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Does Technology Destroy Jobs? What about Outsourcing?

It’s a myth that dies hard. Take Mary Manning Cleveland Adjunct Professor of Environmental Economics, Columbia University, who thinks it does:

Quite simply, big corporations, especially big monopolistic corporations, tend to carry labor-saving technology too far. They automate too soon and too much…So managers of big corporations understandably seek to replace fallible or potentially dishonest employees with machines. Second, big corporations, awash in cash, can easily afford to automate. Third, there’s the “gee whiz” factor — the temptation to automate even if it’s not cost-effective, because the new technology is so cool and the CEO wants to appear to be “with it.” As a consequence, large corporations hire far fewer employees per dollar of sales or assets than do small businesses — the true “job creators.”

So yes, new technology is indeed destroying jobs. But in focusing on technology rather than the corporations that install it, scientists like McAfee ignore the elephant in the room: the growing concentration of wealth and corporate power.

Slap me five, sister. Take it to the man. We don’t need no machines doing our jobs, it’s bad for the economy.

Here’s a typical blog about the problem:

It’s time for economists to start questioning their faith that there will always be plenty of new jobs to replace the ones that technology displaces. At this point in history, increasingly the burden falls on economists to present an argument of where these new jobs are supposedly going to come from.

The Motley Fool:

Our technologies appear to be progressing faster than society can keep up. The authors do not find this surprising, and they provide compelling evidence on how this is happening. There used to be a time when it was just assumed that there were some things computers couldn’t do. But now we have the following:

  • Google (Nasdaq: GOOG  ) announced recently that a fleet of Priuses from Toyota (NYSE: TM  ) have driven without “any human involvement at all.”
  • A new technology platform called GeoFluent can effectively translate words from one language to another for business purposes.
  • Watson Labs, working with IBM (NYSE: IBM  ) , created a machine that defeated the best Jeopardy! players ever in February 2011.

According to the authors, it is precisely this sort of technological progress that led to job losses during the Great Recession. Computers are now able to do things that used to be the domain of humans, and this trend will only continue, whether we like it or not.

Naturally, our fearless leader also thinks technology is what robs us of our jobs:

President Obama linked technology to job losses. “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers,” he said. “You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

In short, the Luddites are strongly represented among us. Every ATM means one less bank teller, they say. The math is inescapable.

Fortunately for mankind, Smiling Dave will now wipe away all our fears about the evil robots stealing our jobs. Historically, of course, it has never happened, but the Luddites fear that maybe we were just lucky in the past. Maybe this time it’s different. Maybe the modern computer is such a gigantic job killer that it will create mass unemployment for decades.

The reason why all these people are wrong is a very simple one. They fail to grasp one key idea:

The computer took away his old job, but the computer did not take away his potential new job. The computer got him fired [=lost his old job], but it does not make him unemployed [=unable to find a new job]. In other words, there should be a thousand new job offers waiting for the teller, and in a free market there would be, but someone [=the govt] has destroyed all those new jobs that should be waiting for him. If we want to get to the root of why there is unemployment, we should not be sniffing around the ATM machine, but investigating what made all those potential new jobs disappear.

Our first task is to show why there should be a thousand new jobs out there for the teller [in a free market economy unhampered by govt meddling]. The reason is very simple. People would rather be more happy than less happy. And there is always something out there that will make them more happy, if they could only afford it.

Of course, money can’t buy happiness, but it can take away many kinds of unhappiness. Who would not like a bigger, nicer, house, the latest gadget that makes life more pleasant, better quality food and clothing and healthcare? If you had a genie in a bottle whom you could command to give you anything, would you sit idly and never summon him? Or are you already thinking of a thousand things you’d like the genie to do for you?

Since people always want something [they just don’t have the genie in the bottle to bring it to them], there is always a profit to be made making what they want. So of course there should be a vast army of employers out there, hiring workers to make a vast amount of things. In a reality where there are no genies, there are people out there with unmet desires. And there should therefore be a vast army of substitute genies, employers hiring workers so that people get their unmet needs met.

Devil’s Advocate: Not if you make it but nobody can afford it.

SD: But they always will be able to afford it. As J. B. Say explained to us, if you make something desirable, there will be someone out there who can afford it. [Do a search on this site for Say’s Law if you need the background info].

DA: I thought Keynes disagreed with Say’s Law.

SD: Keynes disagreed with a different version of Say’s Law, one Keynes made up himself, that everything made is desirable. The problem, as he saw it, was that people may run out of things to like. But certainly he agreed in principle that if you build a better mousetrap, people will buy it.

