How much of our chronic unemployment problem is due to automation?
Saturday, June 12, 2010 at 08:30PM Martin Ford, author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, is another who thinks America is not just in a recession but that there are long-term structural problems causing high unemployment with resulting stagnant or shrinking economic growth. Whereas I have identified globalization as an underlying contributor to this problem, Ford focuses on the significant contribution of automation.
As both hardware and software evolve, virtually every employment sector will be increasingly -- and simultaneously -- susceptible to automation. That's a very different story from past technological advances. In the last century, mechanization destroyed millions of jobs in agriculture, and that resulted in a transition to factory-based employment.
More recently, manufacturing automation and globalization were the forces behind our shift to a service-based economy. This time around, we're unlikely to have the luxury of such a sector-by-sector impact on employment: Automation is going to hit hard nearly everywhere.
If structural unemployment increases, there will be very few safe harbors. Today, workers whose skills become obsolete often end up in the jobs of last resort: low-wage service positions at employers like Wal-Mart. The problem is that those jobs won't be there forever -- and certainly not in the numbers required to sustain us.
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Increasing unemployment and falling consumer confidence would very likely result in stagnant or even falling aggregate demand, raising the risk of a deflationary spiral that might be very difficult to reverse. Social safety nets like unemployment insurance would come under unprecedented pressure, and governments would see dramatically increased demand for services even as tax revenues plummeted. Governments would have little choice except to borrow even more -- making the sovereign debt problems that are already tormenting the developed world just the tip of the iceberg.
The solutions to this mess are politically unthinkable by today's standards. Think about it: Jobs are the primary way that purchasing power gets delivered into the hands of consumers. Consumers without incomes can't drive the economy. If jobs at all levels are destined to evaporate in the face of broad-based automation, radical intervention -- and perhaps even a fundamental rewiring of the way the economy works -- may ultimately be our only alternative.
Mainstream economists are, of course, completely oblivious to such a potential scenario. They remain confident in elaborate mathematical models and assumptions that were put together in the last century -- often on the basis of economic data collected decades ago, when information technology was still in its infancy. What if those assumptions turn out to be just plain wrong?
Ford's point that "jobs are the primary way that purchasing power gets delivered into the hands of consumers" is an extremely important one. No matter how much automation decreases the cost of making a widget, there is no reason to make any widgets, and no way to make a profit, if automation (and/or other developments) wipe out the customer base. Henry Ford understood this in 1914, but our national policies have not reflected that fundamental insight in recent decades. I wonder if Martin is related to Henry.
Reader Comments (1)
I love the irony! An article about how automation will replace all of our jobs ... and the first comment is an automated spam posting!