This post is a book review, the ideas discussed in the book reviewed here, do not represent the point of view of Republic of Lagrangia.
Science fiction is full of stories in which people design and build robots with the purpose of serving their creators, but in the end the robots revolt against humanity. Most of those take over stories picture a violent and often rapid overthrow of mankind. Actually these traditional take over stories are often nothing more than retellings of (real) slave revolts, with robots substituting for slaves. Not much people do think about a gradual and non-violent robot take over in our time.
However such a gradual and non-violent take over, is the subject Martin Ford’s The Lights in the Tunnel. Well, to be fair Ford is not writing about robots who feel being oppressed by their human masters and therefore decide to wage war on humanity, nor is his book about man being governed by machines. No, The Lights in the Tunnel addresses a rather serious subject: the economic consequences of automation.
Ford begins his narrative with a powerful analogy of how the mass market works. He ask us to imagine a tunnel, in this tunnel there are lights, each of them represent a person or a company. The intensity of these lights is measure of how much money they earn, when people or companies spend their money their lights will dim proportionally to the amount of money spent. Conversely when someone receives money, his light will become brighter. In a typical economy, consumers will buy stuff they desire, their money is transferred to the suppliers of these goods. In their turn the suppliers will pay their employees salaries, the latter become then consumers and so goes the economic cycle on. These streams of money transfers are represented in Ford’s analogy with the continuous fluctuations in brightness of the lights.
It does not matter for understanding Ford’s message, who gives money to whom. We have only to understand that employees are consumers, producers are employers. Consumers transfer money to producers, employers transfer money to their employees. This cycle, however, is not perfect. Some of the money earned by the producers, is “extracted” from the cycle as profits (some will, righteously, remark that producers has to pay their suppliers too, but this just another consumer-producer relation for the purpose of this model). Basically producers wants to maximize their profits, because this the primary reason to be in business in the first place.
One way to increase profits, is to reduce wages. But this also implies a decrease of purchasing power of the consumer. When the employee/consumer receives less income, he has also less to spend on goods and services. If employees as a class suffer from reduced wages, the producers of goods and services will suffer of a decreased sales. It is evident to everyone this becomes a vicious cycle.
But one may ask what this analysis has to do with automation and its supposed harmful effects to society. There are several ways to reduce the total amount of wages to be paid by a producer: first, one could simply decrease the salaries of the employees. This approach, however, suffer from several legal (minimum wage) and practical (trade unions) problems. Therefore a second alternative is more common, moving production to countries/areas where lower wages has to be paid. And the third manner is substitution of labor by capital (a technical term for machines).
Method 2 is known as outsourcing, method 3 as automation. It is not without reason that Ford made a clear connection between outsourcing and automation. Suppose you are an employee working and living in the USA, then it doesn’t matter whether you lose your job because your job is moved to India or that your job has become obsolete as result of automation. In both cases you are fired and left with no income to spend.
Basically this is the problem as presented by Martin Ford in chapter 1 of The Lights in the Tunnel.
In the next chapter Ford investigates the question whether automation can lead to permanent destruction of jobs. More precisely he asks whether in the year 2089 a significant portion of jobs currently performed by humans will be done by computers and machines. In order to answer this question he gives us an overview of the historical development of technology.
In particular Ford focuses himself on what is known as Moore’s Law: the fact that each 18 months the capacity of computers doubles. From this law, he argues that at some point in the future computers will be able to everything humans can do. The basic problem here, is of course that no one know for how long Moore’s law will be true. At some point computers cannot be made smaller, that’s a physical fact. This impose a theoretical limit to Moore’s law, but there might be an engineering limit to this law which might come sooner than the physical limit.
But the point Ford addresses is still an important one, computers are able to perform more and more tasks, which where until recently exclusive for humans. And when technology will continue to develop, computers will be able to do even more jobs. In general if a job can be performed by a computer or robot, it will be cheaper to buy such computer or robot than to hire a human employee. And as Ford has discussed in chapter 1, employers seek to maximize profits and hence they have an incentive to replace employees by machines.