DA: OK, so the ATM got him fired from his old job, but is not responsible for the non-existence of new jobs. Fine. What role does the ATM play in the economy?

SD: The ATM will make it easier than ever for those substitute genies to make everybody happy. Now that the bank has improved its bottom line by installing the ATM [which is why they did it in the first place], it will lower its fees [again, assuming a free market with competition], making it cheaper to have a bank account, cheaper to run a business, and leaving more money in the pockets of depositors so they can buy more of what they like. The ATM machine has benefited everybody.

DA: Dave, it makes a lot of sense now you explain it, and in good times it is indeed like that, everybody hiring, not enough workers to fill all the jobs. So why isn’t it like that always? Is our fearless leader to blame? Did he drive away the army of employers, and then pin the blame on the innocent ATM machine?

SD: That’s exactly what happened. All it takes is one good law, and bingo. You can shut down many companies, and keep many, many more from even coming into existence. Also, you can create a recession by printing new digital money, as Austrian Business Cycle Theory explains..

DA: What specific laws do you mean, Dave?

SD: Do a search of Mises.org for causes of unemployment. It’s all laid out over there. You might try this article, for example.

DA: But what about that respected Professor at that Ivy League University who says we have unemployment because CEO’s want to be “cool” and “with it”? What about the man some call the country’s greatest President, ever, who blames the ATM machines?

SD: Let me give an analogy so that the idea is crystal clear. At some point in the apocalyptic future, a man comes to what used to be the Mississippi river, and sees a small little puddle before him, all that is left of the once titanic river. The maniacal General Dreedle has dried it up as part of his war with someone or other.

A little kid comes over and takes the water out of the puddle with a pail, spilling it into the sand. Who is to blame for the man’s lack of water? The little kid with his pail, or General Dreedle? And what is the solution to the problem, to take away the kid’s pail, or to undo what General Dreedle has done?

That ATM machine is just a little kid with a pail. There should be a mighty Mississippi River of jobs waiting to employ whoever the ATM machine got fired. Were is that river? Who dried it up [=govt meddling in the economy], and how do we get it back [=undo the meddling]? That’s what we would be talking about, not about the little kid with his pail.

Once we grasp that there should be millions of jobs out there for every job taken by some ATM, the exact same reasoning applies to that dreaded villain, outsourcing. Sure, the jobs that are outsourced to India or somewhere no longer exist in the USA. But why are there not millions of employers in other fields waiting with open arms to hire all the Americans whose job have been outsourced? The problem is not the outsourcing. The problem is the govt strangling all the other potential jobs from coming into existence, as explained above.

Devil’s Advocate: But Dave, shouldn’t we make laws making sure jobs won’t be outsourced, ever? That way everything will be more expensive and we will all have lower standards of living. Isn’t that the goal?

SD: Actually, we should make laws that repeal those first laws that prevent all the replacement jobs from existing. That way we can outsource and have everything cheaper, exactly as if technology had taken those jobs.

DA: But shouldn’t we support the one million people who have their jobs outsourced by having 350 million people forced to pay more? Isn’t it simple charity to support those suffering blue collar folk with our money, whether we want to or not? Isn’t that the very definition of charity, the govt making laws telling you to whom to give your money?

SD: No, it’s not, and it’s not the answer to our economic problems, either, as we have explained.


17 Comments

  1. BiPolarMoment says:

    ATM machine… ATM machine… grrr, are you doing it deliberately?

    Like

  2. Smiling Dave says:

    You are right, of course, since ATM itself stands for “Automated Teller Machine”. Truth be told, until you brought it up, I never even knew what ATM stands for.

    I’m going to keep the phrase ATM machine in the article, since it seems of pretty common usage. For example, here’s a line from the NCR website:
    “NCR is universally acknowledged as the global leader in ATM machines”. I mean, if the global leader calls his product an ATM machine, I’m good.

    Like

  3. timengler says:

    Let’s look at another creature who used to be a large part of the economy but who’s numbers have dwindled to nearly nothing, the horse. Technology has created machines that were able to replace nearly all that a horse could do, ie. farming, transportation, warfare. The few remaining jobs, being a pet, used for the pastime of horse back riding were not enough to employ all the horses, so they were mostly killed and not allowed to breed.

    Human’s still have some abilities that cannot be replicated by technology, such as jobs requiring emotional awareness, but these will, I believe, eventually be replaced as well. You can say a robot can’t be all lovely dovey and social and all that, and you’d never make a robot your friend, but you’re looking at robots of today. Just like the cool kids in the 70’s would look at computers at the time and think they were and always will be just used by nerds. Also, just because you’d never befriend a robot, or tolerate being served by a robot, doesn’t mean the future generations won’t. I’m sure there were some hold outs who refused to buy an automobile and kept their horse and buggy until the day they died, if you did the same with robots, it would make no difference.

