Friday, June 12, 2015

A thought experiment on disappearing jobs (here or in China)

On my last post on socioeconomic issues I sounded a guardedly optimistic note, suggesting that the heirs of today’s plutocrats (that are poised to rule over a society substantially more unequal than ours) would in the end grant the (nearly) starving masses some sort of Universal Income out of self-interest, just because it would be the only way to keep having enough consumers for their industries to keep growing and for them to keep becoming even more obscenely rich. In a sense, the way to extract even more value from the people would be not to make then work more –robots would do that more efficiently, but to give them a small amount of money from the vast sums accumulated by the 1% so they gave it back to them multiplied. The way that multiplication would take place was left a little hazy, and  without being able to reliably count on it the owners of the remaining capital are very unlikely to adopt such (apparently) redistributionist scheme, as for them it would be more “rational” (in a restricted sense of rationality, but that’s the one they will be educated in most likely, the direct heir of our own dominant “desiderative” reason), absent the multiplication factor, to just keep on producing goods that only themselves can benefit from, and keep the masses at bay through the use of force (it is much cheaper to pay only the police and the army to guard your property, allowing for the extra cost of the advanced weaponry they would have to be equipped with than to pay the whole of the population not to revolt, as current events keep reminding us). However, I do not want to explore more in depth the feasibility and reliability of that multiplying factor (which will likely require a post of its own), but to develop an alternative scenario, triggered by this LinkedIn post from my admired Jose Luis Hidalgo Learning from machine learning, and that got me thinking about the possibility of robots and software algorithms replacing human labor much faster (and thus in a much more disruptive way) than what I had so far considered, as they do not really depend in them getting any smarter, or acquiring any real “deep understanding” of the tasks we will be assigning them.

So let’s assume just 5 years from now there is commercial Software and mass produced robots powered by it that can reliably execute a percentage of the tasks that today are performed by humans. The obvious candidates are things like truck driving (although remember my skepticism regarding self-driving vehicles, just bear with me this time), certain types of journalism (content creation for niche –and not so niche- sites, like financial reports, and even some news analysis), customer contact (in call centers, and more and more through automatic chat response), fruit and vegetables recollection, most manufacturing tasks, construction (from bricklaying to plumbing to electrical wiring), x-ray interpretation, analysis of existing jurisprudence, productivity data analysis, job applicant screening, logistic planning, marketing data analysis, product development… I think you get the idea, the figure of up to 40% of the workforce having jobs that could be “automated” (that is, done by a machine without human intervention) is sometimes bandied about, and although I have been highly critical of that figure before (for reasons that have nothing to do with the technical feasibility of the replacement, but with the social rules that still act as a brake –albeit one with decreasing force- to the maximization of benefit as sole criterion for taking decisions within the companies) I’m going to run with it for the sake of argument, and even bump it up a bit. Let’s assume that 50% of the working population have lost their jobs, being made redundant by “the machines”, and that may be a 5% have found new jobs that today do not exist supervising those machines, or designing new whatchamacallits, or analyzing the Big Data coming out of the Internet of Things (and I’m probably being overly optimistic here). Of course some countries are hit harder than others, and some sectors are dismantled faster than others, but let’s just think for a moment in the effect of an increase in the average rate of unemployment of roughly a 45%. Let’s be doubly optimistic and assume that the meager safety nets still in place in most Western economies (but not in developed countries) can blunt the blow, and the contraction of the aggregate demand caused by that spike in unemployment (or slow apocalypse, the speed at which it happens is not that important at this level of discussion) is of only a 40%. That contracted demand means that people can buy 40% less cars, 40% less houses, 40% less plane tickets… of course not all demanded goods have the same elasticity to variations in income, and you would expect luxury items and big ticket goods to take a harder hit. However, let’s not get in such niceties and assume all industries see their demand drop a 40%

To begin with, many of today’s industries can not operate at a capacity of about a 60% of the current one. There would not be enough units produced to absorb the fixed costs, so they would always loose money, no matter how much market share they could scrap from their competitors. The state can help some of them for some time with extended loans nobody believes they would ever pay back again (as it has been doing with airlines for more than half a century), but at some point the credit dries up and the bespoke plants have to close. That means that a) the downsizing caused b the automation would not be optional or gradual, but an ugly, cutthroat environment where the alternative to massive layouts is going out of business sooner rather than later, and b) there would be tectonic capital shifts from “traditional” industries (producers of consumer goods) dependant on a mass of potential consumers that won’t be there any more to “new” industries that cater mainly to the plutocrats.

