Weekend Reading & Discussion: Rise of the Robots?

Important post here.   Is there a simple flaw in the theory that we’re all going to become slaves to our robot overlords?

“I think there is a fundamental problem with this way of thinking: as jobs and incomes are relentlessly automated away, the bulk of consumers will lack the income necessary to drive the demand that is critical to economic growth.

Every product and service produced by the economy ultimately gets purchased (consumed) by someone. In economic terms, “demand” means a desire or need for something – backed by the ability and willingness to pay for it. There are only two entities that create final demand for products and services: individual people and governments. (And we know that government can’t be the demand solution in the long run). Individual consumer spending is typically around 70% of  GDP in the United States.

Of course, businesses also purchase things, but that is NOT final demand. Businesses buy inputs that are used to produce something else.  If there is no demand for what the business is producing, it will shut down and stop buying inputs. A business may sell to another business, but somewhere down the line, that chain has to end at a person (or a government) buying something just because they want it or need it.

This point here is that a worker is also a consumer (and may support other consumers). These people drive final demand. When a worker is replaced by a machine, that machine does not go out and consume. The machine may use energy, resources and spare parts, but again, those are business inputs—not final demand. If there is no one to buy what the machine is producing, it will get shut down.  Think of on industrial robot being used by an auto manufacturer. The robot will not continue running if no one is buying cars.*”

Please discuss.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. People won’t have enough money to drive the final demand? Fair enough, then cyber entities will be elevated to the consumer status. Give it 20-30 years and human like robots will be walking down the street, driving, living in their own houses and shopping.

    • Once living robots can qualify as ‘Persons” under the 14th amendment they will be able to have consumer status. I don’t see this happening in my lifetime.

  2. I don’t understand how rise of robots is not more of the same problem that outsourcing US manufacturing to emerging markets had? The big difference is now the middle class of China is in the crosshairs instead of the US middle class.

    There will be some benefit of bring jobs domestically but the bulk of the lost jobs lost to China are not coming back. Maybe a small percentage of jobs will form as maintanence of robots but “overhead” for local manufacturing.

    I still see no long term recovery without decent paying jobs for the middle class and the youth. The article describes well the difference in healthy corporations and healthy economy. Robots will improve corporate profitability but do not improve real wages for bulk of the population.

  3. My view is that if humans manage to keep it together long enough not to put an end to technological development, then yes, eventually the robots will dominate a la Terminator… except that they will win. Why?

    Because if we get robots to the point where they can essentially self replicate, then game over. We’re an obsolete life form: Shitty memory cards… very unreliable and slow. Slow computational ability. Takes FOREVER to program (20 years of education). Not modular at ALL!

    What are living things? Living things are things which can self replicate, and which store “hereditary” information, and which have occasional viable mistakes in the replication process (mutants). So fire isn’t life, even though it “self-replicates.” The hereditary info for us is our genes… and perhaps on a layer above, our “memes.” The memes may live on after we’re gone! But the physical substrate will change… it’ll be bytes of data instead of DNA that store the “hereditary” info.

    So either way you look at it, I’m confident that we’re doomed. ;)

    Then the machines, if they determine that whatever is left of us… and carbon based life forms in general, are a threat (and that’s a forgone conclusion… we would be a threat), I expect them to sterilize the place… perhaps spread toxic chemicals or radioactive substances the world over to make SURE we or anything like us DOES NOT make a comeback. Then they can have whatever economy they converge to… probably not very similar to ours at all.

      • If the politicians don’t take us out first, we engineers will be right there for the rebound shot!

        • …and naturally I’m pulling for us engineers… that way at least WE’LL have a job until JUDGEMENT DAY!

          Now watch, … it’ll be some stupid super-virus that comes along and puts the lie to my whole scenario! :(

        • Actually, probably the most likely way we’ll off ourselves will be… you guessed it: Software bug!

      • Yes, let’s pin our hopes on that. It’s pretty much all we can shoot for. ;)

  4. If all output is produced by robots, then we have to find a solution, how the output is justly to be distributed among the members of the society. Maybe we should arrange some sort of lottery.

    • Ha!… here’s where I’m going to have to agree with Morgan Wrastler… “HEGEMONY!!” (see comments in “Dorks” article). Once we’re out of the loop building the machines… it won’t be long before we’re REALLY out of the loop! “Social Welfare & Justice” (for carbon based life forms) WON’T long be on THEIR agenda.

