I've had a few posts in the past few months (here and here) about the consequences of mechanization for the future of work. In short, what will we do when the robots take our jobs?

I wouldn't call myself a techno-optimist. I don't think the arrival of robots necessarily makes everything better. But I do not buy the strong techno-pessimism that comes up in many places. Richard Serlin has been a frequent commenter on this blog, and he generally has a gloomy take on where we are going to end up once the robots arrive. I'm not bringing up Richard to pick on him. He writes thoughtful comments on this subject (and lots of others), and it is those comments that pushed me to try and be more clear on why I'm "techno-neutral".

The economy is more creative than we can imagine. The coming of robots to mechanize away our jobs is the latest in a long, long, long, history of technology replacing workers. And yet here we still are, working away. Timothy Taylor posted this great selection a few weeks ago. This is a quote from Time Magazine:

The rise in unemployment has raised some new alarms around an old scare word: automation. How much has the rapid spread of technological change contributed to the current high of 5,400,000 out of work? ... While no one has yet sorted out the jobs lost because of the overall drop in business from those lost through automation and other technological changes, many a labor expert tends to put much of the blame on automation. ... Dr. Russell Ackoff, a Case Institute expert on business problems, feels that automation is reaching into so many fields so fast that it has become "the nation's second most important problem." (First: peace.)
The number of jobs lost to more efficient machines is only part of the problem. What worries many job experts more is that automation may prevent the economy from creating enough new jobs. ... Throughout industry, the trend has been to bigger production with a smaller work force. ... Many of the losses in factory jobs have been countered by an increase in the service industries or in office jobs. But automation is beginning to move in and eliminate office jobs too. ... In the past, new industries hired far more people than those they put out of business. But this is not true of many of today's new industries. ... Today's new industries have comparatively few jobs for the unskilled or semiskilled, just the class of workers whose jobs are being eliminated by automation.

That quote is from 1961. This is almost word for word the argument you will get about robots and automation leading to mass unemployment in the future. 50 years ago we were just as worried about this kind of thing, and in those 50 years we do not have massive armies of unemployed workers wandering the streets. The employment/population ratio in 1961 was about 55%, and then it steadily rose until the late 90's when it topped out at about 64%. Even after the Great Recession, the ratio is still 59% today, higher than it was in 1961.

This didn't happen without disruption and dislocation. And the robots will cause similar dislocation and disruption. Luddites weren't wrong about losing their jobs, they were just wrong about the economy losing jobs in aggregate. But I don't see why next-generation robots are any different than industrial robots, mainframes, PC's, tractors, mechanical looms, or any other of the ten million innovations made in history that replaced labor. We can handle this with some sympathy and try to smooth things out for those dislocated, or we can do what usually happens and let them hang out to dry. The robots aren't the problem here, we are.

What exactly are those new jobs that will be created? If I knew, then I wouldn't be writing this blog post, I'd be out starting a company. The fact that I cannot conceive of an innovation myself is not evidence that innovation has ceased. But I do believe in the law of large numbers, and somewhere among the 300-odd million Americans is someone who *is* thinking of a new kind of company with new kinds of jobs.

Robots change prices as well as wages. An argument for pessimism goes like this. People have subsistence requirements, meaning they have a wage floor below which they cannot survive. Robots will be able to replace humans in production and this will drive the wage below that subsistence requirement. Either no firm will hire workers at the subsistence wage or people who do work will not meet subsistence.

The problem with this argument is that it ignores the impact of robots on the price of that subsistence requirement. Subsistence requirements are in real terms (I need clothes and housing and food), not nominal terms (I need $2000 dollars). The "subsistence wage" is a a real wage, meaning it is the nominal wage divided by the price level of a subsistence basket of goods. Robots lowering marginal costs of production lowers the nominal human wage, but it also lowers the price of goods. It is not necessary or even obvious that real wages have to fall because of robots. History says that despite all of the labor-saving technological change that has gone on over the last few hundred years, real wages have risen as the lower costs outweigh the downward pressure on wages.

Who is going to buy what the robots produce? Call this the "Henry Ford" argument. If you are going to invest in opening up a factory staffed entirely by robots, then who precisely is supposed to buy that output? Ford raised wages at his highly mechanized (for the time) plants so that he had a ready-made market for his cars. The Henry Fords of robot factories are going to need a market for the stuff they build. Rich people are great, but diminishing marginal utility sets in pretty quick. That means robot owners either need to lower prices or raise wages for the people they do hire in order to generate a big enough market. Depending on the fixed costs involved in getting these proverbial robot factories up and running, robot owners may be a strong force for keeping wages high in the economy, just like Henry Ford was back in the day.

The wealthy are wealthy because they own productive assets. A tiny fraction of the value of those assets is due to the utility to the owner of the widgets they kick out. The majority of the value of those assets is due to the fact that you can *sell* that output for money and use that money to buy other widgets. Rockefeller wasn't wealthy because he had a lot of oil. He was wealthy because he could sell it to other people. No other people, no wealth. Just barrel after barrel of useless black gunk.

The same holds for robot owners. Those robots and robot factories have value because you can sell them or the goods they make in the wider economy. And that means continuing to exchange with the non-wealthy. You cannot be wealthy in a vacuum. Bill Gates on an island with robots and a stack of 16 billion dollar bills is Gilligan with a lot of kindling.

Wealthy robot owners will do what wealthy (fill in capital stock here) owners have done for eons. They'll trade access to the capital, or the goods it produces, to the non-wealthy in exchange for services, effort, flattery, and new ideas on what to do with that wealth.

Wealth concentration would be a problem with or without robots. The worry here is that because the wealthy will be the only ones able to build the robots and robot factories, they will control completely the production of goods and the demand for labor. That's not a problem that arises with robots, that is a problem that arises with, well, settled agriculture 10,000 years ago. Wealth concentration makes owners both monopolists (market power selling goods) and monopsonists (market power buying labor), which is a bad combination. It gives them the ability to drive (real) wages down to minimum subsistence levels. This is bad, absolutely. But this was bad when (fill in example of a landed elite) did it in (fill in historical era here). This is bad in "company towns". This is bad now, today. So if you want to argue against wealth concentration and the pernicious influence it has on wages, get started. Don't wait for the robots, they've got nothing to do with it.

Again, be clear that in arguing against techno-pessimism I am not arguing that robots will generate a techno-utopia with ponies and rainbows. I just do not buy the dystopian view that somehow it's all going to come crashing down around our ears because of the very particular innovations coming in the near future.