So what we are likely to see is that while Ford, GM, Chrysler, Toyota, Nissan, PSA and VW crash and burn, the equivalent of Ferrari and Lamborghini (maybe Tesla too?) may still do quite nicely, with tiny workforces, of course. Casio and Seiko (and Swatch) go out of business, but Patek Philippe and Cartier and Rolex can even expand their facilities and hire ten or eleven very experienced craftsmen (for a pittance). Most airlines could go bankrupt, as do Airbus and Boeing, but the manufacturers of private jets (Cessna) are OK. Essentially, the owners of Ferrari, Lamborghini, Patek Philippe, Cartier, Rolex and Cessna (and their respective management teams) can keep on selling things to one another, as they produce ultra efficiently more advanced, more efficient and more comfortable products in entirely automated plants that no human operator con soil or disturb.

This concentration of advanced industrial production in the hands of a few has a side effect that has been much ballyohooed  by some in the right under the guise of “trickle down economics”. Although I firmly believe it to be glorified poppycock, I’ll try to follow it up honestly and show where it does lead us. According to the theory, the vast amounts earned by the owning classes (which in this discourse are never called plutocrats, but rather are referred to as “makers”, or “entrepreneurs”, or even more shamelessly, “job creators”, although we have seen that the jobs theY acquiesce to create are less than the ones they help destroy) are a common good, as they evidently spend that money both in additional things for themselves (thus ratcheting up the aggregate demand) and in services that provide jobs for the masses. Let’s analyze more in detail both claims:

·         Regarding the expansion in the acquisition of consumer goods, it is a well known fact that the consumption-savings preference curve’s slope bends downwards as we move towards higher levels of rent, that is, higher incomes tend to consume less and save more (or have a lower marginal preference for consumption). So putting as much income as possible in the hands of as little people as possible is a notoriously boneheaded way to stimulate the aggregate demand, as such demand would grow more if the income were distributed to more people (with lower incomes). This is not thick-of-the-woods socialism, is just well attested economic theory (or as well attested as an economic theory could be, you should know by now my opinion about that)
·         Regarding the expenditure in services, the elasticity of demand is less clear, The more money you have and the more valuable you consider your own time to be, the more willing you are to pay for another person taking care of the less pleasurable aspects of your life, so you may start paying for someone to cut your hair and mow your lawn, then move up to have someone polish your shoes and cook your meals, then someone do the laundry, vacuum the house and put the dishes and cutlery in the dishwasher, wash the car, walk the dog, clip your toenails… you see where this is going, in the end you pay an “organization consultant” to rearrange the clothes in your wardrobe, a “decluttering expert” to throw away all those geegaws you barely use, a “personal shopper” to choose your clothes and accessories for you, a “personal trainer” to tell you what exercises to perform to stay moderately fit (a pity he can not also do them for you, that would be even more convenient, wouldn’t it?) and an executive assistant to manage your schedule and screen the incoming calls. You may say that most of those categories didn’t exist a few years ago, so the very rich that can afford the latter are, in their own way, creating some jobs after all. Not so, as in the end those fancy sounding “make jobs” (with very little security except for the ones at the top of each category that seem to grab everybody’s attention) are doing just what the butlers of old already did, and the pretentiousness of the description can’t hide that they are at their bottom menial jobs, in which people pay other people to do what they consider “chores” so they can devote their own time to higher pursuits (in most cases, to earn even more money, but that is another issue).  

So for the owning class it is very convenient to have a large mass of unemployed people, with some basic skills, to which they can turn for every activity they get bored of doing themselves, as that way they can outsource those activities for a lower percentage of what they earn selling their high value products or services to other members of the owning class like themselves. The expansion of higher education can be seen under an entirely new light in this scenario, as of course it stops looking like a pursuit to have more people able to perform more cognitively demanding jobs, as this supremely silly article by Tom Friedman suggests (Tom parroting LinkedIn and McKinsey Kool aid ), and reveals itself as the naked attempt to have more qualified butlers to choose from, and that can provide their masters with more pleasant and worldly conversations. What we have in the end is a new class of semi indentured servants, forced by an increasing debt burden (as the state lets more and more of the financing of education in the hands of the individual) to accept any job that comes their way, no matter how overqualified they may be for it, in a kind of new servitude to the tightly closed caste that hoards all the means of production, that will become more and more impregnable to potential newcomers (as we can already observe in the USA, which has become one of the less upwardly mobile societies in the world).

An interesting problem is what will be done with the millions upon millions of people out of a job, and sooner or later lacking any income at all, but still having basic needs that have to be satisfied if they are to survive. They may quietly renounce to ever owning a car, ever travelling outside of where they were born or having a house all for themselves, do with very little clothing and almost no furniture (imposed minimalism), but what about food? Communications and energy? Who will provide them, how will what is produced be apportioned? They are interesting question, and in the end I think a Universal Basic Income that decouples the need to work (when it becomes plain enough that there are no jobs for everybody by far) will be seen as unavoidable even by the plutocrats, but before they realize the need we will go through a period in which it will be everyone for himself (or herself), and that period is what I want to reflect on.

