Secular Stagnation—Posner

I agree with Becker that the candidates that he discusses for retarding U.S. economic growth in coming years, such as a technological slowdown or reduced private investment, are implausible; also that there are useful reforms, notably tax reform, that can stimulate economic growth. But like Larry Summers, whose recent paper “The 2013 Martin Feldstein Lecture: Economic Possibilities for Our Children,” NBER Reporter, 2013, no. 4, www.nber.org/reporter, has influenced my thinking, there’s a risk, not of a technological slowdown but of a technological speed-up, that could—implausible, futuristic, and alarmist as this may seem—retard U.S. economic growth in the coming decade and beyond. 

Suppose that very cheap and very capable machines, which require very little labor to design, produce, or maintain (mainly just a few computer geeks to assist the computers to design new computers and other new machines), provide an attractive substitute for labor in some industry. An example mentioned by Summers is the driverless motor vehicle, which has been developed by Google, and works, and will be in mass production in just a few years, and which is just an ordinary vehicle plus a small though very capable computer. The driverless vehicle could displace most truck drivers, taxi drivers, bus drivers, drivers of ambulances and other emergency vehicles, chauffeurs, and drivers of military vehicles. There are some 3.5 million truck drivers in the United States and 900,000 bus and taxi drivers and chauffeurs: in total, a nontrivial fraction of the total U.S. work force. Where are all these people to go when their jobs are replaced by a computer lodged in a driverless vehicle? Many other jobs will be disappearing because of automation at the same time. Similar technology is likely to be displacing in approximately the same time frame airplane pilots, warehouse workers, workers in factories that produce vehicles, oil-field workers, and many other types of worker as well. Historically, it is true, new technologies created jobs for a lot of workers, but this seems unlikely to happen in the case of computer technology. Driverless cars are a good example. They just require the building and installing of computers that have already been designed. The manpower needs are trivial. 

Of course for the driverless vehicle to catch on, it will have to offer economies, as doubtless it will. And, with no truck drivers to pay, the cost of truck transportation will fall, and price will follow. So goods shipped by truck will cost less, and people will buy more of them, or if they buy the same quantity will use the money they save to buy more of other goods or services. But the production of many of the other goods or services that they buy will be automated, just like truck transportation, and the demand for labor by the providers of those goods or services may therefore be declining simultaneously with the decline in the demand for drivers. It is difficult to imagine productive activities that cannot be automated—mining, construction, many medical services, house cleaning: the list goes on and on. 

A decline in the demand for labor, caused by automation, will result in lower wages, without necessarily producing an increase in employment (work effort will not grow if there is no work), let alone an increase in national income. With the federal minimum wage near the poverty level (though some states have higher minimum wages, as permitted by federal law), a fall in wages to or near that level may result in a decline in the percentage of the population that is employed, and in turn to a reduction in consumption (assuming the profits from automation are largely limited to a small upper class) and investment. One likely response will be an expansion of the social safety net, which will further discourage employment, as well as requiring higher taxes, which will further limit consumption. 

These consequences of technological progress are highly speculative, but cannot be ruled out categorically. Like climate change, they are a shadow falling on the future.

Comments

[Jjj Jjj]

You are barely scratching the surface here and not with the best of examples.
On one hand with the industrial revolution people started to be replaced by machines and your example is not a huge change , no real need to get all that alarmed.
There is also more to self driving cars than what you highlight,you should think about those cars being available on a subscription based model, resulting in a lot fewer cars, cars better fit for our needs (no need for a SUV for just 1 passenger) and a lot less fuel wasted.
The far bigger change is 3D printing ,and that change has the potential to be a new industrial revolution, changing our society in a dramatic way. You can print little now and hard to say how fast things will evolve but at one point 2-5 decades) we might not need to buy objects anymore ,or food. Our homes might be self sufficient, producing enough energy and raw materials for our needs.
Maybe virtual reality headsets and humanoid robots should be factored in too, we might go out less , socialize less ,crime might fall and so on.
Then ,the internet of things,sensors everywhere will change healthcare in a big way.
And then ,you have "ascension",we should manage to put people inside computers in some decades.
It's hard to say how fast things will evolve and how the world will look when we get there but we need to figure it out since this new technological revolution has started.
This is a huge subject but i don't want to spend weeks writing about it so i'll stop here.

