This thought experiment, which I'll name "WALL-E" in honor of the animated movie about a future civilization that comes close, was prompted by Ray Kurzweil’s book How to Create a Mind. (Coincidentally, the book includes many other interesting thought experiments.) For centuries the economy has engaged in "creative destruction," where technological advancement destroys jobs for humans - buggy whip and slide-rule assemblers, for example - while it creates others: auto mechanic, computer programmer, etc. Robots won't suddenly become the intellectual equals of humans, as the thought experiment implies. As we humans continually improve them, we will busily find valuable things to do that robots can't, at least yet. Maybe we will keep doing that forever. And even if robots were every bit as capable as humans, I can't imagine electing one to be president, or wanting one to be a hospice director. Perhaps our ultimate competitive advantage over robots is our mortality - although, when we figure out how neurons can directly communicate with computers, it may get difficult to tell human from robot.
Nevertheless, the WALL-E question stands. Where's the "creative" in creative destruction if each new job technological advancement spawns can be done better by a robot, at lower cost? Would we humans get jobs building robots? Remember the premise: any - any - job a human can do, a robot can do better. So robots, not humans, would build robots.
Accepting the premise at face value, it's an understatement to say the concept of human employment would be fundamentally transformed.
A lot would depend on who owns the robots. Let's say for argument that there were as many human-capable robots as humans, ten billion of each. Let's assume that due to technological advancement these incredible robots, robots so advanced they can do anything a human can do, only cost $5,000 per year to run.
At one extreme, all ten billion human-capable robots could be owned by me. I could "hire out" the robots at say $20,000 per year, making a annual profit of $150 trillion dollars. Meanwhile, Adam Smith's invisible hand would drive human salaries down to $20,000 per year. If there's demand for more than ten billion workers, remember I can have my robots build more robots. So while it's possible for humans to find employment, Adam Smith ensures they can't find jobs paying more than what I charge for my robots.
At the other extreme, each human in this scenario could own one robot. That would still create downward pressure on human wages, but the profit from robots would be spread far and wide. Current ownership of robots, limited though the robots are, is concentrated in large corporations, and we can expect that pattern to continue.
Capital and human labor are the inputs into all goods and services. In my WALL-E thought experiment, perhaps some people would find jobs paying $20,000 per year, but for all intents and purposes, human employment has been wiped out. Goods and services are produced entirely from capital, and income is composed entirely of investment income.
So, in WALL-E world income inequality very likely would be higher than today, as human wages fall and robot "wages" accrue to a concentrated few.
How then, could anyone (other than me, of course) afford to buy anything? It wouldn't even be in my self-interest to own the entire robot labor force, because no one could buy the stuff my robots produced. (As one example of this consideration, Henry Ford deliberately paid his workers above-market wages so they could afford the cars he sold, allowing him to sell more cars.) The public policy lesson is that concentrated robot ownership could lead to higher levels of income inequality, and at high enough levels, income inequality creates a drag on the economy, hurting everyone. Like I said, a lot would would depend on who owns the robots.
Another consideration is the relationship between productivity and wages. For much of the twentieth century, productivity increases, measured by Gross Domestic Product (GDP) per person, have lead to wage increases. When each worker can produce more, companies, in the aggregate, have sought more workers, not less. The expanding economy spawns a new, more productive job for every job destroyed; companies discover they must offer higher wages in order to fill those new jobs, even if the job is no more difficult and requires no more skill. Other companies then have to raise wages in order to retain their workers. In an effect identified by Baumol, an economist, this can even lead to wage increases for jobs (hair stylists, perhaps) where productivity has not increased.
But in WALL-E world, productivity increases push wages down, not up. If technological advances (developed by robots, of course) allow my robots to produce twice as much at the same cost, such that it takes two humans to replace one of my robots, then that will force human wages down to $10K per year. And with robots in WALL-E world designing new, ever more capable robots, productivity growth would skyrocket.
I doubt we will ever be presented with a scenario as extreme as my WALL-E thought experiment, at least not in the twenty-first century. It's tempting to conclude that since the scenario won't occur, we won't have to contend with the issues WALL-E world raises. But these issues aren't binary. If a fraction of the scenario occurs, we will experience a fraction of the consequences. Hyperbolic extremes can illuminate subtle issues that exist in more realistic scenarios, but are hard to see. Although technology will fall short of the WALL-E thought experiment, it will continue to advance, and advance quickly. Thus, to some limited degree we will experience the effects discussed above.
In fact, income inequality has been increasing, a trend Tim Noah masterfully covered in a series of articles titled The Great Divergence. This could either be a passing fad, with income inequality dropping again soon, or the leading edge of a sustained climb, which if it occurs, would become the defining public policy issue of the twenty-first century.
And, in fact, we've also recently seen productivity growth coupled with stagnant wages:
The economy’s failure to ensure that typical workers benefit from growth is evident in the widening gap between productivity and median wages. In the first few decades after World War II, productivity and median wages grew in tandem. But between 1979 and 2011, productivity—the ability to produce more goods and services per hour worked—grew 69.2 percent, while median hourly compensation (wages and benefits) grew just 7.0 percent.(I suspect average wages have done better than median wages, as wages for high income earners have probably grown.)
Perhaps we will soon invent whole new job categories in an expanded economy, and the stagnant median wages we've recently experienced will turn out to be a temporary phenomenon in the long arc of history. But the WALL-E thought experiment suggests that with sufficiently advanced technology, steadily increasing productivity will force wages down. Could wages be on a downward trajectory from now on? In The Lights in the Tunnel, author and Silicon Valley entrepreneur Martin Ford says yes:
A simple application of common sense should show us that there is some threshold beyond which the overall economy will become too capital intensive. Once this happens, lower prices resulting from improved technology will no longer result in increased employment. Beyond this threshold or tipping point, the industries that make up our economy will no longer be forced to hire enough new workers to make up for the job losses resulting from automation; they will instead be able to meet any increase in demand primarily by investing in more technology. ...
What might we expect to happen if the overall economy were approaching this tipping point, beyond which industries would no longer be labor intensive enough to absorb workers who lost their jobs to automation? We would probably expect to see gradually rising unemployment, stagnating wages and significant increases in productivity (output per hour of labor) as industries were able to produce more goods and services with fewer workers. That sounds uncomfortably close to what actually occurred in the years leading up to the current recession.Even if technological advancement falls far short of WALL-E, it will greatly improve our future, just as it has improved our lives in the past. But our economy may already be experiencing side effects from accelerated productivity growth: greater income inequality and stagnant median wages. If economic growth doesn't keep pace with productivity growth, jobs and wages will decline, a serious problem at least until WALL-E world makes human labor obsolete. With the technological frontier moving as fast as it is, we need to either create new jobs at a much faster pace, or transition to an economy where human labor doesn't play the critical role it does today. (People might still work, but it would be more of a choice, influenced in part by factors other than income - labors of love.) Either way, we will need more than the bromide of education reform; we will need an entrepreneurial spirit our forefathers could never imagine.