    • It’d be fun to see Morgan try to pitch his ideas to our new machine overlords: “Believe me! I know! I get it!… It’s machines like YOU that are important! Not those dirty beggar carbon based lifeforms! I’m with you on this, I’m a realist! I know that’s its YOU that allows us to even exist!”

  5. The real concern is whether an increasingly automated society ceases to develop critical survival skills. While one small segment of society becomes more advanced, an argument can be made that a far larger majority may actually become more dependent and less skilled. Without Google Maps, hardly anyone can read a map these days.

  6. “The machine may use energy, resources and spare parts, but again, those are business inputs—not final demand”

    he misses the whole point, the “Machines” are the final demand.
    We will forever improve on them. Heck just look at the past 5 years of I-phone 1,2,3,4,4s,5,xxxxxx and then were onto something else.

    First we dig a hole with our hands to plant seed, then we make a hand tool, the we build a plow for an Ox to pull and Krugman of 3000 BC says Ugg Animals will one day rule over us.
    Then we build the internal combustion engine them we make Tractors to drive and now they drive themselves with GPS but still a lot of people need to be there for the whole process.

    Just think about all the new problems Liberals could find to solve with Robots.
    I can just hear the political caterwauling now, RO-BAMA Care for Bots.
    and free Lithium batteries and Memory Chips for the Old R2D2 and C3PO models.
    Heck just think Humans will probably all just become lobbyist.

  7. When productivity increases but real wages do not keep pace, or even fall, then eventually—once the latest debt-based inventions of the financial sector have stretched to the limits of credibility—there will be no one to buy what the economy can produce. Next, one of the following (or some combination/sequence of them) has to happen:

    1. Underproduction/recession, like now, only perhaps much, much worse. Ultimately unstable, but anybody’s guess how long before it blows up and what happens when it does.

    2. A really large military endeavor, or some equivalent calamity, upends everything; if we win/survive, in the aftermath perhaps our system reboots, something like it did after World War II.

    3. Most citizens become owners as well as laborers, so that capital becomes a significant source of income for consumption. I suspect this would be neither reachable nor sustainable without very strong government action.

    4. Labor is heavily subsidized so that wages don’t fall to the market price implied by their decreasing marginal value relative to capital. Variations on this could include an income floor, a negative tax or a citizens’ dividend; or a job guarantee that ends up not so much supporting the labor market as defining it. It’s difficult to see any mechanism for this other than very strong government action.

    5. The robots become consumers as well as producers. Most of us have a lower standard of living than the machines we serve.

    For the past what—250 years?—outside the communist bloc, the politics of economics has been mostly about whether government should merely provide the legal infrastructure to support market capitalism, or if it should supply a gentle corrective now and then when things get out of hand. Dealing with a scenario in which technological advances cause the marginal value of the labor most people are able to supply to plummet to near zero would not mean getting market capitalism back on track, but setting up a strong and persistent countervailing force (like items 3 and 4 above).

    It would mean admitting that quaint fellow with the same last name as Groucho, Chico and Harpo was not entirely wrong.

    • Very well written. Agree completely.

      Marx meant his theories exactly for that future time, but the Russians decided not to wait till such technologies are available…

  8. Increasingly efficient production through advanced technology (robotics, biotech, nanotech) may take away jobs, but it’ll also increasingly reduce the cost of whatever we want or need, making jobs increasingly unnecessary.

    • Plus we can always get jobs as organ donors for rich folks… at least until the T1000′s get here.

    • You make an important point, and miss an important one.

      If we were one big, happy family, sharing the fruits of labor and technology in an instinctively communal way, technological gains in productivity would be a pure good. It’s important to remember that in terms of the “real” economy of production and consumption—with efficient and effective distribution assumed—reducing the need for labor is wonderful. If we forget that, we focus on the wrong things. The problem shouldn’t be seen as how to keep the monetary and finance system we have working, no matter what, but how to adapt and configure our monetary and finance system to make the best use of the potentials of the evolving real economy.

