Refuting the “Robots Eat All the Jobs” Theory

One of the most interesting topics in modern times is the “robots eat all the jobs” thesis; best book on topic: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. The thesis is that computers can more and more substitute for human labor, thus displacing jobs and creating unemployment. At core, this is Luddism  — “lump of labor” fallacy, that there is a fixed amount of work to be done.

The counterargument is Milton Friedman: Human wants and needs are infinite; there is always more to do. 200 years of history confirms. To avoid the Luddite mistake, you must believe “this time is different”, that either (a) there won’t be new wants and needs (vs human nature), Or (b) It won’t matter that there are new wants and needs, most people won’t be able to adapt to contribute and have jobs in new fields.

While it is certainly true that technological change displaces current work and jobs, and that is a serious issue that must be addressed, it is equally true, and important, that the other result of each such change is a step function increase in consumer standards of living.

As consumers, we virtually never resist technology change that provides us with better products/services even when it costs jobs. Nor should we. This is how we build a better world, improve quality of life, better provide for our kids, solve fundamental problems.

Make no mistake, advocating slowing tech change to preserve jobs = advocating punishing consumers, stalling quality of life improvements.

So how then to best help individuals who are buffeted by producer-side technology change and lose jobs they wish they could keep? First, focus on increasing access to education and skill development — which itself will increasingly be delivered via technology.

Second, let markets work (voluntary contracts and trade) so that capital and labor can rapidly reallocate to create new fields and jobs.

Third, a vigorous social safety net so that people are not stranded and unable to provide for their families.

The loop closes as rapid technological productivity improvement and resulting economic growth make it easy to pay for safety net.

Source: Tweets – 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16


Lump of Labor Fallacy

Economists call it the ”lump of labor fallacy.” It’s the idea that there is a fixed amount of work to be done in the world, so any increase in the amount each worker can produce reduces the number of available jobs. (A famous example: those dire warnings in the 1950’s that automation would lead to mass unemployment.) As the derisive name suggests, it’s an idea economists view with contempt, yet the fallacy makes a comeback whenever the economy is sluggish.

– Paul Krugman in 2003 “Lumps of Labor

Source: Tweets – 1,2,3,4,5,6


The Possibility Of An Economic Renaissance In Japan

When I was in college (1989-1993) and starting to pay attention to the world, experts, and commentators, all of them believed two things were sure.

First, Japan was going to utterly own and control the world’s technology industry and therefore the world economy. Everyone knew they had a fundamentally better system: single party government, industrial policy, government-directed economy. Coupled with Japan’s overwhelmingly superior education system, Americans had zero chance of competing with Japan in any technology area.

Second, America’s best days were behind it and my generation (Gen X) would be the first to be worse off than our parents. America was experiencing fundamental and irrevocable cultural, societal, and economic collapse. The die was cast, the results were in.

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In retrospect, both of these beliefs were artifacts of the (relatively mild) US recession of the late 80s/early 90s in addition to the Japan bubble. The paranoia peaked in ’92 w/Michael Crichton’s brilliant novel “Rising Sun“. By 1996, both of these theories were thoroughly refuted by reality and dropped down the memory hole by most people who held them. Today, we look back on books like Lester Thurow’s “Head to Head” and Clyde Prestowitz’s “Trading Places” with embarrassment and laughter.

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This is not to say that the US doesn’t have plenty of challenges; but bottom-of-cycle paranoia is a real phenomenon. Japan 20 years later remains an amazing nation with enormous opportunity. I think a glorious economic renaissance is quite possible.

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Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12

The Other Irony Regarding Piketty

He comes at a time when most pro managers of large, long-term institutional money are deeply worried about the reverse: A world in which there is a massive surplus of capital relative to opportunities to deploy it productively to compound cash.

The approximate thought process of the median professional manager of institutional financial assets today is:

Stocks suck, bonds suck, real estate sucks. Hedge funds keep blowing up. Private equity returns are reverting to mean. Venture Capital is on the fringe at best. How can I possibly generate returns sufficient enough to fund future obligations in a low-growth, low-return world? I am very, very nervous.

The developed world is slowing and aging too fast; the developing world is not developing fast enough and the price of every asset is already high.

They and Piketty cannot both be right. Ironically, Piketty is the far more optimistic one regarding the future of capitalism, growth, and innovation.

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Source Tweets: 1,2,3,4,5,6,7

Grappling With Piketty

Thomas Piketty in Cambridge, Massachusetts

Thomas Piketty in Cambridge, Massachusetts

The thesis is that the 1% will compound capital from here at such a rate as to take all the cash and leave the 99% with little. The underlying assumption seems to be that compounding large pools of capital over long periods of time is straightforward and low-risk.

