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.
I think we need to redefine “work” at some point. What does working really mean anyway? How many of those 40 hours are truly spent doing work?
The situation is particularly interesting from a freelancer’s point of view. Especially if you don’t work by hourly rates. 🙂
In this case it is in your benefit to actually work ~less~ or at least more efficiently to maximize your profit and free time.
Of course you can still do 40+ hour weeks if you want to. The question is do you feel like working or do you truly enjoy what you are doing (does definition of work include enjoyment? 🙂 ).
I guess in an optimal situation an individual is able to do something he truly enjoys and may earn her living out of that. No point in doing work if you don’t enjoy it (sounds like work to me…).
“Should the luddite fallacy fail, we would be pushed into some form of communism where the governments would need to either artificially create jobs, or provide directly financial support to the population.”
Or, god forbid, the most heinous form of communism of all: universal ownership of the means of production.
And isn’t the word “artificial” a little harsh re: government employment?
Why is it the people who say government jobs are no match for private sector jobs so frequently turn out to be the same people complaining that those with government jobs have too much job security, too many benefits and are too highly paid (NOT saying you are one of those people). I mean they are either great jobs or they aren’t, geez.
@Nate
I am a government worker: I work for a public, government-owned university. My previous job was at a government research laboratory, I was a civil servant. There is nothing wrong with government jobs.
I am thinking about the case where a country would be left with unacceptably high unemployment rates. What if half the population cannot find any kind of job? Maybe the country is still very wealthy because most of the production is automated, but how are people going to get the money to buy the goods if they have no job? You could imagine that the government could then decide to hire, say, 70% of the population. This may not be, formally, communism, but it is “a form of communism” as far as I am concerned. It is a very hypothetical scenario. Maybe what the government would do, instead, is pay large sums to companies (such as General Motors) so that they could keep a large number of employees even if they don’t need to.
In such a model, we are trying to create artificial work (artificial jobs) just so that we can distribute wealth. That is what I mean by “artificial” as in “unneeded work”.
Much of the work which happens in large organizations and governments, right now, is unnecessary. In 2011, we have the technology to automate almost all accounting, almost all information technology, and so on. But people need to create work because they need to create jobs, so that wealth can be redistributed. This is all very artificial.
If the trend continues, and I cannot see how it would stop, we will get ever more ingenious at “creating work”, but outsourcing and increased automation will require ever more “artificial work” to keep people employed.
Currently, IT folks, for example, will fight against outsourcing or cloud computing, because by showing up for work to babysit the server, they pay their mortgage. The theory is that they are supposed to get “other jobs” if nobody is needed to babysit the server anymore… but which job is it exactly? What if there is no other job waiting for them because none was created?
A lot of IT folks could make a decent living by being “on call” or by working few hours in a data center. And many do. But it is looked down upon. We should be looking at people who choose, or have to work few hours, as “lucky”. And people who have to work 60 hours a week should be “unlucky”.
That’s not what the Luddite fallacy says. The Luddite fallacy says that technological innovation destroys jobs. Period. Economists say that’s a fallacy because of the effects of technology on productivity, etc.
@Manti
I should have worded things better. According to economists, it is a fallacy that “labour-saving technologies increase unemployment by reducing demand for labour”. When I say that the fallacy “fails”, I mean that the original statement becomes true, that is, that jobs are being destroyed.
I will add an update.
Have you seen “zeitgeist moving forward” on YouTube ? Would love to read your opinion.
Cheers !
What if long hours aren’t the result of a culture that values them, and it’s not prejudice that stands in the way of working less? I’m asking because I can think of a few other ways that labor market equilibrium might settle into long hours.
First, the better we get paid for working, the more we lose by not working. All of a sudden you find yourself making all kinds of mental calculations before stopping to smell the roses.
Then there’s the problem of returns to schooling. The higher we think they are — rightly or wrongly — the longer we stay in school. But that cuts down on the years of life left to be spent working, so once we do work, we must catch up.
If there’s also on-the-job learning, things get worse still. You forget at a given rate, whether or not you work, and you might forget faster if you don’t work. To stay employable, you need to learn faster than you forget, so that puts pressure on keeping longer work hours than you would otherwise.
Finally, if we expect a longer idle old age, or more expensive college tuition bills for our offspring, or fraying government safety nets, again we’ll want to put in longer hours while we can.
Basically, we don’t work long hours in order mainly to buy useless stuff. Stuff’s pretty cheap and our storage abilities are limited. We do it in order mainly to buy time. Both as time gets more expensive and as there’s more of it we want to buy, we work harder.
As to why we haven’t yet automated all accounting, and why researchers keep cranking out bad papers, I don’t think that’s evidence of some kind of make- work agenda at play. I think automation is just harder in practice than smart CS professors tend to believe.