So we can summarize Fords argument as follows: machines are increasingly capable of doing the same jobs of humans; corporations seek to reduce employment costs, therefore they replace human workers by machines; consequently more and more people will become unemployed. But if an increasing number of people lose their jobs, they will also lose purchasing power. So automation, according to Ford, will lead to less consumption, and decreasing consumption will cause an economic downturn. And if the loss of employment is permanent, a permanent economic crisis will be the result.
Then Ford pays attention to what economists call the “Luddite fallacy“. Economists generally rejects that technological progress will lead to systematic unemployment, instead, they argue that technological progress will create jobs. However, Ford argues that this faith of economists in the Luddite fallacy, is itself a fallacy. He argues that the conventional economists make two fundamental assumptions: 1. machines are just tools and 2. all human workers can become machine operators. According to Ford these assumption will fail if machines became workers. In that case (human) workers will be replaced by (robotic) workers, and human employment will decrease.
In chapter 3 Ford asks whether the transition as described in the previous two chapters will occur gradually. He beliefs the answer is no, instead he argues there will be a “tipping point”. During the first years unemployment will only grow slowly, but after a certain moment, the tipping point, unemployment will rapidly increase. According to Ford the danger is that during the period before the tipping point policy maker, economists and politicians will deny that anything bad is going on. But after the tipping point there will be a catastrophe. As an example Ford mention pay-roll taxes, if more and more people become unemployed they will be a huge reduction in revenue from pay-roll taxes.
For so far the doom thinking. What solutions does Ford offer?
In chapter 4 Martin Ford proposes a remarkably simple solution for solving the economic problems as sketched in the previous three chapters: a basic income guarantee. The idea is that, when people lose their jobs and therefore their income, whilst they cannot take just another job, they will receive a regular cash payment from the government instead. By instituting a basic income guarantee (BIG) the government will ensure that a minimal purchasing power is maintained and therefore that the economy does not collapses.
Of course Ford realizes that such BIG scheme has to be funded. In order to do so, he proposes that the government should recapture the wages which are lost due to automation. After discussing several potential ways to arrange this, he concludes to impose a consumption tax which would equal the amount which previously paid as wages. If for example wages are reduced by ten percent, the consumption tax should be raised by such percentage that the increase in tax revenue should be equal to the lost wages.
The reason why Ford opts for a consumption tax instead of other taxes, is simple: even if people do not work, they still need to consume. Further he argues that wages are currently part of the price of goods and services. Since automation will allow producers to lower the prices of their products, and still being able to increase their profits, raising the consumption tax will keep prices at the pre-automation level.
Ford states that the wage-compensating consumption taxes should be earmarked, i.e. they should be reserved for only the payment of the basic income-scheme and not general government funding.
An interesting feature of Ford’s alternative income scheme, is the concept of virtual jobs. Although every one should receive a basic income, Ford believes that strict equality is a bad thing. He argues that inequality motivates people to self-improvement, but how do we establish such incentives in a world without jobs? For Ford a job a set of incentives, a virtual job is creating an alternative set of incentives.
One of the incentives he wants to create is education. The better the citizens are educated, the better society as a whole will be. So Fords wants to stimulate people the pursue an education and to continue to learn by offering them a supplement to their basic income. Another area Ford suggest are community and civic activities, further he considers journalism as a candidate for virtual jobs (this one would be great news for bloggers). And finally he suggest to use virtual jobs for improving the environment.
The lights in the tunnel is a cleverly written book, full with interesting ideas and I would recommend this book to everyone; but there are a few critical remarks I want to make. First, though his “wage recapture” by increasing consumption taxes makes sense, it might not be the best way to fund the basic income and his virtual job program. In fact the government does not need to raise money to fund its activities, as we have argued in a previous post. As long as government created money can be used to pay taxes, people will accept this money. It would be better to replace all current taxes with, for example, a single energy tax: for every kilowatt-hour you has to pay, say, 10 cents in taxes or you will be cut off from the grid.