What if our economy could grow so rapidly as to greatly increase the amount of money, goods, and services that are available – a good thing, right? What if one result of that growth is that the future economy has no place for you – not so good? These are more than hypothetical questions for millions of people around the world. Businesses are making more products with fewer employees and lower wages. In the US, corporate profits have doubled since 2000 but inflation adjusted household income has dropped from $56,000 to $51,000. After tax corporate profits are up from 5 percent of American GDP to 11 percent – a record high level. Simultaneously employee compensation has dropped from 47 percent of GDP to 43 percent.
Probable opportunities and threats in the future economies of industrialized nations were described by the Editorial Board of Scientific American magazine in their August 2014 edition. Exportation of jobs to cheap labor markets has received much of our political attention but the editors suggest that most future job losses will come from technological advances such as data mining, artificial intelligence, and skilled machines. One of the studies cited predicts that 47 percent of American workers are at risk for replacement by automation. The list includes loan officers, tax preparers, cashiers, roofers, taxi drivers and many other occupations.
In Spain the pre-recession unemployment rate was about 8 percent but it rose dramatically during the recession. In July 2014 they were celebrating the fact that the rate has dropped below 25 percent for the first time in two years. Youth unemployment was 54 percent. Meanwhile the Spanish IBEX stock index is up 79 percent since its May 2012 low. There are similar trends in other nations and unemployment is problematic in much of the developed world.
China has a fast growing and large economy and it is a nation to which a lot of manufacturing has been relocated in order to benefit from low wages. Good data about China are hard to find but CNBC financial researchers see troubling trends there. They estimated that the unemployment rate among youth aged 21-25 with only elementary school education was 4.2% but that the unemployment rate went up for youth with more education, to a rate of 16.4 percent for those with university or graduate degrees. As automation and artificial intelligence replace a larger share of skilled and semiskilled jobs and drive costs ever downward, China may be even more at risk of high unemployment at all skill levels than the western nations because it is not generating enough jobs for its highly educated youth and because automation will eventually be less expensive than even the low wages of Chinese workers.
John Henry, of folk song fame, was a “steel driving man”, a laborer who drove steel into rock so explosive charges could be placed in the holes for railroad construction. He was to be replaced by a steam drill and John Henry set out to prove that he could outwork the machine. He died trying. That legend originated in the early days of the industrial revolution in post-civil war America. In the century that followed agriculture and manufacturing were mechanized to such an extent that new ways of life were created. Family farms all but disappeared and were replaced by agribusiness. Craftsmen were replaced by mass production.
If the editors of Scientific American are correct we are experiencing the beginning of a new revolution, not the end of an old one. Jobs once thought “safe” in finance, transportation, health care, construction, and just about any other sector of the economy of any nation are vulnerable to replacement by artificial intelligence and smart machines. The bright side of the trend is increased productivity yielding more goods and services (and more wealth) at lower cost. The dark side is that the gains are concentrated in corporate profits that are distributed to a few very wealthy owners while large numbers of people lose their ability to be self-sufficient because they can’t compete with the machines – modern day John Henrys. The technology is new but the opportunities, threats and human impact will be similar to the industrial revolution in many ways.
While scientists, engineers and entrepreneurs advance productivity to previously unimaginable levels, the political debate will be about the same issues that arose in previous economic transitions: opportunities for upward mobility and the distribution of wealth. I recall the first day of an economics class when we were taught that “Economics is the science of fulfilling unlimited human wants out of the limited resources available.” Arguments about taxes, public education, and safety net programs are economic arguments; as are the more philosophical arguments about the merits of capitalism, socialism, and other systems. Deciding how to manage wealth is a much better problem to have than deciding how to share poverty but the decisions of the 21st and 22nd centuries will be no easier than those of the 20th.
An old blessing that I recall is, “May you live in interesting times.” We are well blessed. Among our most challenging blessings will be the opportunity to manage abundance while answering the question, “What will you do if the economy evolves to the point that it no longer needs you?”