[Thomas Rekdal]

Whether or not technological automation will lead to any of the consequences Judge Posner suggests are possible, I find it difficult to work myself into a mood of pessimism over the prospect. We will be able to produce more goods and services with less work, reduce consumption, inflict less damage on the planet, and enable gobs of free time for the ordinary individual? This sounds to me a lot like the communist utopia outlined by Karl Marx in a familiar passage from "The German Ideology":

"For as soon as the distribution of labor comes into being, each man has a particular exclusive sphere of activity, which is forced upon him and from which he cannot escape. He is a hunter, a fisherman, a shepherd, or a critical critic and must remain so if he does not wish to lose his means of livelihood; while in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, to fish in the afternoon, rear cattle in the evening, criticize after dinner, just as I have in mind, without ever becoming hunter, fisherman, shepherd or critic."

If we can have all of this through technology rather than the communist revolution, I say bring it on!

[plus.google.com/107106656128640854140]

"It is difficult to imagine productive activities that cannot be automated—mining, construction, many medical services, house cleaning: the list goes on and on." Actually, it's easy to imagine for one who understands the enormous problems involved. As Steven Pinker has pointed out, when it comes to building robots with human-like ability, the "easy" problems are the hard problems. It's actually easier to make a robot that can replace a hip than one that can clean the bathroom. A little imagination can help us see why. For instance, the robot scrubber has to answer the question "is that dirt" (in which case I should keep scrubbing), or "is that a speckle that is part of the aesthetic composition of the tile" (in which case I should stop scrubbing)? The image of a road can relatively easily be converted into lines, and GPS-like coordinates can tell a machine where to drill a hole to screw in a new hip, but deciding what's dirt from a stream of 1's and 0's is far more difficult. What we consider "low-level" jobs aren't low-level from a robot-design standpoint, and many of what we consider high-skill jobs can be done by machines.

[B Wilds]

Society must find a better way to distribute labor and the rewards of labor. This would give more people a path to finding real and fulfilling work. The cost of inequality is taking a toll on our culture. Robots and new technology have streamlined and increased productivity and at the same time eliminated many jobs. Big business is good for big business but not necessarily for the masses. Consolidation often means a gain in efficiency, but this often comes at the cost of losing diversity and a "robustness" to both society and the economy. The benefits of efficiency sometimes have a huge hidden cost.

How the fruits of labor are divided is important, this includes not just the wage deserved by a common laborer, but how much CEO's, those in management, and those that can't, or choose not to work, receive. While we have become far more efficient in producing goods, all people should in their lifetime contribute to the good of society and the economic pie. More on this subject in the post below,

http://brucewilds.blogspot.com/2013/04/society-must-better-divide-labor.html

[Gertrud Fremling]

I disagree with your statement:"It is difficult to imagine productive activities that cannot be automated—mining, construction, many medical services, house cleaning: the list goes on and on." Indeed it is easy to imagine many types of (now) luxury type services where demand would continue to increase. For instance the whole category of educational/athletic services, such as personal trainer, dance instructor, ski instructor. Similarly, people like to learn to improve many fun skills, such as getting group lessons in cooking, painting, ceramics, wood working, playing a musical instrument. Pets will be pampered more, increasing demand for veterinarians, dog walkers, pet psychologist. And if the cost of travel comes down due to automation, demand for air craft, tour guides et.c. would go up. Protective services, such as security guards and police would increase, too as people spend less on other areas. Just look at what the currently wealthy consume: they do not prefer robots but actual personal service.

[Terry Bennett]

In a duel of imaginations, is it more imaginative to imagine tasks that can't be automated, or to imagine even more fantastic machines that can in fact automate those tasks? Gertrud's posts are usually quite insightful, but the existence of the Wii and Khan academy tend to argue against her position above. As robots get better and outperform humans, consumers will shift in their preference. Maybe it can never be 100%, but Judge Posner's point is well taken: there are magnitudes of new automation on the near horizon, and large numbers of jobs facing elimination thereby (though at least some offsetting number of other jobs will be created in the process).

