Yesterday’s article, part one of this article mini series, focused on a study published by McKinsey detailing the threat that automation poses to jobs throughout the globe. Before reading this article, it would make sense to first have a read of part one if you have not had the chance to do so.
You can read part one here.
In summary, here are a few key points that we learned in part one.
- Technology has managed to already replace 90% of jobs that humans used to do
- Most college students are being prepared for entry level jobs that are going to be replaced by automation.
- One fifth of the world’s jobs are projected to be replaced by automation by 2030. This equates to around 800 million jobs lost worldwide.
- Automation threatens to replace 73 million American jobs by 2030.
- Over half of the time being spent in all US occupations is highly susceptible to being replaced by automation, as classified by McKinsey.
- Automation replacement poses a threat to both high and low wage earners.
- Those who earn over $200,000 in annual income spend 31% of their time on the collection and processing of data, which has extremely high potential for automation.
The Retail Sector Case Study
The retail sector shows the multi layered, complex problems that are taking place and will take place with increased commonality. Not only is retail one of the sectors that has the highest potential for automation, it also faces other major threats like eCommerce. eCommerce has had a devastating impact on retail. In 2018, 3,800 stores closed in the United States. Walgreens, Toys R Us, and Gap were among the major retailers who closed the most doors during the year.
According to the Census Bureau, eCommerce retail sales have grown at over four times the rate in which in-person sales have since 2010. Data provided by the Goldman Sachs Institute estimates that in-person retail sales require 3.5 the amount of workers as the same amount of online sales. This is extremely problematic, from the standpoint of providing Americans with stable income jobs. As eCommerce becomes more streamlined, adapts higher levels of automation, and continues to grow sales, one would expect this statistic to become of even more significance.
Today, about 16 million people work in retail. One in ten American workers work in retail. Retail workers include salespersons, cashiers, stock clerks, and first-line supervisors and managers. The median annual wage for these employees ranges from $20,160 for cashiers to $38,870 for first-line supervisors/managers. Given this data set, it is not hard to see why nearly half of American workers make less than $30,000 a year.
By 2022, 25% of American malls that existed in 2017 are expected to be closed. This is rather unsurprising, unfortunately. Malls of course house a large amount of retail stores. Foot traffic in malls has been on the decline for many years now. More people are shopping online than ever before. This trend will only continue to increase as we move further into the future.
The sector of the economy which employs the most people is experiencing threats ranging from a shift in purchasing habits to replacement by automation. The fact that 16 million American workers face possible replacement due to these forces outside of their control could cause extreme displacement throughout the economy. We must be forward thinking in how we plan to combat these market forces in the future.
A Path Forward
Regardless of what you, me, or anyone decides, the reality has been laid out before us. Automation is here. Automation is going to steadily increase over the next decade. We cannot say we didn’t know. Not only is automation coming down the line, it is already present. Yet, where is the mainstream media on this front? Where is the political establishment?
Presidential candidate, Andrew Yang has been campaigning around the idea of The Freedom Dividend, giving every American over the age of 18 $1,000 a month. If you have not heard Mr. Yang speak on the topic, this idea may sound a bit radical. But this is a time of radical change in markets. We need radical solutions to combat radical changes.
As Yang stated when he recently appeared on Fox Business, the entire dichtomoy between capitlaism and socialism is totally out of date. Not only is Yang’s proposed idea not socialist in nature, it is highly American. Thomas Paine, Martin Luther King, and the father of modern conservative economic theory, Milton Friedman, have all supported the idea throughout the past.
Watch: Andrew Yang — The entire socialism-capitalism dichotomy is out of date
If 73 million American effectively lose employment to automation throughout the next decade, guess what they also lose? Their income. That means they won’t have money to spend in the economy, invest in retirement savings, or create businesses. Automation replacement could therefore be classified as compounding given that the effects of it will be felt far beyond just those who will lose their jobs.
Sure, we would expect a certain percentage of those who lose their jobs to automation to find other work within the economy. However, how high of a percentage will this be? It is not realistic to expect truck drivers who have lost their jobs to learn to code as many have suggested. We would therefore expect the unemployment rate to absolutely surge and labor participation rate, which is already rather low in America to plummet.
Remember, this is not a problem that only the United States will face. China and India are projected to lose more jobs to automation than the United States.
