Taxing robots was suggested in the 1940s. It was a bad idea then, but things have changed.
W-2 for R2D2
Bill Gates recently said he thinks the idea of taxing automation to deal with loss of tax revenue from displaced workers is a good idea. And while it seems like a novel concept, in 1940 Senator Joseph O’Mahoney proposed the very same thing.
Fear of automation-induced unemployment was high in the 1930s. In fact, even Albert Einstein “laid the world’s ills” to machines, and economist John Maynard Keynes coined the term “technological unemployment,” likening it to a disease. At the start of the 1940s, the Great Depression was over but the post-World War II economic boom had yet to begin, so the threat of automation still felt very immediate. The concerns turned out to be unfounded—the postwar economic boom employed and uplifted many, and automation was partly responsible.
So, would Senator O’Mahoney’s suggestion have stymied that boom or acted as harmless insurance and a new stream of tax revenue? And what can this tell us about the notion of a similar tax today? I reached out to some notable economists to see what they think would have happened in this hypothetical scenario, what they thought of said tax, and if they thought it was different this time around.
David Autor, associate head of MIT’s Economics Department, told me that in retrospect, O’Mahoney’s suggestion “really shows why taxing automation is a timelessly bad idea.” Autor believes that taxing the things that are increasing productivity the fastest is unwise, and that robots are going to be a big part of the economic picture going forward. For the U.S. to lag while other countries surge will be bad, and Autor thinks the country shouldn’t “prematurely cede” its competitive position.
Sylvia Allegretto, an economist at the University of California, Berkeley’s Institute for Research on Labor and Employment, said over the phone that she can’t understand the concerns when we’re in the largest expansion of job growth ever. Keynes and Einstein’s concerns were backed up by the lack of jobs during the Great Depression, but Allegretto points out fears in 2017 are all very speculative. Allegretto used Henry Ford’s assembly-line manufacturing and the automotive boom as an example of how automation can create an abundance of jobs.
Allegretto and Autor agreed that growth in areas such as the automative industry in the postwar boom would have been stymied—as would similar potential growth in 2017—by a robot tax. Interestingly, one year before O’Mahoney’s suggestion to levy a tax on machines, Henry Ford wrote an impassioned op-ed in The New York Times headlined “Machines as Ministers to Men,” making the same argument Allegretto did. Ford said of the people proposing a tax on automation, “They assert, the very machines that are designed to help the worker actually are robbing him of his job and must be taxed out of existence.” He went on to write, “There are those who appear honestly to think that the only way to return idle men to work is to destroy the one thing that makes their jobs possible.” Ford asserted that his company had tackled this fallacy constantly over the its 35-year history “not by the logic of words, but by the logic of facts.”
A decade and a half after that op-ed and O’Mahoney’s tax proposal, the debate persisted. The U.S. economy was booming, and O’Mahoney was heading up the National Conference on Automation. In October of 1955, he co-authored a report to Congress on the threat of automation. Included was a testimonial from the president of Ford.
“We believe,” he said, “that instead of adversely affecting employment at our company, automation has created better jobs, while at the same time making them safer and easier.”
The same year President Dwight Eisenhower decried fears of automation, saying this topic had concerned working people for 150 years and never materialized. In other words, Eisenhower didn’t think it was different that time. But that is always the question: Is it different this time? So far, it has turned out to not be the same, but that doesn’t mean it isn’t this time. So why is 2017 different from 1940? What are the factors that make it different?
Andrew McAfee, co-director of the MIT Initiative on the Digital Economy, said in an interview with The Economist that the hollowing out of the middle class and the high unemployment rate amongst prime-age American men (12%) signals that this time it is different. U.S. manufacturing output is going up, yet peak employment was 1979. According to him, this is an automation story, not a globalization story—those “burly American” middle-class jobs have been automated away.
Paul Krugman, arguably the most famous economist alive, thinks it is different this time too. In 2012, he changed his view on automation, authoring an article titled “Rise of the Robots” in The New York Times. In it, he acknowledges that “capital-biased technological change”—a dynamic in which productivity gains from automation go to owners rather than workers—is a real issue. Sylvia Allegretto told me she thinks the same thing is happening: Productivity is rising, but workers aren’t seeing the benefits. Instead of taxing automation, she thinks we need to raise taxes on the rich.
If Einstein could get it wrong in the 1930s, then so can Bill Gates in 2017. On the other hand, there are some clear differences this time around. Perhaps if robots could talk back, they’d posit it is the super wealthy that should be taxed instead of them, just like Allegretto suggested.
