In Defense of the Great Disruption

One of the most important talks at LibertyCon17 was given by the Swedish entrepreneur Henrik Jönsson, with the great title 'Everything you know is Dead or Dying: How to thrive after the E-pocalypse'. The topic is one that has been challenging economically illiterate people's beliefs since time immemorial and we've been pretty good at giving them various names: luddites, protectionists, conservatives, neophobes. It has to do with the most fundamental economic mechanism, call it development, dynamics or perhaps the name Schumpeter once coined: Creative Destruction. And knowledge of history and economics is key to understand why this development is beneficial.

The topic is particularly relevant since Bill Gates recently made headlines calling for taxation of robots, since robotisation allegedly threatens us all. In short, Jönsson's talk was a 50 minute refutation of Gates, with great optimism and examples of how robotisation is making all kinds of jobs obsolete. Jönsson gave us example after example where mechanisation is improving services, lowering costs and making us all richer: McDonalds in San Francisco recently created a Hamburger (start to finish) without a single labour input; Amazon have completely automated warehouses, staffed with a man and a dog ("man to feed the dog, dog to keep the man from interfering with the machines"); there are self-driving vehicles around the world; and of course the next major sector to become automated – transportation. Jönsson presented this picture, originally from NPR, showing the most common profession in various American states:

If you thought the Trump backlash against automation was bad, that's nothing compared to what's about to go down, which makes understanding basic economics so important. If not, economically illiterate people are, via voting for the next schmuck, going to seriously impoverish us all. The most ironic part is that part of the reason robots are more efficient than human labour at producing certain task is that we tax human labour like crazy, making it much more expensive than it otherwise would have been. Indeed, in many European countries it is the prime source of revenue for the government. Instead of realising the madness, Gates wants to us double down and tax robots too, the equivalent of breaking everyone's leg because some of us can't walk.

First, let's point out some obvious problem with the entire argument. "Robots" is not some well-defined, self-explanatory term, and taking to its logical conclusion it simply means any capital goods. In fact, any and every capital good since the beginning of time has displaced labour (in a sense, that's their purpose): cars replaced horses and those tending to them, tractors replaced oxens, shovels replaced hands, construction machines latters, climbers and builders, steam boats replaced sailing/rowing, wheels replaced legs. From this follows the central argument: capital goods – robots – make our societies better off. Richer. With longer lives. Able to do more, save lives, help people. We can now produce more for less, the ultimate reason for why we're so much richer than our great-grandparents. Taxing robots is as silly as destroying your computer, tractor or wheels because you're worried about employment/income for humans. Just don't.

It's not even clear to what extent this is a problem. Most economic observers seem to say that too low productivity growth is a much bigger issue than too high. Even Noah Smith agrees with me here, which in itself is an ominous sign:

adoption of new technology is currently too slow rather than too fast – the biggest problem right now isn’t too many robots, it’s too few. Taxing new technology, however it’s done, could make that slowdown worse.

Now, let's take the argument against robots at its best. The concern of those with above-average understanding of the world is emphatically not that robots displace labour, but that this development increases income divisions between high-skilled workers tending to robots, and low-skilled workers with no such knowledge. In essence, the argument is one of inequality, and critics envision a society where the low-skilled workers will have less than nothing to live on, while their high-skilled neighbours fly self-driving helicopters. More importantly, they envision this development to happen so fast that most people won't have the ability to adjust, retrain, adapt to the new economy.

There are three approaches here, with varying degree of empathy towards those who lose their job:

1. Why does it matter? Our generation is obsessed with inequality for reasons we're not quite clear about. Is it really that bad if some people earn much more than others, when everyone's standard of living is increasing? I've written tons on this before (see here, here or here).
2. The cost of sustenance is rapidly approaching zero, as Jönsson pointed out to us. Living fairly simple lives are already available to us at very low cost, and the thing about competition and mechanisation is that they reduce prices even more. The more mechanised our production lines become, the cheaper goods and services will become. Two outcomes: first, even if displaced labour find work at lower wages, their real income may be higher insofar as prices fall faster than their incomes. Second, as the entrepreneur he is, Jönsson imagined a future where venture capitalists would be willing to pay people for coming up with ideas – and that money will go a long way to sustain people since the cost of living is approaching zero. Ye, we're probably not talking private helicoptors for all, but clothes, food and shelter at close-to-no cost sounds like a pretty good deal to me. 
3. Creative destruction works alongside comparative advantage. It really isn't that tricky to re-adjust, adapt to providing services where humans have comparative advantages over robots. Here are some suggestions, free of charge for when your profession becomes obsolete: personal coaching, social work, lecturing and teaching, learning, workout, gym instructors, high-end cooking, experiences, sales, tourism. And on and on and on. The case for freedom largely stems from an unknowable future, where work and incomes will be generated from not-yet-invented professions. Chill out. 

Tyler Cowen points to the Great Disruption as the biggest thing going down over the next few decades, the intellectual battle between accumulated human capital and emotional appeal of authoritarians left and right:

So we’re going to see a kind of intellectual war, and possibly war in other, more violent forms too. That war, using that word in the broadest sense possible, will be between today’s amazing accumulated stock of human capital — and the emotional momentum behind authoritarianism, which is encouraged by the political fraying that stems from underlying fears of disruption.

Jönsson's message was one of optimism: Neophobes always lose in the end. Technology trumps politics. But if we don't manage to convey the benefits of the Great Disruption properly, or arrange for adjustment and adaption to be relatively smooth, we may be in for a heavy conflict – and things can get ugly.