In some cases I see no problem with a substantial scaling down of production, as some consumer goods industries are not that capital intensive (or have amortized their scruffy installations in cheap labor countries long ago) to begin with, and can afford to keep on producing in a much reduced scale and still turning a profit (they just lay off a fraction of their labor force equivalent to the reduction in desired output, buy less raw materials and presto!). That can take care for the continued provision of clothing, consumer electronics (albeit shorn of innovation, you have to take off R+D to turn them in non-capital intensive industries) and possibly (possibly!) food, not because cheap food can scale down easily (it is massively produced by agribusiness that are indeed quite capital intensive, and would have very serious problems if they had to pare down what they produce), but because the demand is almost entirely rigid, regardless of the income level (you can easily reduce your consumption of truffles and caviar, but not so much of bread, potatoes and some meat), as people would rather steal (or find any other non conventional source of income) than go hungry. Energy provides an interesting case, as in one hand it is one of the most capital intensive industries there is, so no current utility could afford to continue operating if it lost 40% of its revenue base: the amortization period of the power plants they use have been (in theory) calculated to squeeze every single megawatt from then until their planned decommissioning date (having to convince the regulator they are making the most minimal profit so it doesn’t put too much pressure on them to lower their tariffs), and the revenue stream from those plants is mostly committed to pay back the financial institutions that have provided the huge amount of capital initially required, so having to close a 40% of the installed capacity almost overnight would, all things being equal, cause them to go under. Now this is one of the things less likely to happen, because if there is one tool of social control no state (and no oligarch in his right mind) would renounce is the ability to keep the lights on. A minimal amount of energy for lighting, air conditioning (even more in a warming planet) in summer, heating in winter, keeping perishable food edible all year round, etc. is almost as indispensable for the masses as eating and having some roof over their heads, so the ever more concentrated capital owners are likely to accept parting with a tiny fraction of their income via taxes to subsidize the basic energy needs of the little people and ensure their lights are kept on, as denying that to them would be simply too disruptive (as a matter of fact, there seem to be a much greater support for preventing “energy poverty” via subsidies, as argued in this post by my friend Pedro Linares Reactions to energy poverty report than to provide a full living income to every citizen which would make such kind of subsidies unnecessary).

I suspect that something similar may happen with the basic communication infrastructure: it is just too convenient to have all the unemployed glued to the TV screen (or to their Oculus Rift immersed 24 h a day in virtual reality so they do not delve for too long in the fact the actual reality around them is quite squalid, and start thinking what to do about it) or increasingly to the TV screen spending their hours posing and posting in social media, instead of using that same media to organize a revolution. So although the revolutionary potential may be there (making supposedly unfiltered information freely available and letting people communicate and exchange that info in any way they see fit) I think the ruling elites figured out long ago the masses would not use it as long as they were kept tolerably entertained, which explains the comparative leniency of anti-piracy laws, and its almost complete lack of enforcement, beyond some well-publicized cases… it is more important to keep the kids (and increasingly so the adults) happy to ensure they are educated in the iron principles of desiderative reason, which by definition excludes any possibility to change how society works. It is at least important enough for those elites to pony up the required money so the internet (what was in the old days called “the land telecommunications network” when people used it mainly to talk! Go figure) is always on, and the mobile phones work, and TV content can be accessed in any number of ways (cable, satellite, aerial, it doesn’t matter, just ensure you can fill between 3 and 4 hours, that will soon be between 14 and 16 hours, of everybody’s lives).

So that’s how it starts, not that different from today’s society, come to think about it. Two separate communities: one made of rich people that own factories, content providers (entertainment industry), educational institutions and government (all the civil servants end up being their employees), increasingly closed and enjoying an ever improving life; and a destitute one that is given energy and entertainment for free, has to scrap by to get food (maybe resort to self production), can not invest in anything that may improve their condition (including research or innovation) because they have no income, can not save, and thus have no capital… but is kept in place by force and propaganda. Probably the pressure will build over time, only partially dampened by the “handouts” (that are always set at the minimum level to avoid open revolt), until the rich realize they have to relax a bit more the spigot of benefits, as they have more to gain from an expanded consumer base (and from a likely relaxation of the resentment and repressed violence that the ongoing system causes) and decide to go full UBI, and part with a higher percentage of their wealth to reinstate a modicum of dignity, liberty and (eventually) mobility to the masses. But again I have no idea on how exactly it may play out, over what timeframe we may witness such developments ,how many drawbacks will there be along the way or even if the outline of humanity’s History of the next fifty years will indeed hew at all to this narrative. It will be interesting to watch all the same.

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