(Update) Public policy is failing to address the economic disruption from rapidly advancing technology

Another in a series of posts about the technology tsunami rapidly transforming the labor force.

The Washington Post this week has a couple of interesting reports on jobs affected by the Technology Revolution, and the economic disruption it is having on society.

First, Jef Guo writes at the Wonkblog, We’re so unprepared for the robot apocalypse:

Economists have long argued that automation, not trade, is responsible for the bulk of the six million jobs shed by the manufacturing sector over the last 25 years. Now, they have a put a precise figure on some of the losses.

Industrial robots alone have eliminated up to 670,000 American jobs between 1990 and 2007, according to new research from MIT’s Daron Acemoglu and Boston University’s Pascual Restrepo.

The number is stunning on the face of it, and many have interpreted the study as an indictment of technological change — a sign that “robots are winning the race for American jobs” (Clair Cain Miller, The Upshot at The New York Times). But the bigger takeaway is that the nation has been ill-equipped to deal with the upheaval caused by automation.

The researchers estimate that half of the job losses resulted from robots directly replacing workers. The rest of the jobs disappeared from elsewhere in the local community. It seems that after a factory sheds workers, that economic pain reverberates, triggering further unemployment at, say, the grocery store or the neighborhood car dealership.

In a way, this is surprising. Economists understand that automation has costs, but they have largely emphasized the benefits: Machines makes things cheaper, and they free up workers to do other jobs. For instance, 41 percent of Americans were farmers a century ago, but thanks to tractors and mechanical harvesters, only 2 percent work in the agriculture today. The rest of us now can now aspire to be programmers or anesthesiologists or DJs or drone pilots.

The latest study reveals that for manufacturing workers, the process of adjusting to technological change has been much slower and more painful than most experts thought. “We were looking at a span of 20 years, so in that timeframe, you would expect that manufacturing workers would be able to find other employment,” Restrepo said. Instead, not only did the factory jobs vanish, but other local jobs disappeared too. Acemoglu and Restrepo say that every industrial robot eliminated about three manufacturing positions, plus three more jobs from around town.

If we are to make it through the next wave of automation, which is predicted to upend even more industries, we may have to rethink our policies about work and education — and learn from the industries that have coped the best.

Their research from Acemoglu and Restrepo joins the work of David Autor, David Dorn and Gordon Hanson, who have shown that the harms of trade with China were similarly concentrated in certain communities. The laid-off manufacturing workers couldn’t quickly find new jobs, so the economic pain lingered in their neighborhoods. Experts still believe that trade and automation can benefit Americans overall, contributing to lower prices and creating new kinds of jobs. But this evidence draws attention to the losers — the dislocated factory workers who just can’t bounce back.

The United States does have a program to retrain workers who lost their jobs to overseas competition, but research shows that most of them turn to other parts of the government safety net, such as Social Security, disability benefits and Medicaid. None of these efforts, though, seem to be doing enough for communities that have lost their manufacturing bases, where people have reduced earnings for the rest of their lives.

[T]he new findings bolster the conclusion that these economic dislocations are not brief setbacks, but can hurt areas for an entire generation.

Acemoglu and Restrepo’s paper is also notable for its specificity. It has been difficult to pinpoint the impacts of technology on employment, in part because the effects have been so widespread. “When economists talk about automation, we’re actually talking about a bunch of stuff — we’re talking about capital, software, machinery, robots, artificial intelligence,” Restrepo said.

Many of these changes are invisible, or at least taken for granted, which is why false narratives persist, like the idea that trade with China caused the vast majority of job losses in the past decade. It’s harder to villainize Microsoft Word, or the robotic welders that have quietly replaced humans in many car factories.

How do we even know that automation is a big part of the story at all? A key bit of evidence is that, despite the massive layoffs, American manufacturers are making more stuff than ever. Factories have become vastly more productive. Many factors contributed to these changes and Acemoglu and Restrepo focused on one in particular — the rise of the industrial robot.

These are what people typically envision as robots — the autonomous sleds that carry parts across the factory floor, or the programmable arms that can weld, paint and even operate heavy machinery. The researchers obtained new data on the spread of this new technology, which is what enabled them to estimate how many jobs it displaced. Theirs is not a full accounting of the costs of automation, but a precise look at one component of this trend.

Since industrial robots still represent just a fraction of what we think of as automation, the claim that they caused 670,000 lost jobs is all the more surprising. As the researchers mention, some consultants believe that the number of industrial robots will quadruple in the next decade, which could mean millions more displaced manufacturing workers.

