and diamonds are incredibly expensive even though the first is essential and the second is nearly useless. Why? The answer, of course, is that the value of water in a market economy is set not by the total usefulness of water--nearly infinite--nor by the average usefulness of water--very large--but by the--very low--marginal value of the last drop of water consumed, which is very low (east of the Mississippi and north of Naples, at least). The wages and salaries of blue- and white-collar workers in the robot-computer economy of the future will be not the (very high) labor productivity of the one blue-collar worker on the shop floor making sure all the robots are in their places or the one white-collar worker reprogramming the software 'bots and adjudicating the edge cases, but rather by what the rest of the blue-collar and white-collar workers who find themselves outside the highly-productive computer-robot economy can find that adds value. The newly-industrialized Manchester that horrified Friedrich Engels when he worked there in the 1840s had the highest level of labor productivity the world had hitherto seen. But the wages of the workers in Manchester's factories were set not by their extraordinary productivity as they were assisted by the most advanced machines in the world, but by what they could get were they to return to the potato fields of pre-famine Ireland.

So the key question is not: will robots and computers make human labor in the goods-, high-tech services, and information-producing sectors infinitely more productive? It will. The key question is: as robots and computers push human labor out of occupations in which it is valued for what its legs, its fingers, and its brains as cybernetic-control-loops can do, can we keep the occupations of everyone not lucky enough to find a job in the high-productivity sector from being the twenty-first century equivalent of digging potatoes in 1843 Galway? Huge numbers of us will have to find valuable things to do with our mouths, our smiles, and our minds. What will those occupations be? And what will make them valuable--that is, in high demand?

From 1850-1970 or so, rapid technological progress was accompanied by first wages rising as fast as total productivity and then by an extraordinarily long-run equalization of the distribution of income as every machine installed to substitute for human legs (1) and human fingers (2) created more jobs in machine-minding as cybernetic control loops (3) and information transmission and control (4) than it destroyed in routine muscle power- or dexterity-work. And rising real incomes all around produced a great increase in leisure, and thus in demand for smiles (5) and the products of minds (6).

Will the same be true as machines take over what used to be routine brainwork as cybernetic control loops (3) just as they took over big muscle-work (1) and dexterity-work (2)? Maybe. But all of Peter Thiel's argument rests on that bet. And it is not a bet he examines.

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