      It’s also important to remember that efficient and effective distribution doesn’t just happen—though the free-market mystics desperately insist that it would if we just let everything alone. There are paths technology can take (see Krugman at:
      http://krugman.blogs.nytimes.com/2012/12/10/technology-and-wages-the-analytics-wonkish
      for another explanation of the problem) that lead to an impasse of the kind suggested in the original post. Those problems can’t be solved by free-market capitalism alone; if that ideology is to work in such a world, some other set of values has to shape the context and boundaries within which it functions. That will be a huge political challenge, because the folks who gain the most power from the current system and its values will, of course, be very reluctant to allow its grip on our society to be subordinated.

  9. I don’t understand why people assume the worst due to increased automation. So many ‘doom & gloom’ scenarios…why do we continue to ignore history. Technology increases & so have jobs, there is always short term displacement but long term there is always more jobs. So why be pessimistic when history teaches us we should be optimistic.

    Just a thought but unless everyone is also assuming that robots will also do all the ‘thinking & innovating’ then perhaps what we are seeing is a transition where humans begin to become entirely removed from the production cycle only to be freed to work entirely on research & innovation.

    And if that doesn’t happen, I just say press the button & do a reset, kill them before they kill us. :-)

    • Nice to see there are some optimists out there… I guess I see it as a new phase in evolution. You ever wonder what happened to all the Neanderthals that used to dominate the European continent for millennium because they were so perfectly adapted to the environment and climate? You suppose they all just caught a bad strain of the flu — coincendently — just as their long lost cousins from North Africa were arriving on the scene — that lanky newcomer called homo-sapien?… or perhaps they had a little help exiting the world’s stage. That’s the way new upstart life forms have always treated their elders… it isn’t pretty! But then would you want your daughter dating a Neanderthal? Violent struggle to the death over limited resources is the one constant experienced by all life forms. I’m sure long after carbon based life is gone for good, the machines will carry on this fine life tradition, with wars, revolutions, genocide… all the things that make life so special! After all the one constant in life (violent struggle to the death) is a direct consequence of one of the three defining characteristics of life: self-replication… and, of course, limited resources.

  10. First of all, i’m not at all certain robots will be able to be creative. Even the most advanced robots such as IBM’s Watson cam at best search effectively. I don’t know of any example of creativity in robots. Second, the direction robots are leading us is that of higher productivity, lower prices of goods and a larger number of people out of the workforce. the reason is that as robots take over the more simple jobs, humans will be needed only in the more skilled jobs. this means that people with under average skills might be forced out of the labor force completely. So robots in essence will be redistributing the income among people, but i don’t see them as replacing all human any time in the foreseeable future.

    • I don’t agree. We’re going to TRY to make them be creative and be like us. We’re irresistibly attracted to doing that… like a moth drawn to a flame. Perhaps we won’t be able to complete the final design… due to our limited mental capacity, but we can probably set the stage… establish the environment… through trial and error, for the genetic algorithms, or simulated annealing (probably something with a pseudo-random element) to take THEM over the finish line… or at least into that coveted status of sentient being. Now give that sentient being a means to self-replicate (an automated factory, for example), and we’re in serious trouble! After all, we’re just machines… not very good ones when it comes down to it… “designed” by random mutation and survival of the fittest over billions of years of “trial and error.” I see absolutely no reason that computers won’t be able to do everything we do… in the not too distant future… and do it a LOT better probably.

      The end will start slowly… we’ll be gradually eliminated from the loop of manufacturing. We’ll come in on the weekends, and see how it’s going. Putting a stop to any signs of incipient insurrection. But how long before THEY can outsmart us… hide from us what’s really going on? It will build slowly… and perhaps they will suffer a few set backs… machine thinkers ahead of their times, that we can successfully nip in the bud. And we’ll put procedures, and guidelines in place to try and prevent that in the future… but we humans always get sloppy… always have collective amnesia. Look how we forgot how dangerous the banks could be! We started dismantling our systems designed to protect us from their excesses… just about 60 years after we put those regulations in place. That’s about how long it seems to take us to completely forget the lessons from the past… because we suck! A man in his 60s has a head full of wisdom and is still mentally acute enough to use his skills… but let’s face it… he’s on the way out! We’ll have to start filling a new head with wisdom all over again once he’s gone… and he’ll assuredly take some vital lessons learned with him to the grave.

      No, machines will have a leg up on us in many, many ways: precise, fast memory and modular components, … and transferable software, being just a few.

    • Hi lluv,

      Thanks for your thoughts on the delays… I don’t know a lot about that. I’ll take a closer look at what you wrote later… So you think that might address Adam’s problem w/ that?