There are various problems that occur when unemployment rates increase in societies. They include:
- Loss of income to the unemployed: Long term unemployment can push households into large amounts of debt and eventual poverty
- Increased levels of homelessness: Unemployment can lead to eventual homelessness. America already has a homeless problem. There are 553,742 Americans currently estimated to be homeless.
- The Hysteresis Effect: Those who are currently unemployed will find it harder to acquire work in the future. This is one reason why it is not logical to tell a homeless person to simply “find a job.”
- Increased health problems: Studies of unemployed men show that they experience increased levels of depression, anxiety, and increased levels of other serious health problems.
- Lost Human Capital: Unemployed individuals miss out on the latest training, practices, and skills. The longer an individual remains unemployed, the more severe this problem becomes.
- Decreased Tax Revenue: Tax revenue will decrease at the federal, state, and local level due to fewer individuals collecting income. Unless the government wants to usher in a state of total panic and chaos, they will need to increase unemployment benefits. The need to increase unemployment benefits while simultaneously receiving decreased tax revenue will trigger an increased need for government borrowing.
- Lower GDP for the Economy: GDP is a rather archaic measure of economic success, however it is important in this context. The unemployed are not able to spend as much on goods and services. High unemployment can cause what is known as a negative multiplier effect.
- Increase Societal Problems: Areas with higher levels of unemployment tend to experience higher crime rates.
- Political Instability: High unemployment leads to massive political instability, this has been proven time and place throughout history. For example, one of the reasons that Hitler was able to come to power was a high unemployment rate. 6 million Germans were unemployed in the early 1930s.
As you can see, the effects of unemployment are far ranging. With nearly one-third of American jobs threatened to be erased by automation, we are moving into uncharted territory. The aforementioned effects could reach unprecedented levels of disaster.
This does not have to be the case. We can prepare ourselves for the inevitable economic revolution ahead. We can ensure that the youth of America are not being prepared for jobs that will no longer exist. We can provide a smoother transition for those who have been working for decades in their field, but will eventually lose work. We can prepare to succeed, or we can prepare to fail.
The choice is ours. It always has, and always will be. If we choose right, the coming change in automation can be an actual opportunity for us rather than a burden. The truth of the matter is, how we choose to see this coming change will define where we end up after it has arrived.
Those who are truly going to win are currently generating startups based around automation. These opportunists are already in action. Rather than resisting the inevitable, they are seizing the time period and staking their claim for the future. As those who are seizing opportunity will build the future, there will be those who are stubborn and resist.
With this being said, we have to realize just how disruptive automation will be. Sure, it will make Silicon Valley executives of the future ungodly wealthy. But this will come at the expense of the average American losing their job and becoming displaced in the economy. People need meaning in their lives. For many people, work has constituted that meaning. What will replace this meaning? Drugs, alcohol, crime, extremism? How many people will see no point and take their own lives? It’s easy to foresee a whole host of major problems in the not so distant future.
For all of the aforementioned reasons, implementing a value added tax of 10% to pay for universal basic income (UBI) just does not appear extreme. As stated by Andrew Yang’s campaign, UBI at the level they are proposing would grow the economy 12.56% to 13.10% — or about $2.5 trillion by 2025. It would also increase the labor force anywhere between 4.5 to 4.7 million. It follows perfect logic that putting money in people’s hands would lead to increased levels of spending, investment, and business formation. Thereby boosting the economy.
The meaning of life is not found in work. Capitalism has unfortunately coerced a large majority of Americans into believing that to be the case. Make no mistake, I largely believe in capitalism. But that is not to say that it does not have its faults. These faults will become evermore apparent as the we undergo the next economic revolution. This isn’t a merely economic issue, it is one of psychological, sociological, and philosophical importance. People will look to the leaders of our politics and business establishment to provide leadership during this time when in reality, the change will have to come from the bottom up, as it always has in times of great trial and tribulation.
We need to be encouraging our young to become valuable. We need to encourage people to find a deeper sense of purpose for their lives beyond merely their job. Valuable people are always sought after, no matter the current economic conditions. Valuable people have intangibles that machines could never replace. Valuable people have the knowledge and the skill. Valuable people have the know, the why, the how. They possess all the necessary ingredients to manifest value into the world.
Education Must Evolve
Even if we are to implement something like The Freedom Dividend, our education systems need to undergo revolutionary changes at every level. Primary, secondary, and university level education need to pivot to match the needs of the world we are currently living in. The information age has arrived and is already passing. Yet, we still focus on teaching students in a way that highly focuses on memorization.
