The Luddite fallacy says that innovation destroys jobs. It is believed to be a fallacy because increased productivity causes prices to fall, which then boosts demand which then creates new jobs. While locally or temporarily, there might be economic growth without job creation, economists believe that job growth will always follow. In effect, it represents the belief that technological innovation is always good economically.
This is a central dogma among economists. Why? Because jobless growth would destroy mass market economies. Indeed, jobs are the primary mean by which money flows back from the corporations to the consumers. Without jobs, consumers leave the market, effectively destroying it. Should the Luddite fallacy fail—if labour-saving technologies did increase unemployment—we would be pushed into some form of communism where the governments would need to either artificially create jobs, or provide direct financial support to the population.
And it is not necessary for the Luddite fallacy to fail entirely to have problems. Imagine that as we innovate, maybe through better machine learning and robotics, we keep losing 2% of all jobs every year. For every 100 jobs destroyed, only 98 new jobs are created. Within a few short years, we would be left with a sizeable fraction of the population which has left the job market entirely, and another fraction which is either unemployed or underemployed.
As bank tellers, cashiers, secretaries, and middle managers are being replaced by software and robotics, the conventional wisdom is that new jobs are created. Maybe people become robotics technicians or solar panel experts. However, how many futuristic jobs are really created? Many of the jobs created in new companies are the same jobs that disappeared: administrative assistant, accountant, manager, engineer, and so on. Certainly, Facebook is a futuristic service. But while it serves hundreds of millions of users, it only has 2000 employees.
In his latest TED talk, Bill Gates hinted that the future looks bleak for governments. Health costs are rising faster than government revenues, even if you assume that the economy will do well. Thus, it is entirely possible that we will need to drastically reduce the cost of healthcare and education. Automation might be the only path forward which would not sacrifice our quality of life. Will we be closing schools and sending the kids to Khan Academy? We may have to automate much of the medical testing and diagnosis. Robotics might be needed to help support an aging population. All these great innovations might be necessary, and they may also lead to further job destruction (or the equivalent lack of job creation).
To make things worse, much of the recent gains from technology are nonmonetary. They fall outside the realm of economics. For example, while journalists have been losing their jobs, I have had access to better content than ever, through blogs and e-books, mostly for free or for little money. Recently, the giant free porn site RedTube has been killing much of the online porn industry: it offers unlimited porn for free.
Should the Luddite fallacy fail, there is an alternative to communism. We should be entering into the age of the 4-hour workweek. We have been investing our productivity gains into more production, which has lead to more jobs. But what if the cycle breaks at some point in the future? The solution might be to redefine “work”. Many bureaucrats only create work for themselves and others. Most of accounting, for example, could be automated. Researchers famously publish papers only for the sake publishing papers. Instead, we should call on accountants or researchers a few hours, here and there, to handle the interesting and difficult problems. Employers, instead of buying 40 hours of someone’s time, would buy the option of calling on the individual in times of need. We would all work far fewer hours, we would preserve the market economies and we would be happier. To make this possible, we need a deep cultural change. How do you feel about people who work only a few hours a week, or a month? My impression is that we look down on anyone who works less than 30 hours a week. Presumably, we inherited this prejudice from the industrial age. We need to let go.
Further reading: The Lights in the Tunnel by Martin Ford.