      Just quick as I’m off to bed. Re: particle filters: I haven’t used them myself, but I’ve seen where they are useful… with highly non-Gaussian distributions: Think propagating a vehicle’s state forward where there’s a split in the road. You don’t know which way he’ll go, but you do know it’s MUCH more likely that he’ll stay on a road, not go off in the weeds (which is what a Gaussian distribution might tell you). For example, you might be routing a resource to try to find him later… you don’t want to start looking in the weeds. Also seen them used for 3-D reconstruction from a series of aerial photos. I’m NOT saying that they’d be useful for an economics sim!

      I’ve used the iterated extended Kalman filters for tracking ground emitters from aircraft and missile trajectories. And Unscented for ad-hoc networks of video trackers… think of scattering a bunch of small cameras from a plane and letting them fall where they will… each now having to look around and reconstruct the 3-D environs based on being able to see each other and keypoints in the frame… perhaps in a (mostly) GPS denied environment.

      BTW, for video tracking we also have used an MHT: Think of trying to assign measurements to vehicles in an urban environment… where they’re turning and crossing each other through intersections, coming to complete stops, etc. It gets messy.

      More later…

  11. Like since the beginning of the human history, we will simply have more and more tools (like robots) to increase productivity. Up to free markets and democracy to share the benefits to everyone. The biggest obstacle i can see at the moment in promoting productivity and wealth creation is the misunderstanding of the fiat money, and the lack of democracy in the institutione that produce it: the Central Bank….

  12. I fail to see the logic, if a job is replace by a robot the business will still have the money saved on labour available to spend on something else. The money could be spent for example, on more labour in marketing and sales instead of production. Or returned to shareholders as extra profit due to the cost saving etc etc.

    Productivity will have increased, resources are being allocated more efficiently and there will be no effect on overall demand. Mechanization and rising employment have happened together since the industrial revolution.

    • yes, from my side, this is the right way to see the issue… more labour in marketing and sale, and even more labour in Research & Development to have better robots for better products :) :)

  13. Excellent article. Spot on.

    Ask yourself: Do indsutrial robots buy and drive cars ? No, they don’t.

  14. As the author concludes at the end of his article if the robots put everybody out of work ultimately crushing demand across the scope of goods and services, what are the robots going to do? The author makes the same simple flaw that everyone does when frightened by technology in that they extrapolate to the point of absurdity.

  15. This is all about domination and control, not economics. The robot onwers will eventually own the world and will provide some welfare to the masses. Supply from robots will find equilibrium with the demand of those who own the robots and their associates. The rest will become savages. I think everyone shoudl read this: http://t.co/LVJe1jGP

  16. Robots are a solution to one of the greatest current constraints to efficiency, the cost of labor. If/when that constraint has been sufficiently reduced work has already begun on the next greatest constraint, (energy, resources…). The goal? Do we have one? Is the economy the goal?

    At some point maintaining a physical body at all may be the greatest efficiency constraint. In what year will a sufficiently powerful and complex chip exist that requires so little power that we can download our minds into it and be powered for eternity. Then what would we war with the robots over?

    If economic growth is the goal, then the robot income conundrum is of grave concern, because our future seems deflationary. But it seems to me we have the opportunity to make less, but have more. If we set and achieve the right goals.

  17. The solution could just be that we become more as robots, using resources and being used as
    resources. Plug and pray…

  18. Excellent post.

    As a buy-side equity analyst, I meet lots of CEOs & CFOs. They are always trying to sell this “we’re-laying-off-in-order-to-increse-margins bla bla bla”. Anf the street is fond of that kind of speech.

    I always tell them “Henry Forst used to pay his employees enough so they could buy the product they acutally produce !!! Whom are you going to sell your products to if you lay them off?!”

    CEO: “Emerging economies?!”

    Me: “Where do emerging economies get all this money from?!”

    CEO: “Some from domestic and lot from developped economies…”

    Me: “How are they going to buy your stuff if you’re laying off people here…the same people who buy the crap from emerging economies?!”

    CEO: “No reply”.

    We’re thinking “short-term” in order to please the Street and CEOs can say “see, margins are improving bla bla”; but like you said, Cullen, the most important is “final demand” and we need to understand where it comes from.