What is the atomic mass of carbon? What date was the Magna Carta signed? What is the equation for point-slope form?
We’re teaching kids to be proficient test takers. Being a good test-taker does not create a set of valuable skills the correlates in the current world well. Consider just how preposterous this form of education will be in the automation age. Do you think you can memorize more than highly performing artificial intelligence?
What we’re really creating is machines out of human beings. Information in and then spit back out later for tests. We need problem solvers. The creative type of problem solvers. Not the robotic type. We can build machines and streamline automation that can and is far better at this than us Homo Sapiens can or will ever be. We will never beat robots at their own game. So why play it?
The problem is, the world is changing at such a rapid pace now. This is of course highly correlated with the very technological improvements that I have outlined here. Over the last two years alone 90 percent of the data in the world was generated. The current structure of our world is in the process adapting to these realities. We are not prepared to deal with such rapid change.
Jack Ma, the founder of Ali Baba, has noticed this trend in the world and education. He believes that if we continue teaching the way we have for the past 200 years, we may be in some trouble 30 years down the road. In Jack Ma’s eyes, we are teaching based upon knowledge. This will become highly problematic in the age of machine learning, AI, and automated tasking.
Watch: Jack Ma on the future of education
We cannot compete with machines. Jack Ma clearly outlines this very fact. Because of that, we have to differentiate ourselves and teach what is unique to human beings. We must teach that which human beings possess that machines cannot replace or do better. If we do this, we can have the chance to compete in 30 years, as Ma states.
What exactly are these skills and intangibles that Jack Ma is referencing. In his own words, “Value, believing, independent thinking, teamwork, care for others. These are the soft part, the knowledge may not teach you that.” He goes on to advocate that we should be teaching kids in the realm of things like sports, Music, Arts. Things that machines cannot do.
While there are some details of Jack Ma’s statement that could likely be taken out of context, there’s a lot of truth in it. We are continuously cutting funding to programs centered around arts and music. Recent results in testing show this to be problematic as well. The Nation’s Report Card tests on a wide variety of subjects. Over an eight-year span from 2008 to 2016, the scores in both art and music dropped. While the drop was not dramatic, the fact remains the scores still dropped. We should always be wanting to improve across all areas of education. Unfortunately in these categories, there was regression.
It’s a popular mantra to desire to develop well-rounded students. But as budget cuts look even more promising in the arts, it’s truly hard to see this being true. Artistic ability is not the only aspect that suffers in students due to these cuts in funding to the arts. Studies show that increased access to arts education correlates with higher overall grades. Imagine that, learning how to be more creative actually increases intelligence. Who would have ever thought that? Increased access to arts education also leads to higher rates of graduation and college enrollment.
Arts education benefits aren’t just limited to academic performance. The Missouri Alliance for Arts Education found that arts education leads to improved behavior in students. Arts education also helps students to become more open minded. Open mindedness is obviously a positive outcome. We unfortunately don’t see open mindedness become improved upon in fields like math and science to the extent that we see it in arts education.
Lydia Black is the executive director for the alliance for the Arts in Southwest Florida. In an article she wrote, she made some incredibly important points regarding Arts education. She states that we’re not using arts education to merely develop artists and musicians. The same logic can be applied to math and science. Learning these subjects has increased benefits in other areas of life beyond just the application of them within fields that directly correlate to them. The same is true with the arts. Black also stated “Art’s can be used to solve environmental challenges. They can be used to solve conflicts. There a way to communicate.”
For example, there are over 18 scientifically proven benefits of learning to play an instrument.
We are currently in the middle of tax season. This year, I did not hire an accountant to do my personal or business taxes. Why? I use Wave Financial Software. This software essentially renders me to not need an accountant. Small businesses all throughout the country and world have been increasingly doing the same with the various software options that are now available to them.
While this is just one example, it is a microcosm of what we can expect over the next decade. Better software will come as machine learning increases in its capabilities. Software can work around the clock. Software costs far less. Software doesn’t make human errors. The entrepreneur side of me loves all of these aspects. However, the socially conscious side of me understands that will have devastating consequences for the majority of workers. The majority of people are not business owners, nor should they be.
It is time for entrepreneurs to become problem solvers who are socially conscious. Entrepreneurship has largely been sold as means to an end for a long time. It is time for those who are socially conscious and understand the future, like Andrew Yang, to step up to the plate a take a more active role in crafting solution for the multitude of issues our nation faces over the next decade and beyond.