The "rewards of labor", per the post of B Wilds, are distributed naturally, and I do not see any justification for artificially and systemically interfering with that. Just eyeballing it, I expect the cheapest way to deal with the economic problem is to pay welfare subsidies to those who can't produce enough to pay for their consumption. As for CEO pay, anybody who wants to see them paid less is free to accomplish that, without resort to government. Simply buy a majority of the stock, outvote all the apparently foolish shareholders who want to pay THEIR executives so much, have the company offer lesser salaries to executives, and reap the extra profit yourself as your $40,000-per-year CEO leads the company to equal success. After all, anybody can manage a large company.

Our tech landscape and daily life will look significantly different in 25 years, if only because of the continued maturing of the innovations that occurred 25 years ago. Just about anything can be automated to a greater extent than currently, as the building blocks get cheaper and it becomes more cost-effective to do so. I expect we'll see game-changing advances in medicine, robotics, and plenty of other areas, and even a significant re-on-shoring of manufacturing as Jii Jii mentioned (I saw a 3-D printer in Staples this week for a mere $1,250).

The employment picture will continue to be bleak for those who choose to remain unskilled, probably even bleaker than at present. Maybe we'll move toward a 25- or 30-hour work week, to spread less work across more workers. Not so many decades ago, work weeks were much longer, and maybe that trend will continue.

I expect that the U.S. will still be a land of great, even boundless opportunity for those who respond appropriately to market demands. For those who ignore that message, whether out of mere stupidity or a principled and obstinate insistence that it should be otherwise,...well, don't worry, I'm sure we'll still have some kind of welfare in place.

[Gertrud Fremling]

I totally agree that lots of jobs would be eliminated. But some service sector jobs would not go away. Indeed, there would be greater demand for the type of service jobs I listed, and they would replace the jobs no longer needed due to automation.

And just like today, many of those could very well be performed by relatively low-skilled workers. People with high incomes are willing to pay a lot to have personal service by friendly workers. And children or the elderly can hardly be cared for without a lot of human interaction. Extra personal attention is a luxury. Why would not the demand for service workers go up and the wages in the service sectors simply rise?

Actually, that sounds like a wonderful, even possibly quite egalitarian society! The basic necessities of life will be taken care of cheaply thanks to automation and we can shift our focus to party-planning, charm courses and playing the trombone...

[bratschewurst]

The consequences of such technological advances may be speculative, but, as Kevin Drum points out in an article for Mother Jones http://www.motherjones.com/media/2013/05/robots-artificial-intelligence-jobs-automation, the advances aren't. We're likely not more than a decade or so from levels of affordable artificial intelligence that can replace human labor in most employment.

It's like the Starship Enterprise being able to operate with 5 crew rather than 1,000 (and shame on Rodenberry for missing this, as well as failing to predict the Internet). What do the other 995 do with their time, and where does the money to feed them come from? Or, to put it another way, what happens when most human labor is worthless and the owners of the machines can claim all the income?

[Gertrud Fremling]

I'd not trust a non-technical writer for non-technical Mother Jones. Real science magazines are better sources.

Anyway, assume you are right about Starship Enterprises. Would that not mean that the demand for space travel would explode? Just the way air plane travel has so far. Adventurous people would like to go for space walks, dine at restaurants on on moon and spend a few years on Mars. Such activities would be a lot more fun than just watching movies about space travel.

But what about more mundane services? Do you really thing many parents would find Robotic Daycare appealing? Do you think the five-star restaurants would attract customers with robot servers?

[Terry Bennett]

Gertrud, if there are any pieces written for trombone and cello, I will take up the cello just for the privilege of playing a duet with you. In fact I do share your optimism, just not for quite the same reason.

I think the discussion here is suffering from a disconnect of perspectives, i.e., one person looks at a snapshot of the world 10 years from now and another looks 30 years out, and of course they don't agree on what they see because they are seeing two different worlds. (E.g., your parents may not want robotic daycare, but your grandchildren, many of whom were moving a mouse before they could talk, are likely to be quite comfortable with it. Also, by the time your grandchildren need it, robots are likely to be pretty good.)

When COBOL was invented and computers started turning up in the large firms that could afford them back in the late 1950's, the forecast was that many jobs would be eliminated. It was wrong - at the time. The nature of the work changed promptly, but as bookkeepers were laid off, programmers were hired. It took several decades, but by now the prediction has come true. If we had to do all the work manually today that is done by the horde of ubiquitous machines, including typing every report that is printed out of a PC or viewed on-screen, it would take millions upon millions of extra people. (The truth is, most of it just wouldn't be cost-effective to produce at all and would not get done.) The norm today is that you still need a person, but that's person's PC is a multiplier, enabling the person to get a lot more done.

