Rise of the Robots: Technology and the Threat of a Jobless Future (40 page)

The Market as a Renewable Resource

Aside from the need to provide a basic safety net, I think there is a powerful economic argument for a guaranteed income. As we saw in
Chapter 8
, increasing technology-driven inequality is likely to threaten broad-based consumption. As the job market continues to erode and wages stagnate or fall, the mechanism that gets purchasing power into the hands of consumers begins to break down, and demand for products and services suffers.

To visualize the problem, I find it useful to think of markets as renewable resources. Imagine a consumer market as a lake full of fish. When a business sells products or services into the market, it catches fish. When it pays wages to its employees, it tosses fish back into the lake. As automation progresses and jobs disappear, fewer fish get returned to the lake. Again, keep in mind that nearly all major industries are dependent on catching large numbers of moderately sized fish. Increasing inequality will result in a small number of very large fish, but from the point of view of most mass-market
industries these aren’t worth a whole lot more than normal-sized fish. (The billionaire is not going to buy a thousand smart phones, cars, or restaurant meals.)

This is what’s known as a classic “tragedy of the commons” problem. The vast majority of economists would likely agree that a situation like this calls for some kind of government intervention. In the absence of this, there is no individual incentive to do anything except catch as many fish as possible. Real-world fishermen may understand fully that their lake or ocean is being over-fished and that their livelihoods will soon be threatened, but they will nonetheless go out every day and maximize their catch because they know their competitors will do the same. The only viable solution is to have some regulatory authority step in and impose limits.

In the case of our consumer market, we don’t want to limit the number of virtual fish that businesses can catch. Instead, we want to make sure the fish get replenished. A guaranteed income is one very effective way to do this. The income gets purchasing power directly into the hands of lower- and middle-income consumers.

If we look further into the future and assume that machines will eventually replace human labor to a substantial degree, then I think some form of direct redistribution of purchasing power becomes essential if economic growth is to continue. In a May 2014 paper on the future of American economic growth, economists John G. Fernald and Charles I. Jones speculated that robots could “increasingly replace labor in the production function for goods.” They then go on to suggest that “in the limit, if capital can replace labor entirely, growth rates could explode, with incomes becoming infinite in finite time.”
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This strikes me as a nonsensical result; it’s the kind of thing you get by plugging numbers into an equation without really thinking through the implications. If machines substitute for workers entirely, then no one has a job or an income from any type of labor. The vast majority of consumers have no purchasing power. So how can the economy keep growing? Perhaps the tiny percentage of people
with significant capital ownership could do all the consuming, but they would need to continuously purchase goods and services of staggering value in order to keep the global economy growing.
*
And this, of course, is the “techno-feudalism” scenario we looked at in
Chapter 8
—not an especially hopeful outcome.

There is, however, a more optimistic view. Perhaps the mathematical model Fernald and Jones are using might be said to
assume
a mechanism—other than income from labor—for distributing purchasing power. If something like a guaranteed income were implemented, and if the income were increased over time to support continued economic growth, then the idea that growth could explode and incomes could soar might make sense. This will not happen automatically; the market is not going to sort things out on its own. A fundamental restructuring of our economic rules will be required.

I think that viewing markets—or the entire economy—as a resource also works well from another perspective. Recall that in
Chapter 3
, I argued that the technologies poised to transform the job market result from a cumulative effort that has spanned generations and has involved countless individuals, and has often been funded by taxpayers. To some extent, you can make a reasonable argument that all these accumulated advances—as well as the economic and political institutions that enable a vibrant market economy—are really a resource that belongs to all citizens. A term often used in place of “guaranteed income” is “citizen’s dividend,” which I think effectively
captures the argument that everyone should have at least a minimal claim on a nation’s overall economic prosperity.

The Peltzman Effect and Economic Risk Taking

In 1975, the University of Chicago economist Sam Peltzman published a study showing that regulations designed to improve automobile safety had failed to result in a significant reduction in highway fatalities. The reason, he argued, was that drivers simply compensated for the perceived increase in safety by taking more risks.
¹⁴

This “Peltzman effect” has since been demonstrated in a wide range of areas. Children’s playgrounds, for example, have become much safer. Steep slides and high climbing structures have been removed and cushioned surfaces have been installed. Yet, studies have shown that there has been no meaningful reduction in playground-related emergency room visits or broken bones.
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Other observers have noted the same phenomenon with respect to skydiving: the equipment has gotten dramatically better and safer, but the fatality rate remains roughly the same as skydivers compensate with riskier behavior.

The Peltzman effect is typically invoked by conservative economists in support of an argument against increased government regulation. However, I think there is every reason to believe that this risk compensation behavior extends into the economic arena. People who have a safety net will be willing to take on more economic risk. If you have a good idea for a new business, it seems very likely that you would be more willing to quit a secure job and make the leap into entrepreneurship if you knew you had access to a guaranteed income. Likewise, you might decide to leave a safe job that offered you few opportunities for personal growth in order to take a more rewarding but less secure position at a small start-up company. A guaranteed income would offer an economic cushion for all types of entrepreneurial activity, from the person starting an online business,
to the “mom and pop” retailer or restaurateur, to the small farmer or rancher facing a drought. In many cases, it might be enough to get small businesses through difficult periods that would otherwise bring about their failure. The bottom line is that, rather than resulting in a nation of slackers, a well-designed guaranteed income has the potential to make the economy more dynamic and entrepreneurial.

