The American Interest
Analysis by Walter Russell Mead & Staff
The Rise of the Robots Has an Upside

Edward Luce has written a thought-provoking column in this weekend’s FT arguing that the rise of the robots is a sign of tough days ahead. The increasing automation of everything from manufacturing to education to health care will especially hit the middle classes of the developed world. A taste:

With each month, the US economy becomes steadily more automated. In January the US economy added just 4,000 manufacturing jobs, and the net increase since July is zero. Yet last month, manufacturing activity rose by its fastest rate since April, according to the Institute for Supply Management. The difference boils down to robots, which pose an increasingly nagging paradox: the more there are, the better for overall growth (since they boost productivity); yet the worse things become for the middle class. US median income has fallen in each of the last five years. [...]

The potential is huge. But in the developed world, the distribution of the benefits is unsustainable. The bulk of US jobs growth since mid-2009 has been in low-skilled areas, such as food preparation and domestic aides. In the second place is jobs growth in high-end services. Middle income jobs have cratered. According to the National Employment Law Project, low wage jobs (that pay between $7.69 and $13.83 an hour) formed 22 per cent of job losses in the recession but 58 per cent of recovery jobs since then—a mirror image of the picture for middle income jobs ($13.84 to $21.18).

The numbers and trends are real, but we’re not as convinced as Luce that they portend quite so grim a future. There are a few things missing from his analysis.

For one, a shift to robots in manufacturing will continue to put pressure on the prices of many of the things people need to buy. Real wages—purchasing power—are in better shape for many important goods than the raw numbers would suggest. That’s going to be true, and the disinflationary and even deflationary impact of rising productivity is going to have a long-term positive impact on living standards. Think of how computing power keeps getting cheaper.

Or look at health care. Luce sees that automation is proceeding at a brisk pace in that sector—and only laments that jobs are going missing. Actually, a reduction in health care costs due to better technology would be excellent news, pointing to a brighter fiscal future for the country. The whole argument is structured in such a way that it leaves you a pessimist either way you look. If health care productivity doesn’t increase we will be swamped by rising prices; if costs stabilize or even decline we won’t have any jobs. We’re doomed either way. DOOMED!

Finally, Luce’s analysis is static. It assumes that people will be immobilized like deer in the headlights. People tend to adapt, albeit with some lag. New businesses will be started. Whole new industries will develop to take advantage of relatively cheap labor, abundant information, and cheap manufactured goods. With all due apologies for abusing the tired cliché about the Chinese language, human ingenuity has a knack for turning crises into opportunities.

Published on February 4, 2013 9:46 am