    The only difference I see between horses and the common man is that he or she can vote. So if there became to be no more work that most humans were qualified for, a safety net could be voted in to support them. This should work for awhile, but eventually as the military forces becomes more machine than man, until totally being machine, and the people holding the reigns on them become fewer and fewer, the power of the vote will become less and less. People that speak out against the system will be rounded up and disappeared’ed, your representatives will completely ignore the will of the people, etc. One day the vote will become a complete charade, or a coup will occur, and the population of people will be forced to dwindle to near nothing, along side the horses of the past, once a great beast but now completely dependent on and subservient to the whims of a technological being more advanced then us.

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  4. Jon Perry says:

    Hi, and thanks for linking to my blog post at Decline of Scarcity. I want to clarify my opinion. There are a couple ideas you lump me in with that I would never agree with. For example I would never say:

    (1) That the current recession is caused by technological progress. That is far too simple a point of view for any reasonable person to have. The recession obviously has many causes. Technology may be playing a role. I don’t think the data is clear on what sort of role though.
    (2) That every ATM equals one less bank teller. Clearly the math is not that simple.

    Clearly technology creates and destroys jobs. I don’t think that is controversial. I would also suggest that:

    (1) Technology does not necessarily create jobs at the exact same rate it destroys them. There is not necessarily a 1:1 relationship between jobs destroyed and jobs created, just as there isn’t necessarily a 1:1 relationship between one ATM and one less bank teller.
    (2) Technology does not necessarily create new jobs at the exact same skill level it creates new jobs at. If new jobs are higher skill than the old jobs, then there will be a delay as the labor force retrains.

    My most important point in the original article (which I would probably clarify if I rewrote it today) was that because of the above and other factors there is a delay that happens between a worker losing a job in industry A and finding a new job in industry B.

    You talk about government as a contributor to that delay and I’d say that’s definitely an issue as well. I’d point to intellectual property law and other forms of government-backed artificial scarcity as a major contributing factor to these delays.

    However, I also think some delay with regards to finding a new job (particularly since many new job openings are increasingly in highly skilled areas) is just a fact independent of government. And if technological change proceeds at a rapid enough pace, those small delays can become very important and result in technological unemployment.

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  5. Smiling Dave says:

    Thank you for your clarification, Jon.

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  6. Smiling Dave says:

    Thank you, Tim, for your incisive comment.
    The key ideas are in your last paragraph. Let’s look at them carefully.

    1. “The only difference I see between horses and the common man is that he or she can vote.”

    There is another difference, mainly, that humans are intelligent and versatile. Even in a planet filled with robots, if people had a genie in a bottle, they would summon him for something or other that they want. And that’s where humans fit in. They can provide what people would have asked the genie for, if they had a genie. Horses are much more limited and cannot provide those things. For example, a horse cannot be a construction worker. Even if a robot can do that as well, we live in a world of scarcity and there will not be an infinite supply of robots. See next point.

    2. “So if there became to be no more work that most humans were qualified for”…

    I don’t see how this is possible. Even if robots can do all that humans can do, and do it better and faster and cheaper, they cannot do everything that needs to be done, because we live in a world of scarcity. Thus a law of comparative advantage would apply [see https://en.wikipedia.org/wiki/Comparative_advantage%5D, in which robots did what they are best at, and humans did the rest. Just as a doctor will hire a cleaning lady, even though he can clean better than she can, because he can make more money using his time to cure people. Those robots will just be like super doctors. The humans will still be useful doing the less important jobs, like the cleaning lady who works for the doctor.

    3. The doomsday scenario of all humans but a handful at the top being wiped out also is obviated by the law of comparative advantage. Whoever is at the top, be he robot or human, he will benefit having humans around to work. See point 2.

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  7. lioneldelm@gmail.com says:

    “Technology Destroy Jobs”. This is true in the very short term but false in the longer term in a free market economy without government intervention. Schumpeter called this process “creative destruction.”

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  8. lio67 says:

    I discovered this blog a few weeks ago and I already love it. Dave simply restores the economic truth with great eloquence and humor. Too bad for all the charlatans of economics!

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  9. Smiling Dave says:

    Thanks lio. Spread the word.

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  10. Bhusssssssssss says:

    Do you know what are you saying , you are saying that you agree that You will work under robots. Let me clear this to you , We have made Robots Not They have made us.

