Rise of the Robots -- Paul Krugman

[johnyj]

Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.

The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!

This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.

Twenty years ago, when I was writing about globalization and inequality, capital bias didn’t look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on “skill bias”, supposedly explaining the rising college premium.

But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:



If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.

I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.

But I think we’d better start paying attention to those implications.

[notme]

I wonder what earlier data would show.  The start of your graph happens to coincide with the removal of gold convertibility of fiat money.

[MoonShadow]

Time to break out the sledgehammers and bust up some looms?

[ElectricMucus]

Quite simple really: If that trend is allowed to continue the Marxist dream of commonly owned means of production will be realized without Marxism. That is on an individual level.

Self replicating robots will be as common as kitchen stoves. That is except for:

Time to break out the sledgehammers and bust up some looms?

[MoonShadow]

Quite simple really: If that trend is allowed to continue the Marxist dream of commonly owned means of production will be realized without Marxism. That is on an individual level.

Self replicating robots will be as common as kitchen stoves. That is except for:

Time to break out the sledgehammers and bust up some looms?

Yeah, we are starting to see the beginning of all that with devices such as the Makerbot Repicator and the RepRap.  The company that I work for is a major, international manufacturer, and they own a highly advanced 3D printer that the engineers use.  I'd love to have access to it, myself, but they won't even tell me where it is.  One thing is certain though, they are honestly scared about the quality of the self-replicating hobby 3D printers.  Some have estimated that, at the current rate, most of the products that we make on assembly lines these days will have comparable competition from a printable design.  The old guys are shooting for retirement, and the young guys are simply worried.  Studying to become a manufacturing process engineer, and then discover that a robot is about to make your job obsolete, is certainly disturbing.

I've told more than one that he might want to consider designing some of those competing devices for themselves, and sell the designs for a dollar or two apiece per costumer when the time comes.  Sometimes progress is harsh.  The buggy whip manufactures never did recover.

[Stephen Gornick]

Catherine Rampell and Nick Wingfield [...]

If you are going to copy and paste the entire article you could at least give a link to the source:
 - http://krugman.blogs.nytimes.com/2012/12/08/rise-of-the-robots/

[Spaceman_Spiff]

My god, I find myself largely agreeing with Paul Krugman, what has the world come to !!  :-)

Seems like a fair assessment that automation will diminish the relative value of labor versus capital, and will on average increase the difference between the haves and the have-nots (until/unless wealth redistribution takes place).  It should increase overall wealth though.

[MoonShadow]

My god, I find myself largely agreeing with Paul Krugman, what has the world come to !!  :-)

Seems like a fair assessment that automation will diminish the relative value of labor versus capital, and will on average increase the difference between the haves and the have-nots (until/unless wealth redistribution takes place). It should increase overall wealth though.

It always has, and that is the primary reason that nations that surged during and after the industrial revolution and information age are rich societies today.  It matters very little that the lowest paying job in America is poverty level, if your poverty level is still (in many ways) better than middle class for the bottom third of the world.  The greatest wealth disparity that this country has ever faced, however, was during the Industrial Revolution, and we managed to do just fine throughout that.  The largest single family home in the US was built during this time period, by a child of one of the greatest industrial minds in history; for himself, his wife, his only daughter and roughly 50 of his house help.  His bedroom was literally wallpapered in gold.  Only a few generations later and most of that wealth had dispersed across many decendents, pushing most of them back into the middle class.

http://en.wikipedia.org/wiki/Biltmore_Estate

[scrybe]

Time to break out the sledgehammers and bust up some looms?

I have these nifty wooden shoes we can use!

[Melbustus]

It matters very little that the lowest paying job in America is poverty level, if your poverty level is still (in many ways) better than middle class for the bottom third of the world. 

Or if your poverty level is still (in many ways) better than middle-class was in America for your grandfather or great-grandfather.

... Only a few generations later and most of that wealth had dispersed across many decendents, pushing most of them back into the middle class.

http://en.wikipedia.org/wiki/Biltmore_Estate

Ever taken the tour? My wife and I went last year. That place is insane. Something like 4 acres *under the roof*.

[johnyj]

I am just concerned, with so many people lost their job to robots, how would the total consumption power of the society become?

Take an extreme case, if one person in a country own all the robot and these robot in turn make other robot to do all the work, then to whom could he sell his products? All the other people are jobless and without income, they live at social welfare level. His production will continuously shrink until it mets the demand from all the other people's consumption at lowest social welfare level, and those social welfare handouts are coming from his own production too (in tax form)

More abstractly, it is like: I made $100 worth of goods, sell them for $100 and paied $50 tax to government, and government give those $50 to other people to buy my $50 worth of goods, so half of the income I made is actually my own money which is paid to government as tax, I just earned my tax money back again and again

[thezerg]

I toured a PCBA (PBC assembly) USA shop 2.5 years ago and even then the entire line is run by robots.  There is a guy who keeps the chips feeding into the pick-and-place machine and another at the end sitting at a computer the shows live snapshots of photos of the chips soldered onto the board.  The computer only shows a few snapshots per 10-20 boards -- the optical system can automatically determine the quality of the soldering for most pads.

Then there are maybe 10-20 "rework" stations where squint-eyed old retired ladies fix any issues with tiny solder irons.  I remember months ago that some people in these forums actually laughed at photo of a grandma holding up a BFL board but believe me that person was probably the best!

