The Economist has another of those breathless pieces worrying about what's going to happen when the robots come for all our jobs. There's one basic error in the piece and one slightly more technical.
The basic error is that they fail to note that when the robots have taken all our jobs then we'll all be incredibly rich. One of the comparisons they make is to the first industrial revolution and that's appropriate. So, let us think about what happened when the mechanisation of cotton production killed off the hand weaving (and linen although more slowly) industries. Yes, certainly, some people lost their jobs: but the entire population now became rich enough to be able to wear cotton underwear simply because the production costs of cotton fell so far. And only those who have suffered through the woollen kind will know how rich that makes us all.
It's a very, very, basic observation: if the machines are making everything then everything becomes extraordinarily cheap. This is the same statement as the one that the machines taking all our jobs makes us all very rich indeed.
The more detailed mistake is here:
But though growth in areas of the economy that are not easily automated provides jobs, it does not necessarily help real wages. Mr Summers points out that prices of things-made-of-widgets have fallen remarkably in past decades; America’s Bureau of Labour Statistics reckons that today you could get the equivalent of an early 1980s television for a twentieth of its then price, were it not that no televisions that poor are still made. However, prices of things not made of widgets, most notably college education and health care, have shot up. If people lived on widgets alone— goods whose costs have fallen because of both globalisation and technology—there would have been no pause in the increase of real wages. It is the increase in the prices of stuff that isn’t mechanised (whose supply is often under the control of the state and perhaps subject to fundamental scarcity) that means a pay packet goes no further than it used to.
So technological progress squeezes some incomes in the short term before making everyone richer in the long term, and can drive up the costs of some things even more than it eventually increases earnings. As innovation continues, automation may bring down costs in some of those stubborn areas as well, though those dominated by scarcity—such as houses in desirable places—are likely to resist the trend, as may those where the state keeps market forces at bay. But if innovation does make health care or higher education cheaper, it will probably be at the cost of more jobs, and give rise to yet more concentration of income.
This is Baumol's Cost Disease of course. Those things where it is more difficult to increase the productivity of labour in their production will rise in price in comparison to those things where raising that productivity is easier. Exactly those services like college education and health care complained about.
But...but...if we're now stating that we're worried about automation attacking the jobs in those areas we're in fact making exactly the same statement as that they're about to become 20 times cheaper. Just as happened with the widgets. You can't both complain about the price reductions that come from the robots stealing our jobs and also about increasing inequality. For if everything falls, over only 30 years, to one twentieth of the starting price then what the hell is there left to have any consequential inequality about?
Positional goods? Sure, the Louvre will still have the world's only Mona Lisa, there will still only be a handful of houses in Eaton Square but beyond that, seriously who cares? The end state, if the robots to start doing all the work, is that we get all the food, healthcare, clothing, housing (but perhaps not exactly where we might want it), education and all the rest that our greedy little hearts could desire.
And this is something that people think governments have to start having policies about?
Heavens preserve us.