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.