For decades, people have been predicting how the rise of advanced computing and robotic technologies might affect our lives. On one hand, there are warnings that robots could displace humans in the economy, destroying livelihoods, especially for low-skilled workers. Others look forward to the vast economic opportunities that robots present, saying, for example, that they would improve productivity or take on undesirable jobs.
Venture capitalist Peter Thiel, who recently joined the debate, falls into the latter camp, asserting that robots are set to save us from a future of high prices and low wages.
Figuring out which side is right requires, first and foremost, an understanding of the six ways that humans have historically created value: through their legs, fingers, mouths, brains, smiles and minds.
Illustration: Constance Chou
Legs and other large muscles move things to where they need to be, so fingers can rearrange them into useful patterns. Brains regulate routine activities, keeping the leg and finger work on track. Mouths — indeed, words, whether spoken or written — enable people to inform and entertain each other. Smiles help people to connect with others, ensuring that they pull roughly in the same direction. Finally, minds — curiosity and creativity — identify and resolve important and interesting challenges.
Thiel, for his part, refutes the argument — often made by robot doomsayers — that the impact of artificial intelligence and advanced robotics on the labor force is set to mirror globalization’s impact on advanced-country workers.
Globalization hurt lower-skilled workers in places like the US, as it enabled people from faraway countries to compete for the leg and finger positions in the global division of labor. Given that these new competitors demanded lower wages, they were the obvious choice for many companies.
According to Thiel, the key difference between this phenomenon and the rise of robots lies in consumption. Developing-country workers took advantage of the bargaining power that globalization afforded them to gain resources for their own consumption. Computers and robots, by contrast, do not consume anything except electricity, even as they complete leg, finger and even brain activities faster and more efficiently than humans would.
Here, Thiel offers an example from his experience as chief executive officer of PayPal. Instead of having humans scrutinize every item in every batch of 1 million transactions for indications of fraud, PayPal’s computers can approve the obviously legitimate transactions, and pass on the 1,000 or so that could be fraudulent for thoughtful consideration by a human. One worker and a computer system can thus do what PayPal would have had to hire 1,000 workers to do a generation ago. Given that the computer system does not need things like food, that thousandfold increase in productivity redounds entirely to the benefit of the middle class.
Put another way, globalization lowered the wages of low-skilled advanced-country workers because others would perform their jobs more cheaply and then consume the value that they had created. Computers mean that higher-skilled workers — and the lower-skilled workers who remain to oversee the large robotic factories and warehouses — can spend their time on more valuable activities, assisted by computers that demand little.
Thiel’s argument might be correct, but it is far from airtight.
In fact, Thiel seems to be running into the old diamonds-and-water paradox — water is essential, but costs nothing, whereas diamonds are virtually useless, but extremely expensive — albeit in a sophisticated and subtle way. The paradox exists because, in a market economy, the value of water is set not by the total usefulness of water (infinite) or by the average usefulness of water (very large), but by the marginal value of the last drop of water consumed (very low).
Similarly, the wages and salaries of low and high-skilled workers in the robot-computer economy of the future would not be determined by the (very high) productivity of the one lower-skilled worker ensuring that all of the robots are in their places or the one high-skilled worker reprogramming the software. Instead, compensation would reflect what workers outside the highly productive computer-robot economy are creating and earning.
The newly industrialized city of Manchester, England, which horrified German socialist philosopher Friedrich Engels when he worked there in the 1840s, had the highest level of labor productivity the world had ever seen. However, the factory workers’ wages were set not by their extraordinary productivity, but by what they would earn if they returned to the potato fields of pre-famine Ireland.
So the question is not whether robots and computers are set to make human labor in the goods, high-tech services and information-producing sectors infinitely more productive. The answer is yes. What really matters is whether the jobs outside of the robot-computer economy — jobs involving people’s mouths, smiles and minds — remain valuable and in high demand.
From 1850 to 1970 or so, rapid technological progress first triggered wage increases in line with productivity gains. Then came the protracted process of income-distribution equalization, as machines, installed to substitute for human legs, and fingers created more jobs in machine-minding, which used human brains and mouths, than it destroyed in sectors requiring routine muscle power or dexterity work. In addition, rising real incomes increased leisure time, thereby boosting demand for smiles and the products of minds.
Would the same occur if machines took over routine brain work? Maybe. However, it is far from being a safe bet on which to rest an entire argument, as Thiel has.
J. Bradford DeLong is former deputy assistant secretary of the US Treasury, a professor of economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.
Copyright: Project Syndicate
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