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Sep 25, 2018 | Rants
Why Tech Won’Takt e ALL Our Jobs – The Economics
I’ve been reading a lot of pundit posts about how technology will someday take all our jobs. I think they’re depressing and wrong.
One of the worst is Elon Musk whose inspiration is to replace every human worker with a robot. Fortunately for us, Elon can’t change physics, and he can’t change the basic laws of economics, either.
LAW of DIMINISHING RETURNS
Every business student knows the “Law of Diminishing Returns.” It’s a simple theory: the benefits of any action will reach a peak, and then taper off until there is no benefit at all.
In drinking terms: The first 3 martinis make you feel great. The 4th puts you on the edge. The fifth makes you puke. That’s the Law of Diminishing Returns…
With technology, there will be a point of diminishing returns and it comes when robots make every widget perfectly, and faster than a speeding bullet. You can’t get better than perfect and it’s hard to be faster than Superman. Attempts to do more will be futile.
MAXIMUM TECH = NO JOBS
Assuming Elon’s ideal scenario and technology does displace the vast majority of workers, there is still a problem: No worker income = No buying power.
Driverless trucks and drones work to the degree that they fill a shortage of over the road drivers and airplane pilots. Robots on assembly lines can improve quality and efficiency. But vast increases in efficiency coupled with drastic cuts in labor can cause an economic problem – Deflation.
Deflation is the scourge of any economy and it is MUCH WORSE than inflation. If you know next year’s Tesla is going to be significantly cheaper than this year’s model, you’ll wait to buy it.
In deflationary economies, there are no buyers’ incentives. When there are no buyers’ incentives, it is very difficult for producers to forecast production: how much will Tesla pay for raw materials today and how many cars will it produce when buyers know its product will be cheaper in 6 months?
In the United States we’re already seeing technology drive down incomes. Just ask any Midwestern factory worker who has seen his income drop about $4,000 in real dollars per year since 1999. Because of technology and outsourcing, the guy who made $60,000 in 1999 is now making $56,000 in today. Lower buying power = need for cheaper goods. Cheaper goods come from Walmart. Despite its greatness, Walmart can’t offset the loss of income and buying power and, thus, the quality of life for many is decreasing versus getting better.
In advanced societies replacing most of your workers with robots is stupid. Why? Because Maximum Tech = Minimum Jobs. Minimum Jobs = No Income. No Income = No Buyers. No Buyers = No Profits. No Profits = No Incentive to Produce. It’s a slow but certain death because no seller can make money off zero.
GOVERNMENTS CAN’T HELP
Elon is now an outspoken proponent of “Minimum Guaranteed Income” to be provided by governments. But this ability can be strained.
Taxes are garnered in multiple ways including taxes on workers’ income (income tax) and taxes on goods sold (sales taxes). However, a government’s ability to raise taxes is difficult in a deflationary economy. The guy making $100,000 in 2020, for example, pays $33,000 in taxes. If that same guy is only making $90,000 in 2025, he’s only paying $30,000 in taxes, assuming a 33% tax rate. If the value of the goods he’s purchasing is decreasing at a similar rate, sales taxes decrease also. Thus, government income is reduced proportional to salaries and Cost of Goods Sold.
The only way to provide a guaranteed level of income is to raise taxes at an inverse rate to the deflationary pressure. If governments put 100% of the tax burden on producers, the incentives to produce decrease in direct proportion to the increase in taxes.
The Laffer Curve, below, shows the effects of over-taxation on production.
MAXIMUM TECHNOLOGY = MINIMUM EDUCATION
The Human Race is completely screwed if we ever hit the point of “Maximum Technology” – where workers are completely replaced by Bots. What’s interesting, however, is that technology is screwed, too.
Say we get to the point where robots do all the manufacturing, piloting, driving, stock trading and everything else meaningful in life, while people hang out at the beach. It’s at this point there is no value in education; why bother learning basic mathematics, a skill, trade or basic economic theory if you have no ability to put them to use? Kids who barely want to sit through school now most certainly won’t do it for no discernible purpose. And, what parent will be incentivized to walk them to the bus?
This is where technology starts to die.
Think about it. Unless Artificial Intelligence has an ability to continually improve itself (create new code, design and promote new products, create new technologies, etc.) then it will become maximized. People, now complacent that technology will do it for them, will no longer have the basic education or skillsets needed, or critical thinking necessary to take over where technology leaves off.
The result is maximized technology and a broken society.
One only needs to go to Logan County, West Virginia to see what a community looks like when there is minimal economic opportunity and little education. UGLY!
WHERE PROFITS ARE MAXIMIZED
As technology advances become quicker and quicker we, as a society, need to remember the basic law of profit maximization: Profits are maximized when Marginal Cost = Marginal Revenue. In simple terms, when the next dollar you invest brings in EXACTLY a dollar of return – no more, no less.
With regards to technology, society’s goal should not be to replace workers for the sake of replacing workers. The goal should be to use it to create maximum employment, maximum economic output, and maximum income so that people can maintain AND GROW purchasing power. Everything beyond that is detrimental and a colossal waste of time, money and resources.
MAYBE HENRY FORD GOT IT RIGHT
Perhaps Henry Ford had it right a century ago when he said “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.”
Why was this his philosophy? Because he wanted ALL his workers to be able to afford Ford built cars.
We don’t know what the jobs of the future will look like, but they will be there. Our job today is to ensure our kids are prepared for them.