Finally, non-monetary gains from technology, like the kick I get from reading your blog, don’t fall outside the realm of economics. Tyler Cowen’s “Create your own economy” comes to mind. I look forward to the update you mentioned at #5.
There seems to be a bit of a non sequitur in your post. On the one hand, companies will be much more effective at producing and not requiring as many workers, thereby not allowing enough money to flow into the economy. On the other hand, governments will not be able to afford the health care costs, and we “have” to automate, our kids will all be taught by Khan academy etc (which I love, but i wouldn’t want that to be the only thing there was…)
And given that all these people are then unemployed, the government would have to create “make-believe” jobs for them?
Well, maybe the government should begin by hiring them to take care of our elderly, and teach our kids (and indeed the whole population)? And if they can’t afford that, maybe they should tax those corporation which are now keeping much more of the surplus, higher?
If I look around in Toronto, I certainly don’t see a society that has no “tasks” unfilled… Infrastructure is crumbling (that subway station could need a new coat of paint), classrooms are cramming more and more students into a room, rec centers are closing in weekends to save money, etc. The people not doing these jobs are not “not doing them”, because they have been made obsolete by computers, but because there is not enough money to pay them, which is a question of government finance.
Not saying this solves everything at all, I certainly don’t know what the equilibrium is, or how stable it is, but this just seemed like an inconsistency.
Haha latin numerals eh? Nice. I’m going to use a captcha that requires you to translate a Chinese proverb into French.
Brooks made a sort of complementary point in his rebuttal of Tyler Cowen’s view on slowing of growth, except that there, the growth-creating innovation never happens in the first place, and is replaced by the non-growth innovations of the experience economy.
http://www.nytimes.com/2011/02/15/opinion/15brooks.html
@Venkat
Brooks’ rebuttal is nice. While I require a fair and generous compensation when I do work, I am hardly motivated by money once I know that I have “enough” to get by.
@Gabi
Your points are valid, but I could make counterpoints as well. For example, you can grow your expertise without even having a job.
@Stian
Our productivity has increased tremendously, but not evenly.
@Stian
I’m going to use a captcha that requires you to translate a Chinese proverb into French.
Hardly a challenge: http://translate.google.com/
Daniel, insightful post. I agree that we are headed towards something like the 4 hour work week, assuming the caveat that you mentioned with regard to unmonetized work. I sincerely doubt that we will dedicate only 4 hours towards productive activities but it might very well turn out that the majority of our productive activity ends up being un-work-like and unmonetized.
Traditional economics faces a bit of an existential dilemma in that it is seriously handicapped by the focus on tangible (monetizable) goods and services. Increasingly we find ourselves exchanging value intangible and unmonetized, but this is value nonetheless and economic principles could be applied to it if the traditionalists would get over their myopic focus on jobs, gdp, and the like.
A general assumption in this thinking it that work is the only possibility to distribute the wealth created by the economy. The unemployment rate says that we do not need all the people to work that much. We produce more than enough food and even luxury stuff, while a substantial percentage of the population is sitting on their couch and watches TV. As a community, we don’t need their working power. The underlying problem is the distribution of wealth, which is currently controlled by the amount and quality of work.
One possiblity is “basic income guarantee” (see wikipedia). A common criticism is that people work less hours, if their income does not depend (so much) on it. Maybe this is not a contra, but a pro?
@Manti
Smith has a nice take, but patents are mostly owned by corporations, not lonely brilliant engineers.
@beza1e1
I agree.
Karl Smith has an interesting take on robotification over at the Modeled Behavior blog:
http://modeledbehavior.com/2011/03/08/the-golden-rule-he-who-owns-the-limiting-factors-makes-the-rules/
His focus is less on the effects on labor than the return to capital (both human and robotic).
@Eduardo
Well that -kinda- already exists in our present world
“The future is already here – it’s just not very evenly distributed.”
Great article, love the comments. We were just having this discussion at work -lunch break- and a colleague shared this piece.
I have just a comment to make. You are talking about hypothetical future scenarios where half of the population is unemployed and many of the new jobs are automated or need little human supervision. Well that -kinda- already exists in our present world: many poor countries have such an unbalanced situation, where most of the population is not fit for jobs requiring elevate mental skills (accounting, for example) and new jobs are already becoming automated, so there’s no time for people to get an education, learn to be accountants and then lose their jobs to computers. Instead, they never gained them in the first place!
And here the state is not as large as it is in Canada or the U.S., so we have limited welfare for the unemployed.
I don’t have a college education or a professional skill and yet I have a job at an IT company that works with machine learning and automated data mining processes. In a 3rd world / poor country.
Anyhow, I enjoyed your article, just wanted to point that out.
Cheers!
Eduardo
“The world needs ditch diggers too”
–Judge Smails, Caddyshack.