First question: If that’s true, shouldn’t national pension programs like US Social Security be immediately privatized and invested the same way to receive the twin benefits of harvesting great capital compounding opportunity for the benefit of 99% and also suppressing investment returns of the 1%? Piketty walks up to this conclusion and then backs away, apparently because that would be too risky for long-term retirement assets?

But if it’s that risky for e.g. the Social Security pool, isn’t it also riskier than he says for the 1% investing their own capital? Note that the investment approach for Social Security could be to invest the entire pool like a university endowment, not individuals investing their own cash.

Second, if capital compounding will work so well for the 1%, isn’t that result of a world awash with opportunities to productively invest capital? Isn’t that world the opposite of the “secular stagnation”/”innovation is dead” world so many economists believe we are in? Isn’t that world one that is fantastic for consumers who benefit from all of the resulting innovation and technological progress? Wouldn’t Piketty’s prescriptions suppress that hypothetical scope and rate of technological and material progress?

So is Piketty therefore proposing that the 99% be made worse off absolutely in order to be better off relatively? Will the 99% be consulted at any point as to which of these scenarios they’d like to see play out? Or is the theory that liberal technocratic economists in Paris and places like it get to make those decisions on behalf of the 99%?

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14

Who Is C.P. Snow?

C._P._SnowC.P. Snow was a British chemist, novelist, and government official who gave a famous lecture, “The Two Cultures“, in 1959. The traditional literary culture is behaving like a state whose power is rapidly declining, standing on its precarious dignity.

Whereas the scientific culture is expansive, not restrictive, confident at the roots, certain that history is on its side. Impatient, intolerant, creative rather than critical, good-natured and brash. Neither culture knows the virtues of the other; often it seems they deliberately do not want to know.

Resentment traditional culture feels for scientific shaded with fear; for reverse, resentment not shaded but brimming with irritation. When scientists are faced with an expression of the traditional culture, it tends to make their feet ache.

Snow then implores each culture to seek to understand and embrace the other to come together to improve the world. The same attitude is needed today. Read his entire essay here which is worth reading.

Source: Tweets 1,2,3,4,5,6,7,8,9

San Francisco’s Housing Problem

photo credit: Thomas Hawk - cc

photo credit: Thomas Hawkcc

It is time for fundamental reform of SF’s insane restrictions on residential building. Whenever I tweet about need for more housing supply in San Francisco, people respond that new high-end housing won’t help lower-income people. That is exactly backwards. New high-end housing supply will redirect demand that is currently causing prices of existing housing to rise.

If you want existing SF housing prices to stop rising or fall, you should logically cheer for as much new high-end building as possible. And of course, any/all building restrictions that are holding back BOTH high-end and low-end housing construction should be reformed ASAP.

The root cause of SF’s housing problem is the basic rule of supply and demand. Time to end the madness, including restrictions and price controls. The most effective way to protest SF’s housing problems is to exert pressure on the SF Board of Supervisors. They are the key. “Our approach to housing in San Francisco is very dysfunctional,” said Scott Wiener, a SF supervisor who is a proponent of new housing. “…The system is intentionally designed to make it as difficult as possible to build new housing.”

Andreessen’s tweets on the SF housing problem: 1,2,3,4,5,6,7,8


We Live In John Law’s World

john-lawThe most interesting person in Western history who most people have never heard of is John Law, the inventor of the concept of paper money. Born in Scotland, Law began by killing a man in a duel over the affections of Elizabeth Hamilton, former mistress of King William III. Law fled to the continent, and ultimately — and improbably — became Finance Minister to King Louis XV of France in 1716.

Law believed that money is only a means of exchange that doesn’t constitute wealth in itself, and that wealth flows from trade. As such, Law proposed and implemented paper money issued by the French government, and banned gold and silver currency. Contemporary economists screamed in protest, and yet the paper money plan worked. French economy roared to life.

Sadly, Law’s other project — the Mississippi Company — spectacularly imploded. Law fled France and died broke in Venice in 1729. Law was right. The international monetary system finally fully dropped the gold standard in 1971, 300 yrs after Law was born. We live in John Law’s world.

Schumpeter later wrote: “Law is in a class by himself. Brilliant and profound, placed in the front ranks of monetary theorists of all time.” I am willing to lay odds that Satoshi Nakamoto is John Law’s great-great-great-great-great-great-great-great-great-grandson.

Recommended Reading:

Sources: Andreessen’s tweets on John Law – 1,2,3,4,5,6,7,8,9,10,11,12