* * *

In the past, machines did automate many jobs out of existence, but new technology always created new opportunities — new kinds of desires, and new kinds of jobs to fulfill them. The recent anxieties about technological change are hardly new: Writing in the 1930s, the economist Maynard Keynes counseled patience, promising that any jobs lost to technology marked only a “temporary phase of maladjustment.”

The question, now, is what to do if the period of “maladjustment” that lasts decades, or possibly a lifetime, as the latest evidence suggests. Some say the time is nigh for a universal basic income. Bill Gates recently offered another provocative suggestion: Perhaps robots should pay taxes to compensate the workers that they replace.

Guo nevertheless remains optimistic “that someday there will be more than enough work for both humans and robots and artificial intelligence routines, as long as we are prepared for it to look different than we’re used to. We just have to muddle through the meanwhile.”

Next, Jeff Green writes, There is a jobs crisis brewing that the Trump administration should not ignore:

Everyone has heard the old anecdote about the frog in a pot of water. If the temperature is raised slowly, the frog won’t react, eventually allowing itself to get boiled. That’s where we’re heading as a country when it comes to technological advances and the threat they pose to millions of jobs.

Seemingly every day there are new stories in the media about artificial intelligence, data and robotics — and the jobs they threaten in retail, transportation, carrier transport and even the legal profession. Yet no one is jumping out of the pot.

Let’s be clear: This is not science fiction. In just the past few days, there have been articles on Amazon’s automation ambitions, described by the New York Times as “putting traditional retail jobs in jeopardy,” and on the legal profession bracing for technology taking over some tasks once handled by lawyers. (This has already happened.)

As reported in Recode, a new study by the research firm PwC found that nearly 4 out of 10 jobs in the United States could be “vulnerable to replacement by robots in the next fifteen years.” Many of those will be truckers, among the most common jobs in states across the country.

Yet when President Trump hosted truck drivers at the White House last week, he dedicated his remarks to the threat of health care without uttering a word about the advanced driverless semi fleets that will soon replace them. His Treasury Secretary Steven Mnuchin shockingly said in an interview last week that we’re “50 to 100 years” away from artificial intelligence threatening jobs.

It’s easy for sensationalist headlines about A.I. to dominate, like those about Elon Musk’s warning that it poses an existential threat. Yet the attention of people such as Musk, Bill Gates and Stephen Hawking should be a signal to Trump and Mnuchin that A.I. and related robotics and automation are moving at a far faster clip than they are acknowledging. It should be on the administration’s radar screen, and they should be jumping out of the boiling water.

Solutions won’t come easy. Already some experts suggest a Universal Basic Income will be necessary to offset the job losses. We also have to transition our workforce. Educational institutions such as Miami-Dade College and Harvard University have introduced advanced programming courses that take students from zero to six programming languages on a fast track. More needs to be done. This should be the most innovative decade in human history, and it has to be if we’re going to avoid a Mad Max dystopia in favor of a Star Trek future.

* * *

Technological advances could greatly reduce the cost of living, make housing more affordable and solve some of the biggest challenges whether in energy or long-term care, an issue painfully familiar to so many families. It may also help improve quality of life in the long term, as men and women gain greater flexibility to spend time with loved ones rather than dedicating 40 or more hours a week to working and so many others commuting.

In the near-term, however, the job losses that are possible could inflict tremendous economic pain. We are far from where we need to be. That will continue to be the case until policymakers, educators and innovators come together to address the reality before us. We won’t solve this overnight, but we can’t afford to wait until it’s too late.

Our elected leaders are not even addressing this complicated issue. They are either unaware, uninformed, or uninterested in addressing jobs affected by the Technology Revolution, and the economic disruption it has on society.

7 Responses to (Update) Public policy is failing to address the economic disruption from rapidly advancing technology

  1. John Huppenthal

    Kansas had a 2 percentile point decrease in taxation – almost meaningless. The high productivity people who would have responded to the Kansas tax reduction would have seen a marginal change of perhaps 4%.

    The United States experienced a 44 percentile decrease in taxation under Reagan. the high productivity people responding to that change would have experienced a 50% change in marginal taxation.

    Plus, there were huge joint productivity effects to the Reagan change – synergy.

    If you dig down into the different paths that France and the US followed, you find that the tax reduction resulted in people working harder, working more hours per week, working more weeks per year and becoming more intelligent.