Challenges, Downsides, and Uncertainties

A guaranteed income is not without downsides and risks. The most important near-term concern is whether or not a strong disincentive to work would be created. While machines clearly seem destined to take on more and more work over time, there is no question that the economy will remain heavily dependent on human labor for the foreseeable future.

There are, to date, no examples of such a policy having been implemented on a national level. The state of Alaska has paid a modest annual dividend funded by oil revenue since 1976; in recent years, the payments have typically been between $1,000 and $2,000 per person. Both adults and children are eligible, so the amount can be significant for families. In October 2013, proponents of a guaranteed income in Switzerland gathered enough signatures to put a proposal for a remarkably generous unconditional monthly stipend of 2,500 Swiss francs (or about $2,800) on the national ballot, although no date has yet been set for the vote. Small-scale experiments in the United States and Canada have shown a reduction of roughly 5 percent in the number of hours that recipients chose to work; however, these were temporary programs and therefore less likely to influence behavior than a permanent program.
¹⁶

One of the greatest political and psychological barriers to the implementation of a guaranteed income would be simple acceptance of the fact that some fraction of recipients will inevitably take the money and drop out of the workforce. Some people will choose to play video games all day—or, worse, spend the money on alcohol
or drugs. Some recipients might pool their incomes, crowding into housing or perhaps even forming “slacker communes.” As long as the income is fairly minimal and the incentives are designed correctly, the percentage of people making such choices would likely be very low. In absolute numbers, however, they could be quite significant—and quite visible. All of this, of course, would be very hard to reconcile with the general narrative of the Protestant work ethic. Those opposed to the idea of a guaranteed income would likely have little trouble finding disturbing anecdotes that would serve to undermine public support for the policy.

In general, I think the fact that some people would elect to work less—or perhaps even not at all—should not be viewed in universally negative terms. It’s important to keep in mind that the individuals who choose to drop out will be self-selecting. In other words, they will generally be among the least ambitious and industrious members of the population.
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In a world where everyone is forced to compete for a dwindling number of jobs, there is no reason to believe that the most productive people will always be the ones to land those jobs. If some people work less or drop out entirely, then wages for those who are willing to work hard may rise somewhat. That fact that incomes have been stagnant for decades is, after all, one of the primary problems we are trying to address. I don’t see anything especially dystopian in offering some relatively unproductive people a minimal income as an incentive to leave the workforce, as long as the result is more opportunity and higher incomes for those who do want to work hard and advance their situation.

While our value system is geared toward celebrating production, it’s important to keep in mind that consumption is also an essential
economic function. The person who takes the income and drops out will become a paying customer for the hardworking entrepreneur who sets up a small business in the same neighborhood. And that businessperson will, of course, receive the same basic income.

A final point is that most policy errors in implementing a guaranteed income ought to eventually be self-correcting. If the income were initially too generous and thereby resulted in a strong disincentive to work, then one of two things would happen. Either automation technology would be sufficiently advanced to pick up the slack in production (in which case there would be no problem), or there would be a labor shortage and a burst of inflation. A general increase in prices would devalue the basic income and re-create the incentive to supplement it with work. Unless policy makers did something truly misguided—like, for example, building an automatic cost-of-living increase into the income scheme—any inflation would probably be short-lived, and then the economy would find a new equilibrium.

Beyond the political challenges and risks associated with a general disincentive to work, there is also the question of the impact a basic income might have on housing costs in high-rent areas. Imagine giving every resident of a city like New York, San Francisco, or London an extra thousand dollars per month. There are probably good reasons to expect that a very large fraction of that increase—perhaps nearly all of it—would eventually end up in the pockets of landlords as residents compete for scarce housing. There are no easy solutions to this problem. Rent control is one possibility, but it comes with lots of documented downsides. Many economists have called for relaxing zoning restrictions so that denser housing can be built, but this is sure to be opposed by existing residents.

There is a counteracting force, however. A guaranteed income, unlike a job, would be mobile. Some people would be very likely to take their income and move away from expensive areas in search of a lower cost of living. There might be an influx of new residents into declining cities like Detroit. Others would choose to leave cities altogether. A basic income program might help revitalize many of
the small towns and rural areas that are losing population because jobs have evaporated. Indeed, I think the potentially positive economic impact on rural areas might be one factor that could help make a guaranteed income policy attractive to conservatives in the United States.

Immigration policy is another area that would obviously need to be adjusted in the wake of the implementation of a guaranteed income. It seems likely that immigration as well as any subsequent path to citizenship and eligibility for the income would have to be restricted, or perhaps a significant waiting period would need to be imposed for new citizens. All of this would, of course, add even more complexity and uncertainty to a political issue that is already intensely polarizing.

Paying for a Basic Income

If the United States were to give every adult between the ages of twenty-one and sixty-five, as well as those over sixty-five who are not receiving Social Security or a pension, an unconditional annual income of $10,000, the total cost would be somewhere in the vicinity of $2 trillion.
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This amount would be reduced somewhat by limiting eligibility for the basic income to citizens and perhaps by means-testing it against earned income beyond a certain point. (As I suggested earlier, it would be very important to phase the guaranteed income out only at a fairly high level in order to avoid a poverty trap scenario.) The total cost would then be offset by reducing or eliminating numerous federal and state anti-poverty programs, including food stamps, welfare, housing assistance, and the Earned Income Tax Credit. (The EITC is discussed in further detail below.) These programs add up to as much as $1 trillion per year.