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Want a 200% pay rise? If you do, let the robots do all the work

One of the newest Nobel economists has a theory, and if it's correct we'll all be in for a huge salary increase when the robots take over

A common assumption today is that the coming of the robots, artificial intelligence (AI) and algorithms doing everything, is going to require the complete overturning of capitalism. We’re going to need universal basic incomes, massive taxation of capital returns, the expropriation of the capitalists perhaps. Certainly the robots are going to come and steal our wages.

Given that much of this is told to us by those who always say such things, that capitalism must be overturned and the rich must be dispossessed, we might take all of this with a pinch of salt. We’d be right to, for the underlying economics here is entirely the opposite.

In theory we have Karl Marx’s basic observation, that at some point we’ll entirely deal with the problem of economic scarcity and thus true communism can arrive. Those machines doing all the work is exactly what he envisaged too, and it was going to be capitalism that brought it about.

His point, one that’s unusually true and useful in his line of thinking, is that if the machines are making everything we want, enough for all, then there’s not really a problem with incentives to get people to make things, nor all that much need of a restrictive distribution system. Why ration by price, or anything else, if rations aren’t required?

Ivory towers

If such ivory towers built upon sandy foundations aren’t quite your thing, then we’ve more detailed and empirical studies available. Quite the most interesting comes from one of this year’s two Nobel Laureates in economics.

Oddly, it’s Paul Romer who is usually thought of writing about the economics of innovation and technological development. But he’s usually talking about how this happens, what brings it about. It’s the other, William Nordhaus, who has properly illuminated what happens when it does.

In the sort of paper that has even free-market economists cooling their fevered brows, Nordhaus looked at who actually gains from innovation. One caveat here, to an economist “a technology” is a very wide definition. A supermarket is a technology just as much as the internal combustion engine or the internet.

Indeed, supermarkets are an excellent technology to look at, that move from butchers and bakers who provide our dinners not from their benevolence through Jack Cohen’s pile-it-high-and-sell-it-cheap approach at Tesco to – well, to Sam Walton’s mastery of bar codes and stocking logistics, through to perhaps the manner in which Amazon means there are just no one-grocery-store towns left at all, a national supplier of everything achieving the extinction of such local monopolies.

Read more about robots and jobs

All of these are technologies and all obey the same rules as to who benefits. We have innovators, entrepreneurs, consumers, and some split of the gains between them. Nordhaus’ finding is that it’s us out here, the consumers, who gain some 97% of the value created. Sure, Ford made a fortune out of the Model T, but who gained the value of being able to court in the back seat?

And yes, at least one estimate insists that the rate of virginity upon marriage declined markedly after the car became populist. President Obama’s former chief economist, Jason Furman, tells us that Americans gain $263bn a year from Walmart. Sam’s inheritors, the Walmart family, have some $150bn between them as a capital sum, but we get that saving each and every year.

The important point to note being that’s not what we save at Walmart – that’s what we save from the store. Their low prices mean that everyone else’s prices must also be lower. That is, it’s competition that matters.

It’s the market economy that limits the part of value creation that the capitalists, the entrepreneurs, can lift. Since we’re not about to give up the market part of market capitalism we can assume that this will continue.

Robots dominate

Another way to make much the same point is that, OK, the robots and the algos will dominate work and monopolise all the jobs. But it won’t be a monopoly within tech. There will still be competing versions of all of these things, meaning we are still in a competitive economy. And that’s the one that competes for our custom by offering us ever greater value. By reducing the amount flowing to the capitalists so they still gain some part of the value created rather than none by having no sales.

There is possibly one fly still in this ointment, which is that the technologies really, totally, dominate all work. We humans have nothing left to do. Which is Marx’s vision of where communism starts to be possible if that’s your bag. We might think that if we’ve no work then we’ll have no incomes, thereby no ability to consume anything. The owners of the algos become vastly rich and we all scrape by on scraps.

This doesn’t quite work logically, as if everything is being made without labour then things can be consumed without labour. And if we don’t have access to those things we can consume then we’re all stuck in the economy we’ve got right now. We labour to make things others can consume, we consume things laboured over by others. Perhaps the plutocrats are the only people to consume the production of the robots but we’re still out here doing just as we do now. Either we get to consume that which is produced or we don’t, but we cannot be worse off than today.

Or we can follow Nordhaus again – do recall he got the Nobel this year. He took this story as it is told. The capitalists own all the machines, they get all the profits, the machines make everything. Note that this is extreme, for it ignores that we are often the capitalists ourselves. Our pensions and insurance policies own a goodly chunk of extant and future industry. There is no “them” to own everything that is. But the Nordhaus paper does the interesting thing of taking other peoples’ arguments and worries seriously and follows the logic to its end.

They own everything, they take all the profits, we’re left with the merest scraps. Profits asymptotically approach 100% of the economy, the labour share equally asymptotically 0%. For this to be true, the rate of growth of the economy has to be immense, so large that even here, as we are getting those merest scraps, real wages are increasing at 200% a year. A year, each year, real wages. This is, perhaps, not a world that is a problem.

Effectively, if the machines do all the work, we all become gargantually rich. If we maintain a market economy, this happens as a result of competition between the machines, the capitalists, for our custom and favour. And even if that doesn’t happen, we still become vastly wealthy anyway.

Bring it on, really.

This was last published in October 2018

Read more on Artificial intelligence, automation and robotics

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