Are we already welcoming our robot overlords? Prominent economist and Nobel laureate Paul Krugman reported the following epiphany Thursday after closely analyzing workers' share of the U.S. economy: labour is dying.
Prof. Krugman highlighted data showing the rapid decline of labour's share of U.S. business. As a staunch Keynsian, Prof. Krugman had previously argued that high U.S. unemployment was almost entirely the result of weak aggregate demand and could be fixed by introducing high levels of government spending. He now appears less sure:
"The story has totally shifted; if you want to understand what's happening to income distribution in the 21st-century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn't grasp this until recently. But it's really crucial."
The phrase "who owns the capital" is the crux of the issue. The higher levels of productivity that are causing unemployment – essentially the replacement of employees with robotics or software – are resulting in higher corporate profits. Prof. Krugman appears to be arguing that the profits generated by new technology should not be entirely held by the companies that generate them; that perhaps they should be redistributed, both to existing and idle workers.
The notion is, of course, a political minefield. The current adherents of the Social Darwinist "pull yourself up by your bootstraps" school of thought argue that the unemployed are merely unwilling to work, and prefer to accept welfare and social assistance. But willingness to work will be irrelevant when the classic causes of unemployment – a lack of mobility, discouragement, education – are dwarfed by the problem of diminished opportunity. There simply will not be any jobs; only people capable of doing the highly sought-after work, such as designing the technology or running the company, will be employable.
Professors Robert and Edward Skidelsky believe that in this environment, a new kind of thinking about labour and capital will be required. In their paper "In Praise of Leisure" (in the FT), the professors write:
"A competitive, monetized economy puts us under continual pressure to want more and more. The "scarcity" discerned by economists is increasingly an artifact of this pressure. Considered in relation to our vital needs, our state is one not of scarcity but rather of extreme abundance."
This sounds like the economics of Star Trek, but it should be noted that mass transference of U.S. wealth is already under way and the "fiscal cliff" negotiations have these issues at their centre. There are more than 45 million Americans – 15 per cent of the population – currently using food stamps. The extension of unemployment benefits is among the major debating points involved with the "fiscal cliff" issue.
It's a fool's errand to predict how America's current political institutions, including the economics departments of higher academia, will attempt to adapt to this new reality. But while it is hard to imagine a more cynical investment strategy than one designed to hedge against your own personal obsolescence, investors are likely to be rewarded by stocks in the automation sector (though that's another post entirely).
Prof. Krugman is arguably the world's most prominent economist, and his writing rarely hints at the surprise and uncertainty he admits in his latest post. This in itself tells us that the new Economics of Abundance are going to be a big deal.
Scott Barlow