Automation Redistributes Wealth And Destroys The Consumer Economy

As the economy grows through innovation and investment, new jobs are created. Simultaneously, making new products becomes easier as new devices are invented to replace human hands, muscle, and ultimately the need for physical labor. In our time, computers, robots and novel systems of artificial intelligence have taken over not only physically demanding, back-breaking jobs but also have replaced more intellectually demanding jobs that are also very well-paying jobs. For example, there is little doubt that one-day soon the work of a radiologist will be entirely done by and interpreted by machines. The radiologists, to whom we presently pay millions of dollars to interpret increasingly complex sets of non-invasive diagnostic films, will no longer be necessary.  Presently, radiologists must review even the simplest of these films before potentially life saving medical procedures continue. If the need for highly paid radiologists were eliminated the costs of medical care would decline.

Thus, in medicine, or in any field of human experience, when we try do do something technically to advance the field, it becomes more efficient and less exoensive. Costs may increase initially, but later as as the one-time capital investments are made and machines are improved, they work more rapidly and efficiently and costs decline. Machines are, of course, up-graded reprogrammed and become themselves become replaced over time, but, in general, machines are much less costly than humans to whom salaries must be paid, given vacations or sick time or family leaves. Work hours also must be adjusted for humans if emergencies come up. Further, expensive retirement systems are established for humans and may be very costly. Machines, with very little maintenance, can work all day and all night seven days a week for 52 weeks a year in an environment that might be toxic or detrimental to humans. In industries that are being automated, even if only partially, increases in efficiency occur. Operating costs gradually go down after initial investments in automating machinery are made. Profits almost invariably go up even if sales decline, because the savings from increasing automation are so significant.

In most industries increasing automation has improved profit margins. Upper level managers, those who organize the making of products and sales, engineers or programers to organize the production machinery, upgrades and production of multiple products remain. Their salaries may be elevated in some cases, but anyone who was doing something a machine can now do is let go. Many will find work elsewhere, most often at lower pay unless they have demonstrable skills in a field that may not yet be in a rapid stage of automation.

New jobs are now appearing in service areas or in new types of manufacturing or artisan work that may be simple or original and, as a result, not yet subjected to the rapid pace of automation. Overall, because we are entering a rapid pace in advances in computers, artificial intelligence systems and robotics, the pace of high level advances and new job creation have the chance to keep pace with job destruction through automation. At the same time new jobs will most often require more education and technical training. The pressure will be great because the reorganization of the work force will be occurring even more rapidly than it is presently.

Because of the pressure on industries to reorganize and improve in efficiency, the need to automate has increased.  Many industries in 2008 had massive layoffs as credit needed to expand and to keep businesses going declined. Businesses cut costs in less efficient product lines and used available cash reserves to keep their most profitable products while rebuilding capital reserves to help run the business. The pressures to partially or even fully automate to cut costs has now led to a rebound. However, there is significant capital still sitting on the sidelines. Potentially the capital is available to establish new product lines and jobs as confidence in the national economy is rebuilt. In truth, we don’t know when or even if this will occur or to what degree extensive automation has already reduced the extent of rehiring that will be done by industries that have recovered balance sheets and have already added trillions to cash reserves. What may be at work is the concern over expanding the business in the absence of obvious demand.

While most of the jobs lost to automation have been the lower paying routine jobs that are relatively easier for machines to be programmed to do, many other jobs that are saved are higher paying. Many additional jobs have been created to support the new automated systems. The accelerated movement toward increased automation since the the financial crash of 2008 and the further downturn in the business cycle has resulted in a significant loss of jobs which were relatively low paying as they are more easily automated. Higher paying jobs and some new relatively more highly paying jobs were also added to facilitates transformation to a relatively more automated workplace. Those who lost their jobs were absorbed mostly into relatively lower paying jobs both full and part time in the service sector.

Gradually more and more people move toward unemployment, or from above average paying jobs toward other average paying full or part time jobs, or to below average paying jobs. Some, of course, seek retraining and are able to enter higher paying jobs, but these individuals are probably relatively young and smart enough to see what is coming.  The financial crash of 2008 accelerated this process has therefore accelerated the economic and social differentiation of those at the top from those at the bottom.

These are in many ways self-defeating changes in an economy based on consumption. Gradually the relatively larger fraction of the population not technically needed to run the economy accumulate a smaller and smaller percentage of the wealth and are less and less able to stimulate the economy by buying the products it makes. With less money in the hands of people who will typically spend all or most of what they make, overall demand for products will decline. Prices may decline, but with enough money moving away from the lower paid 95 percent of the country the lack of demand produces a severe lack of consumption which cannot be replaced by the five percent of the population making increasing money due to the fact that they are in charge of an increasingly complex and more fully automated workplace. Those at the top cannot make up for the significantly reduced consumption of products by those at the bottom. People at the bottom outnumber those at the top by a factor of about 19-20 to 1. When car purchases by those at the bottom are cut in half, people at to top have to buy 9-10 cars each to make up for the lower demand of those at the bottom end. Gradually businesses must adjust or fail.

In summary, as we continue down the line we are on, we destroy the consumer economy or we adjust to the lack of demand at the bottom which we have seen cannot be made up by those at the top. We make less money and we consume less. We adjust by doing more for ourselves — we do the jobs we might have paid someone else to do.

In our present circumstances, if we increase taxes and decrease government expenditures too rapidly in order to balance the budget and then pay down the longer term debt, we’ll increase unemployment again. This can only accelerate the demise of the consumer economy.  Under those conditions we will further increase the number of desperate people who may be forced to live on far less with a declining safety net upon them. These are all problems we must face if we continue to decline or if we find no suitable adjustment to the death of the consumer economy we have known for the past 100 years.  Without care and adjustment to these new realities, we face societal disintegration. We may die slowly or, depending on what we do, we may die rapidly. One way or another, we will die. What will we replace the old economy with and how will it look is the really big question.

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2 responses to “Automation Redistributes Wealth And Destroys The Consumer Economy

  1. I do not know the answer, but it is interesting to speculate. The “free market” theory says this type of inequality in the market will equalize itself. Those at the non-technical end will begin to arrange small markets where they can barter and obtain what they need, while at the technical top there will be less and less demand for their services/goods so will begin to produce what the masses need or do the Henry Ford thing, that is paying people enough to buy the goods they produce. One cannot exist without the other unless there are some artificial props or tampering going on in the market. If those on the low end are being given resources without producing anything then this tampers with the ability of the market to equalize based on production and consumption. You could argue there has already been tampering in the top end arranging to give themselves too much, but theoretically this should fall apart if the market is allowed to adjust. Also, we must consider the global market, where there are those willing to compete, so we cannot consider the US economy in a vacuum any more.

  2. I am genuinely grateful to the holder of this site who has shared
    this wonderful piece of writing at at this time.

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