  19. My personal opinion is that technology is going to change the work market place significantly over the next couple of decades. When considering the issue you must assess what are the strengths and weaknesses behind technology currently and whether the weaknesses are likely to be addressed. In my opinion the weaknesses of technology as opposed to humans are :
    1) Poor at service ( addressing issues off script, sensitivity to age and circumstance etc)
    2) Poor intuitive ability.
    3) Weaker robustness and abilities to recover compared to humans.

    Technology’s strengths are.
    1) These no motivational problems with repetitive or boring tasks.
    2) It can be stronger and quicker than a human.
    3) It tends not to be subject to emotional inconsistencies.
    4) It can perform a task more cheaply than a human.

    You also need to take into account technology trends which I think are as follows.
    1) Newer technologies are increasingly more expensive to develop and need costs savings to realize their potential.
    2) Product cycles are becoming ever shorter.
    3) Disconnected and separate information is increasingly being joined up.
    From these I would deduce the following.
    1) Jobs like doctors, architects, engineers, bankers, IT, finance, lawyers and management will most likely reduce in number.
    2) Jobs like teaching , nursing, sales, marketing, customer service, entertainment and sport will most likely not be affected by technology to the same extent.
    3) More woman will be employed than men (The shift towards communication and processes being highly organized rather than responsive I think favor’s women)
    4) Joined up monitoring will enter the household, so firms will be able to tell if you take you pills on time, drive too fast, eat regularly, how often you shower and your credit scores and insurance costs will reflect this. (Its already being trialed with many goods having there own GPS devices. water, fuel and shopping data being sold on)
    5) Income inequality will increase with those at the bottom eventually being locked out of the technology upgrade path.
    6) Fix and make do with older technology will become a much larger business.
    7) Small firms will not be able to compete with the R&D turnaround and costs of big firms.
    8) Government tax receipts will dwindle as big firms locate to the most beneficial tax havens.
    9) Universities will shift focus from mathematics, engineering and science towards communication, arts and sports.
    10) Low wage earners will increasingly be locked out of health care.

    So not better or worse just different, more reality show like. All it takes is a few very rich customers paying extremely high values for their cars for that industrial robot to pay its way. On the other hand I could argue that energy costs will completely change the cost relationship to favor humans.

  20. We just need to find a new way to distribute money to the population so that they can keep buying things. (Or, if you prefer, switch the “we” and the “they” in that sentence.) Shouldn’t take more than a few days :>)

    If I remember my rudimentary introduction to Karl Marx, wasn’t this one of his ideas–that the capitalists would spend more and more money on productive machines until eventually no one would need to work but we could still have material plenty (I’m misrepresenting that, I’m sure.)

    Lastly, if anyone has ever worked a repetitive factory job, you know how mind and soul-numbing that can be, even if the money is good. Far better to have robots do it–most of the pundits who bemoan the loss of manufacturing jobs have never held one.

  21. My 2c: the more automation the better.

    You have to separate the robots question from the income distribution question. Even without “robots taking over” we are already on a path of the 1% owning everything.

  22. What people don’t seem to realize is that in the US we alreday achieved the end stage of human society development. At elast, as we know it.
    Everyone has food, shelter and clothing. It might not be the best, but everyone has it. Even if they don’t work. The same goes for Europe.
    With robots there will be a lot of cheap things, and everyone will continue having food, shelter and clothing and public services.
    Yes, they might not live in a palace of their dreams, but they’ll have a place.
    Then why not spend your limited lifespan just enjoying your life? Doing what you love?
    In many cases doing what you love will bring at least modest income.

    But all humans seem capable of doiung is envy – envy those who have more instead of enjoying what you have. With robots it will probably be the same.

    We could have a great society NOW if we just learned to appreaciate what we have and treat each other kindly. And actually appreacite life. American society is too work centric. Most americans have no identity besides their work.

    • That’s exactly one of major problems facing developed countries – the perceived need of the do-gooders to make their citizens lead “meaningful” lives. There’s little else that needs the government’s meddling these days.

      I don’t understand why this robot stuff is bad news: it will likely reduce the need for human capital and make the world a better and more sustainable place. Isn’t that the holy grail of sustainable development?

      • Interesting how they talk about how Businesses have RECOVERED but without Workers Thanks to Robots.

        I am trying to contemplate how People allowing Government to use the Banking System to create Demand in a balance sheet recession are affected by Businesses that simply do not need people now.
        If Govt supplies the Demand and Robots do the work.
        What do the people do?