Right now it's not cost-effective to invent and deploy crop-picking robots because a farmer can hire a small army of Mexicans by the bushel, but the day will come. Our aging demographic is already pulling low-skill labor to geriatric services, and that arena is going to see more technology in the near future. Suppose a company owns nursing homes and needs 1 nurse's aide per 5 residents (on every shift). If they can automate some parts of the work and get down to 1 per 10 or 20 residents, that frees up a lot of money.

A hundred years ago, a lot of jobs were thoroughly unpleasant and back-breaking. Look at the first car factories compared to today. There is less labor overall, but the more striking trend is that there is less drudgery in the labor that remains. I believe this upward march will continue, and people will find more benign work over time, thanks to machines. Where the employment itself will come in the future is a different question, and I believe we don't know yet - but I have every confidence that it will come, in ways just as unforeseen by us as our current economy was unforeseen by our forefathers.

Communism and capitalism both occur in nature, but communism does not scale well. A family is a communist collective. A father works and feeds his wife and children without regard for account. Once you expand out beyond a family, or a clan, or a tribe, to dealings with other humans with whom a love connection is not presumptive, and once you get past clubbing each other over the head and taking each other's property, capitalism is what arises - trade, and just compensation. Communism falls apart as soon as collective production drops below collective consumption and supply fails (when, as Margaret Thatcher said, you run out of other people's money). Capitalism persists as long as demand exists. My vision of the future is that people will still want stuff, and they will pay to get it, and there will be competition to supply it cheaply, and there will be too many unskilled people competing which will drive the price of unskilled labor very low, and there will be a class of people who are eclipsed from the economy because they just don't have the wherewithal to produce as much as they consume, and we'll need to subsidize them, and we will. (This is also my vision of the present.)

[Gertrud Fremling]

In your world 30 years from now, why would there be so many unskilled people? Technology is making education fun and efficient and technology will also help us conquer physical and mental diseases.

It seems that virtually everybody would have aquired skills either in the service or entertainment sector or become a specialist in how to develop, program or maintain the machines.

[Terry Bennett]

Gertrud,

That's quite a different topic. Again, my outlook is net positive, but your optimism is bedazzling. I don't know what percentage of the population will be unskilled in 30 years, but I suspect it will be higher rather than lower than today, or at best the same.

First, I expect the skill poverty line to be continually redefined upward. There has always been a segment of the population whose eyes glaze over when confronted with arithmetic or technology, and I think that will persist. Lots of kids today think they want a career designing games because they like playing games, but when they get into the actual sausage factory of computer science they quickly lose interest or find themselves unsuited.

Second, I don't think we're going to change human nature, nor are we going to confront it. There are people who find public assistance sufficient, and have no further incentive to be productive. I expect we'll keep providing the same level of benefits, or higher.

We're making progress - what was the literacy rate in Dickens' London? Maybe advances in infant nutrition will make almost everybody capable of counting in binary, but I still expect there to be a persistent segment - maybe not 47%, but a significant segment - whom society will need to pull along.

[Jack]

"A decline in the demand for labor, caused by automation, will result in lower wages, without necessarily producing an increase in employment (work effort will not grow if there is no work)........."

Posner either "gets it" or at least "speculates" what I've been concerned about for a number of years.

Despite all the articles about having to "spur investment" the essence of the statement above is not only capitalism failing us dramatically as it did after 1928 when the owners of capital had too great a share of it and the whole thing collapse like the last rounds of a soon to be published game called Monopoly, but that it's likely to fail more completely.

Posner's comment conveys a lot. First that as in the 20's the owners of capital benefited dramatically while wages and finally jobs for most declined.

We have a real problem if our current version of capitalism results in lower wages and fewer jobs for most of us while those owning the robots and designs for building them continue to take higher and higher shares of the increased productivity.

How do we turn this around so that both the wage earning chemist (or chemistry professor?) and the janitor participate in the overall wealth generated by their talents and labor?

Suppose that we'd have implemented such a tool forty years ago? We know that the wage distribution ratio of the 70's would mean the median household having about $10,000 more to spend each year. There would be no difference in prices as we're dealing with the overall costs that exist today, except that some amount that has over-accrued to the top few percent would have "trickled down" to those that economists KNOW are and have to be the spenders that spur the economy far more so than the same dollar going to the very wealthy who can't possibly consume that much, and don't.

