Tuesday, October 31, 2017

Econ 101

Automation and robots will cost society millions of jobs.  We regularly read some version of this concern (see a recent version here, from John Mauldin).  There is much that can be discussed on this issue; I will only focus on one point.

Credit is subsidized; labor has artificial price floors.

Is it a surprise that investment in capital assets is higher than it otherwise would be and demand for labor is lower than it otherwise would be?


  1. BM,

    It is for this very reason that there are people that want to bring forward the technological revolution are supporting the $15 minimum wage. In fact they are supporting a $30 minimum wage.

  2. BM, if you don't mind me going from one point to talking about a second point:

    The labor side of the conversation is ignoring the bigger picture. With so many resources going toward R&D for automation and robotics, access to manufacturing and logistics capacity stands to get easier. Labor may have an easier path to becoming owner.

    Labor has made a fuss about employer/employee relations for so long, and here's a (possible) way out.

    But, they'd rather talk about evil robots and BIG instead of improved access to individual capacity.

  3. I've been developing automation products of one sort or another most of my career. The impression presented to the general public is that some (evil) company decides to automate its production and in a few weeks all the previous employees get fired and end products start flying out the door cheaper and better than ever before. It's not, ever, even remotely like this.

    The best automation is the newest automation and has the worst documentation, often not even in English. Getting a machine to do something you could explain to the average 'unskilled' human in 30 seconds can take weeks; occasionally it turns out to be impossible.

    The subsidized credit over artificial price floors has been the death call for plenty of companies. The owners go for it thinking they will be better off in the end, but ultimately find themselves deep in debt along with maintenance and upgrade fees that dwarf the costs of the labor they replaced.

    The cheap automation scam only works in places like China, where difficult automation problems can be solved with cheap labor. I don't expect this to change much in my lifetime. All the AI and deep learning hardware on the planet will never be a substitute for basic human ingenuity.

    1. Now that you mention it, I'm remembering something I completely forgot.

      I used to work in a factory that had the ability to automate palletizing of small parcels and certain cleaning requirements.

      When it worked it worked great, but when it didn't it was a disaster that could grind operations to a halt for a few days or longer, in one instance it was a month where max outputs were cut by about a third during peak season.