Economics in a post-scarcity world
I’d originally written this piece last year when I was contemplating the final outcome of recent trends vis-à-vis machine-learning but then forgot about it until this month when Elon Musk broached the topic of universal income. So here goes:
“For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve. Those countries are suffering relatively which are not in the vanguard of progress. We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”
– John Maynard Keynes
Since the beginning of civilisation, technology has helped to reduce the need for manpower. Ever since man learnt to create tools to assist him in his endeavours we have, as a society, become increasingly adept at performing tasks of all nature with greater ease. Take farming, for instance. First, we had rudimentary hand-tools. These were, in turn, replaced by the plough, drawn by beasts of burden, which were then replaced by tractors. In the future, these human-operated tractors too might well be replaced by self-operated ones cutting out entirely the need for humans in the food-creation value chain. (We might need someone to oversee the entire operation but the number of these “farmers” will be statistically insignificant compared to the size of the human population they will feed). This same phenomenon can be observed in virtually every industry in our society.
Now, with the advent of artificial intelligence (AI), we are not only capable of replacing manual labour but also mental labour. We now have software that can do everything from read, write and calculate to analyse, predict and modify — tasks that were formerly the exclusive domain of humans. And with AI getting more and more powerful, the rate at which computers can perform more and more human tasks is only going to increase. This implies that the rate at which human tasks are replaced by machines will grow exponentially rather than the hitherto linear growth we have experienced. Watch this video by my one of my favourite YouTubers, if you are more interested.
As things stand now, up to a staggering 45% of the current workforce can be replaced with technology that already exists. The reason it has not already done so is due mainly to political, social and other barriers rather than technological ones. Imagine this — would you sit in an airplane that had no pilot? The technology to fly aircraft without pilots has long existed (and most of the flying is already done by computers with human pilots mostly just supervising) but the limiting factor is us and not the plane or its computer. However, it is only a matter of time before the day comes when we will be okay with it. After all, we did come to terms with zipping around in driverless trains.
A lot of people tend to think that machines will take care of all the menial tasks leaving humans to do the higher order ones but the problem is there may not be much more higher-order work left to do in the future! “Surely, this has been resolved in the past when better technology rendered humans redundant!”, you might say. Well, yes, but the problem has never been as wide-scale before.
As technology continues to aid net productivity without increasing the need for labor (and therefore, wages), the owners of the means of production (the business owners) will be able to increase their total output without increasing their cost. The result will be increased bottom-lines for those at the top (the business owners) and less employment for those at the bottom (the labourers). Consider that the net worth of the Forbes 400 list of the richest Americans in 1982 was $93 billion whereas today it is $2.5 trillion (I trust Warren Buffet is a good enough source at 7:38 in the video). A straightforward solution to this problem is, of course, to levy higher taxes on the rich but this is neither politically expedient nor practically tenable for the most part. The ideal solution then is mixture of a few different components (as I explain below).
However, before we can have any reasonable discussion about how the economy should be regulated in the future, we need to first come to a consensus about how we wish to treat our fellow man. Do we want to have an inclusive society where we care about the right of every human being to have a decent life or do we wish to live in a Darwin-esque world where the rich take what they can and the poor can simply die out? If it is the former (and I do hope it is) then we need to talk about what constitutes a ‘decent’ life. Food, clothing and shelter go without saying but equally important, I think, are complete access to healthcare and education. The former because no one chooses to get sick and the latter to ensure social mobility based on merit. The operative word here being ‘complete’ (after all, access to basic healthcare and education is already available in most countries) as it is the most expensive treatments that penalise and bog down poor families the most and only education at the highest tiers can truly help individuals uplift themselves out of poverty. Now that we have defined what we mean by ‘decent’, we need to think about how we can pay for all these. In my opinion, there are three things that need to happen to achieve this:
1. The most straightforward albeit contentious one is taxes. You tax the rich at a higher rate than you do the poor so as to ensure a more equitable distribution of basic amenities. Most countries subscribe to some version of this model. Some, like the Western European nations, have even demonstrated that when done right this model can generate tremendous utility for a large number of people. Of course, as with any model that aspires to be a utopian panacea, it is not without its share of complaints — chief among which is the inherent unfairness felt by some of the richer and healthier citizens for having to subsidise healthcare and education (as well as other programs) for their poorer and sickly fellow citizens. Other complaints include the quality of amenities (richer citizens could afford higher quality private institutions — both health and education — if they were not taxed as much) and the inability to control where exactly the state spends your money (*cough* “Wars!” *cough*)
2. The second is the establishment of intra-generational social welfare (such as the CPF in Singapore). This is not to be confused with the inter-generational Social Security in the US as the former sets aside your own money for your own welfare whereas the latter gets younger generations as a whole to pay for older generations. This also helps reduce the need for taxes as the state already gets to keep a large amount of your earnings over the course of your working life albeit in your name. Moreover, because of the increased liquidity conferred upon the state through the PF contributions, it is in a good position to help the less fortunate through subsidies and endowments without expecting the wealthier citizens to say goodbye to their money forever as taxes do.
3. The third is my personal favourite — a reduction in the number of work hours per day. Let us consider a hypothetical economy which has 4800 man hours of total work per day that is performed by 600 out of its 800 citizens (good thing this is a hypothetical economy — 25% unemployment would wreak havoc in most societies!). Now, if we simply reduce the number of work hours in a day to 6, the same 4800 man hours of work can be distributed among all 800 citizens leading to 100% employment and 2 more hours of leisure time for everyone — yay! Of course, things wouldn’t be quite as simple as that. First off, all other things being equal, this would lead to a decrease in the average salaries of employees unless corporations were completely okay with forking out 33% more for payroll, which they wouldn’t. And also, there is the tricky question of training the remaining 25% in the various fields of employment.
In conclusion, what we need to realise is that there is little benefit in arguing over whether automation is good or bad. Even if we conclude that it is for the worse, trying to resist it would be a convenient, almost Luddite, approach to addressing the coming change. A far better use of our time is having an intelligent debate over how best to address the long-term consequences of this macro phenomenon. And make no mistake — it is a macro phenomenon. For even if some organisations try to resist automation, their shrewder competitors will nonetheless engage in it to realise efficiency gains, eventually forcing them to give in. The sooner we start laying the groundwork for the coming changes, the better off we will all be.
If you wish to read a more nuanced and statistically-backed paper that further expounds this topic, you can read this Oxford paper, aptly named ‘The Future of Employment’.
This article is purely a thought experiment and does not reflect the views of any of the author’s employers, present or past.