And lastly? What of a capitalism that "efficiently" returns capital and ROI to Google, MSFT and our largest corporations WITHOUT increasing the standard of living for most of its wage earning working folk? Like global warming, the sooner we address this malfunction and implement the long mythologized "trickle down" the better and easier the adjustment. The other? economic failure and courting social breakdown in what had been the richest of nations and longest democracy.

[Jack]

Terry..... some fairly good comments including a reminder of the days of COBOL, Fortran and Basic.

But the issue is not that of choosing between communism and capitalism, but that of tweaking a glaring flaw capitalism has long had and one tht is fed on steroids as wealth built with VERY few employees or participants flows to a Google, Facebook, Apple et al faster than a "Robber Baron" could build a 100 miles of RR, with! I should add a huge crew of laborers.

The answer is not "tear it down and try to implement a better communism". No........ like the last time capitalism imploded from the same disease it has today, THAT is when agitators, well meaning or otherwise, become sellers of communism, socialism or at min! a New Deal.

Nope, unless we find a means of all Americans, at least, becoming minor stockholders who also benefit from the great increases in productivity and wealth, WE all have a big problem ahead. And sorry but the WORST prescriptions are those of the "GOP" who are still working the ALL FOR THE RICH agenda.

[Jack]

Gertrud: I went to google up a link for a robotic restaurant in Japan I've heard of........ cooking and delivery all robotic, but found a dozen or so variations around the world including this one that seems something like diving into a combo of Star Wars and Disney World.

http://www.robot-restaurant.com/E/top.html

As you suggest, "the rich" may not want to swap their wine opening human waiter in a five star place..... but then....... there is this other.

[bratschewurst]

"I'd not trust a non-technical writer for non-technical Mother Jones. Real science magazines are better sources.

Anyway, assume you are right about Starship Enterprises. Would that not mean that the demand for space travel would explode? Just the way air plane travel has so far. Adventurous people would like to go for space walks, dine at restaurants on on moon and spend a few years on Mars. Such activities would be a lot more fun than just watching movies about space travel.

But what about more mundane services? Do you really thing many parents would find Robotic Daycare appealing? Do you think the five-star restaurants would attract customers with robot servers?"

First of all, the Drum article was not "technical." And it is worth reading, even if you don't like Mother Jones' politics (and you probably don't).

Yes, artificial intelligence on the level of human cognition could vastly increase societal wealth. But imagine a world in which a Data-like android could be produced for, say, the price of a luxury car. What labor doesn't that replace?

There is a level of artificial intelligence and associated robotic technology that replaces most human labor very, very efficiently. We;re not there yet, but Drum's point is that we're likely a lot closer than most people think.

If the fundamental model of income distribution is based on work as well as capital accumulation, where does the income of most of the labor force then come from if there is no need for their labor? Doesn't all the income then go to the owners of capital?

[Jack]

"Doesn't all the income then go to the owners of capital?"

That's largely the current trend and something WE (as in democratic process) will have to remedy.

I don't know why this is "so confusing" or objectionable to many.

WE..... the majority of working (and unemployed) folk will have a choice of grubbing for what few jobs there are.

Or! As the size of the overall pie increases creating a mechanism so that each slice goes up in, at least some, proportion with the whole so that there ARE enough who can buy the goodies, or take a rocket ride. Consider it's only the income from rocket rides on the 1.0 that finances 1.2 and 1.3.

And! WERE the wealth of increased productivity TO "trickle down" WE through small stock purchases, mutual funds and 401's would supply much of the capital for research, development and expansion.

If not enough $$$ "trickle down" for most of us to "go shopping" and have the wallet for new "really cool things" about the only other means of making it all work is via shorter work weeks to spread what work there is.

I do not subscribe to the idea that "we've run out of work to do" as all around me I see unmet wants and needs, but unfortunately too many have not the wallet to turn their wants into economic demand.

[AnnDanielD]

I, for one, think we should be more concerned about the secularization of this Nation that was founded on Judeo-Christian principles; who can deny that whenever we have failed to live up to our Judeo-Christian principles, we have suffered individually and as a Nation?