Thursday, February 16, 2017

Automation, Displacement, and Social Welfare

A key tenet of economics is the benefit of what Joseph Schumpeter called "creative destruction." The idea is that the displacement caused by technological advancement is what frees resources from their now-inefficient uses so they can be redirected to new uses that lead to economic growth. Before the Industrial Revolution, somewhere over 90% of the workforce was involved in food production. Now that number is under 10%, but we don't have 80% unemployment. The automation in agricultural production that heralded the start of the Industrial Revolution made it so the labor necessary for factory jobs was available. The same could be said of the Digital Revolution. Computers displaced workers, and those workers can now do things that were previously going undone. Human existence is nicer because of technological advancement.

But what if the rate of technological advancement outpaces humans' ability to adjust to it? The McCormick reaper and other inventions made most farm labor superfluous, so those workers learned how to become factory workers, and that change lasted for three or four generations. The vacuum tube and other inventions made most factory labor superfluous, so those workers learned how to become office workers, and that change lasted for two generations. Some people tell us to not fear the coming AI Revolution because it's just the latest in this string of technological revolutions that have drastically improved human life. I worry, however, that the pace of automation has surpassed the ability of humans to learn their new roles in the economy. With the past revolutions, there was someplace for the workers to land on their feet. Currently, though, a displaced worker might leave a retraining program to find that his newly-acquired skill has also been displaced.

What will never go away? Things we only want humans to do. But that list of tasks is shrinking rapidly. And besides, most of us have an aversion to entering service. We can't square "all men are created equal" with a nation consisting of a handful of satraps and their personal courts. And what's the ROI from retraining when education costs continue to outpace inflation but careers have now become gigs?

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