Domo arigato, Mr. Roboto. Thank you very much, Mr. Roboto, for doing the jobs that nobody wants to. And thank you very much, Mr. Roboto, for helping me escape just when I needed to. Thank you, thank you, thank you. I want to thank you, please, thank you. So goes the song Mr. Roboto written by Dennis DeYoung of the band Styx, and released on the album Kilroy Was Here in 1983. And while the lyrics I have cited here are actually very positive, the song itself tells a story about a rock and roll performer who escapes from a prision by hiding inside of a robot guard. Later the song includes the lyrics The problem’s plain to see: Too much technology. Machines to save our lives. Machines dehumanize.
People have been scared of technology probably since the invention of fire. In the 19th century English textile workers and weavers began destroying machinery as a form of protest claiming that the new equipment was replacing their jobs. These Luddites gave the name those opposed to industrialization and technological progress. They also gave the name to the economic concept of the Luddite Fallacy. This fallacy suggests that technology destroys jobs and leads to higher overall unemployment in the economy. Interestingly, many of the modern Luddites come from the so-called technology sector including people like Bill Gates, Steven Hawking, and Elon Musk, all of whom have claimed that technologies like Artificial Intelligence (AI) are a threat to society.
Now to be honest, most of the comments have been about how to regulate AI, which, like all industries and technologies require a proper regulatory environment. However, their words have been fueling an anti-technology movement with many claiming that robotics and artificial intelligence will (just like spinning looms) destroy jobs.
Technology does not destroy jobs, but rather changes the composition of jobs in the economy. And while new technologies may lead to specific examples of short-term temporary unemployment, more jobs will be created in different, new industries. In other words, this is another version of the Broken Windows fallacy. For every economic activity has an opportunity cost as well as a direct economic benefit.
The economy is like a machine, and it moves forward when it allocates resources from a less productive activity to a more productive one. An economy moves backwards when it takes productive resources and allocates them toward less productive activities. When the hat seller in the broken windows story had to take resources from improving his business to replace a broken window, the economy shrinks. When an entrepreneur finds a better way to make a shirt, or drive a truck or sell a hat the economy grows.
In the 19th century, when spinning jennies were introduced, clothing became much less expensive. Consumers facing lower prices both purchased more clothing and also had more income available to purchase other goods – like food or better shelter. Technology adopted in the textile industry created jobs in food manufacturing, housing and other firms, that now had increased demand.
Today’s Luddites suggest that this time things are different. They argue that today we can build robots that do things that only a person can do, like cut hair, or serve a meal and this will cause massive unemployment.
But economists know that it will not. The same thing was said about Robots that delivered messages (the telephone), or the mail (the internet), or that mined coal or cut trees or made soup. The same economic facts apply. If robots can cut our hair, the price of haircuts will fall – leading to more income that can be spent on going to the movies or purchasing more clothing. Or with more income we can simply decide to work less. This may already be happening. The workforce participation rate has been falling for many years meaning that many people have decided that it is better to live in mom’s basement and play video games than to work. Since individuals (at least outside of North Korea) are not the property of society, an individual decision not to work is not unemployment nor is it a bad thing.
While the Luddite fallacy holds in that automation and technological change do not lead to higher long-term unemployment, one thing is true. Technology does make it more difficult for the most marginal workers to find jobs – particularly when governments impose wage floors.
Take a restaurant where individuals make hamburgers and deliver them to customers tables. In general,the cost of food in a restaurant is about a quarter of what a customer pays, operations add in about a quarter of the cost, capital another quarter, and labor the remaining 25 percent. Assume the hamburger costs the customer $4.00. This means that the cost of labor is $1.00. Now assume that the government sets a rule that brings the cost of labor to $1.50. Since none of the other costs have changed, the restaurant either needs to raise its price to $4.50 or find a way to reduce the amount of labor in the hamburger. If the restaurant raises its prices, then consumers have less disposable income to spend on clothing, hair-cuts or other goods, so demand for those products would fall leading to less employment in those industries. If, on the other hand, restaurants replace workers with machines they would likely be able to lower costs even further.
Therefore, if labor costs are set above the technology replacement cost across all industries, then there is a point where technology will begin to lead to higher unemployment. But this is not because of the technology, but because of the regulations.
The machinery of the market is complex, but it generally leads to more and more efficient production, lower prices and a better life for everyone. Domo arigato, Mr. Roboto, for doing the jobs that nobody wants to and for making the world a better place.