    French workers who significantly outscore US workers at the age of 18 in international tests, score 20% lower on cognitive exams at the age of 57 , RAND. Higher taxes make you dumb. All of this results in the US having a stock market 22 trillion higher while France has a total stock market of 3 trillion.

    Plus, the whole world started to flow towards the United States and the job storm that Reagan ignited.

    Every aspect of how elasticity can express itself did so over the 37 years.

    All of this is covered up with massive corruption in the research journals.

    “All modern industrial economies grow about the same.” Thomas Picketty

    He lies and over 40 name economists swear to it. From Stiglitz to Diamond to Saez to Goolsbee. I have the entire list and all the journals they published in.

    • No, I’m holding you to your previous claims.

      That two percentage point decrease in taxes, assuming that the elasticity of economic growth in response to changes in tax rates is 3, as you have repeatedly claimed without citation, and the effective tax rate on Kansas residents is about 30%, should lead to a 20% increase in economic growth above the baseline.

      Show us the evidence that Kansas’s economy grew 20% faster than the rest of the country’s.

      • John Huppenthal

        No, where would you find anything like that in the literature. The 3.0 comes from several studies on labor elasticity (Frisch elasticity) and growing body of literature that ignores labor supply and directly looks at the elasticity of net of tax yield with respect to taxation.

        The elasticity equation numerator is the (change in net of tax yield in %) and the denominator is the (net of tax yield – at the margin). You have to put the whole package together – that’s all taxation: sales, personal income, state, federal, social security, medicare.

        The Kansas tax changes were a mess. First, increasing sales taxes and then not allowing them to fall so that income taxes could be cut. It’s not clear that a tax cut even took place.

        You earn to consume. A sales tax increase coupled with an income tax cut is meaningless. A one percent sales tax is the economic equivalent of a 1% income tax. That’s the lesson from Europe and their VAT.

        The 3.0 elasticity is long run, not short run. I have repeatedly written that any state policy maker that expects a yield immediately following their tax reduction is fooling themselves.

        However, it’s possible to get lucky. We were lucky in Arizona. We did a very large tax cut in 1993 and unbelievable growth quickly followed, enabling us to do more tax cuts. We just got into a roar, tax cut after tax cut year after year. Our top income tax rate fell from 8.1% to 4.6%. And, year after year, we got to the long run and kept fueling the fire.

        It all came to an end when we did Everify. No more number one in the nation for us – ever again. However, we aren’t doing bad. For the last 5 quarters, we have averaged over 3.5% gdp year over year growth. Not the 8% of the 90’s, but pretty good.

        Kansas has a gross domestic product of about 153 billion. Two points of that would eventually be a reduced load of 3 billion per year.

  2. John Huppenthal

    Kansas is not now nor has it ever been a low tax state, not even close.

    The elasticity response to lowered tax rates takes time unless it is the very large decrease put in place by President Ronald Reagan. Reagan reduced income tax rates from 72% to 28% and quickly produced the largest growth quarter in recorded economic history: 8%. That one quarter alone changed the trajectory of the United States.

    Since 1980, the United States has added 88 billion hours of work while France, which had almost identical labor supply characteristics as the United States, has had a net drop, a reduced supply, a reduced demand of 3 billion hours of work since 1980.

    If you want to look at states and taxes, look at the decades since 1980.

    Compare the low tax states, states who have been in the bottom ten of taxation every decade with the high tax states, states who have been in the top ten of taxation every decade since 1980.

    The low tax states started out with less than half the jobs of the high tax states. They now have more jobs. Over 100 percentile points greater job creation.

    Frugality in state policy makers is the single best contribution that they can make to the welfare of their children. Taxation does make a difference, a big difference, on job creation.

  3. John Huppenthal

    The nonsense people write to cover up the real reason for job loss:

    1. Tax rates are too high for maximum firm creation

    2. 170,000 pages of Code of Federal Regulation is killing small business growth

    3. Minimum wage regulation is locking minorities and the poor out of the job market.

    • How’re those tax cuts working out for Kansas? You and Brownback were promising massive growth and job creation in response to their tax cuts. Instead, the public sector was completely hollowed out and a coalition of Dems and moderate Republicans are pushing for tax increases because government services have been cut well below bare bones.

    • I agree—the three points you make are nonsense!
      It is strange you say “The elasticity response to lowered tax rates takes time…” except when it doesn’t. So why mention it?