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  11. Smiling Dave says:

    Please quote the line where I have agreed that I will “work under” robots.
    Maybe you are talking about my saying the robots will be like the doctors, and the humans like the cleaning lady.
    I did not mean that the robots will give orders to the humans. We are the boss, not them.
    All I meant was what I actually wrote, that the robots will do what they do best, and the humans will do the rest.

    There is nothing strange or humiliating about that. That’s exactly how it is today. Plenty of people prefer to have a calculator do their arithmetic for them, because the calculator does it better [no mistakes] and faster. In ancient times, animals did the ploughing and humans did what the animals did not do as well. Do you see that as humans “working under” horses and cattle?

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  12. timengler says:

    Thank you very much for your incisive and interesting blog. I have this nagging question that hopefully you will enjoy answering to take a break of all this bitcoin stuff.

    I read about comparative advantage and it seems a sound idea. But I would like to know what you think about it in terms of the native americans, the moari (native New Zealanders) and aboriginies from Australia. All these groups were almost completely wiped out due to foreigners arriving with a greater level of technology (I’m generalizing here of course). Can you explain this in light of “Comparative Advantage”? And also, why wouldn’t the same thing happen to us as IT technology and AI continue to evolve.

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  13. Smiling Dave says:

    What do you mean by wiped out? They were killed off? That has nothing to do with economics.

    If you mean they adopted a Western lifestyle and forgot all about their cute native economic ways, and hundreds of years of tradition, I think it’s simple. What happened was that the Moaris saw that they are better off doing what the white people are doing, because they will have a higher living standard and more creature comforts. They decided they would rather have central heating and television than live in a leaky tent.

    As for the dangers of IT and AI, you might enjoy my humble article

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  14. timengler says:

    If economics has nothing to do with physical force or I’m assuming the threat of using physical force, and time and time again these things directly effect the outcome of a group of people, then how can it predict how technology will affect us?

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  15. Smiling Dave says:

    Not sure what you mean. Did you read my humble article Does Technology Destroy Jobs?

    The basic ideas are simple. Technology is only used if it makes someone more profit than if it was not used. More profit can only come, in a free market, from better giving people what they want. So that of course technology means more wealth created, meaning everyone is better off.

    As for the people who lose their jobs, in a free market there are always many more jobs around, because people always want more of something. Everyone wants a nicer house, better car, etc etc. So freed up labor always has something to do. Now it may happen that some people, who were trained for a certain task that is now obsolete, like experts at grooming horses when cars where first invented, will have a bit of trouble adjusting to new conditions. Their new jobs may involve a big drop in pay. So yes, there is a loss to some people. And they are the ones who want everyone to not have cars, but keep riding horses forever.

    The unemployment that exists nowadays, whether from new technology, or because a person loses his job for some reason and cannot find another, is not from technology per se but from govt interference in the free market that destroyed tons of jobs that should be out there waiting to welcome anyone who loses his old job to technology. See the article for more on this subtle point.

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  16. timengler says:

    Here is where I disagree, ” technology means more wealth created, meaning everyone is better off.”

    Let’s say it cost $100 to make widget X. Then technology makes producing X cheaper than it was before, now it only costs $50. Now suppose there are 3 people. Person A has $1000, person B has exactly $0, and person C owes $1000. So then with the advance of technology, person A now can buy 20 widget X’s, whereas before he could only buy 10. Person B really can’t buy anything, so it doesn’t really benefit him. If Person C could make widgets, he now has to make 20 widget X’s, where before he only had to make 10 to break even.

    So, for Person A, there is a great benefit. For person B and C, the net benefit is zero or negative. This is because Person B and C do have wealth, a hidden wealth, which is what they can accomplish during their lifetimes. Person C borrowed against that, and now as technology progresses and things are made more and more cheaply, he falls into greater and greater effective debt as measured by the things he can accomplish.

    But this all assumes that people play by the rules, and they quite clearly do not. Technology does something else rather than just create wealth, it also allows one to exert their will over others more easily and effectively. And once you give people that power, they tend to use it, and witnessed to my examples of indigenous people of the past. They all had great wealth in terms of the land they owned, and in each case, it was outright stolen or bought for pennies on the dollar. It’s the same old story again and again. Those with greater technology strip the wealth from those who do not.

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  17. Smiling Dave says:

    Good points. The thing is there are many more Person A’s [= consumers] than Person C’s [=producers of widgets], like 1,000 to 1, depending on the industry. And Person C can find another job. Not only that, Person A now pays less per widget, leaving him money left over to buy other things, aka create new jobs that could not have existed previously.

    As for the more technologically advanced taking advantage, that’s a moral problem, not an economics problem.
    BTW, what is to stop the indigenous from advancing their technology? Especially now, when education is so freely available on the internet.

    Like

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