The CEO explained that the cost was about 4-5 times that of overseas and complained that the overhead wasn't the salaries but compliance with all the rules and regulations... but that is one single operator so maybe their mileage differs.

Personally, I've discovered in some forays into PCB assembly that one key cost factor is actually import taxes into China.  You have to pay 20-30% of the value of the the CHIPS just to import them into China to get them soldered onto a board and then sent right back out of the country!  So the boards that tend to be fabricated domestically are ones with very high value chips.  This observation is consistent with what I saw coming off the line during my tour.  While the consumer market is overrun with really cheap chips, $500-$2000 single chips certainly still exist in telecom applications.

So this guy seems way off the mark to me...

[bce]

 

   We can't say that we didn't see this one coming.

[Spaceman_Spiff]

Take an extreme case, if one person in a country own all the robot and these robot in turn make other robot to do all the work, then to whom could he sell his products? All the other people are jobless and without income, they live at social welfare level.

I think you are thinking too much as an economist, which tends to cloud common sense :-) (just look at Krugman).
In the extreme case: if robots can produce everything and do all the work, and you own all the robots, why on earth would you want to sell anything to anybody?
The only reason you sell things to others is so you can have goods or services from them in return (or promises for such things in the future).  If all your needs are being fulfilled, where is the need to sell stuff?

[ElectricMucus]

Take an extreme case, if one person in a country own all the robot and these robot in turn make other robot to do all the work, then to whom could he sell his products? All the other people are jobless and without income, they live at social welfare level.

I think you are thinking too much as an economist, which tends to cloud common sense :-) (just look at Krugman).
In the extreme case: if robots can produce everything and do all the work, and you own all the robots, why on earth would you want to sell anything to anybody?
The only reason you sell things to others is so you can have goods or services from them in return (or promises for such things in the future).  If all your needs are being fulfilled, where is the need to sell stuff?

It's not that dramatic since it actually is a more gradual change towards decentralization.
There won't be all of a sudden a complete industrial production chain on your desk.
There still will be lots of work to do, and since products get more complex and complex there still will be plenty of jobs.

In integrated circuit and software design alone there is virtually limitless thirst for human resources, if nothing else most current jobs will be abstracted into those two categories. But it's a long way to get there.

[Adrian-x]

My god, I find myself largely agreeing with Paul Krugman, what has the world come to !!  :-)

Seems like a fair assessment that automation will diminish the relative value of labor versus capital, and will on average increase the difference between the haves and the have-nots (until/unless wealth redistribution takes place).  It should increase overall wealth though.

Bang on, me too. I guess Krugman is open to rethinking his opinions.

Some overlooked facts:
With automation comes lower prices and job losses and with job losses come less spending power, in a free market this is natural and not of much concern, as there will be a more flexible and innovative workforce, who can benefit from the lower prices.

The described problem is paradoxical if you are responsible for managing the economy and responsible for offsetting the benefits of automation with inflation.

The most important asset you can have in life is, well, lots of assets inherited from your parents.

This is a fact that is the key to resolving the problem as this mechanism is primarily responsible for creating monopolies in that  it concentrates the land that would naturally belong to everyone in the hands of a few. Inflating the money supply (causing price inflation) in turn puts pressure on inherited assets like land to be liquidated to create usable wealth causing land to move to the wealthy few.  The result is a land oligopoly and a rent tax on a growing population. This tax is then the cause of poverty as it is the inhibitor to the flexibility and ingenuity of the workforce that are the result of being displaced by automation.  (Now to be  subjected to rental slavery)

Automation is good for us all it isn't a problem but a benefit, who gets the benefit is the problem.  (The benefit to date has been used to offset inflation)

The problem is exacerbated by low interest rates that create capital for investment in automation at the expense of creating jobs for the majority, and then encourage consumption of economic benefits with borrowed money.

[MoonShadow]

It matters very little that the lowest paying job in America is poverty level, if your poverty level is still (in many ways) better than middle class for the bottom third of the world. 

Or if your poverty level is still (in many ways) better than middle-class was in America for your grandfather or great-grandfather.

... Only a few generations later and most of that wealth had dispersed across many decendents, pushing most of them back into the middle class.

http://en.wikipedia.org/wiki/Biltmore_Estate

Ever taken the tour? My wife and I went last year. That place is insane. Something like 4 acres *under the roof*.

Yes, I've seen it. The architect of the garden and grounds is the same guy that designed several public parks in my city, and the similarities are notable.  Again, his bedroom was wallpapered in gold.  Actual gold, not gold colored paper; but actually gilded paper.  The gold in that room was worth about  a million dollars alone.  To attempt to build something like Biltmore today would destroy America's most richest men today, even considering that many of the construction techniques used in Biltmore were invented there, and that he literally founded an air conditioning company that still exists. (the name of which escapes me at the moment).

[odolvlobo]

I am just concerned, with so many people lost their job to robots, how would the total consumption power of the society become?

People may lose their jobs in the short term, but in the long term, people are freed from doing menial tasks and are given the opportunity to do more productive work. This process has been going on for a few 100 of years and it has worked out quite well so far.

Seems like a fair assessment that automation will diminish the relative value of labor versus capital, and will on average increase the difference between the haves and the have-nots (until/unless wealth redistribution takes place).

It will diminish the relative value of manual labor. This is the problem with Krugman's brain fart -- He seems to equate unskilled manual labor and skilled labor. He is wrong. There will always be an increasing need for skilled labor. Somebody has to design the robots, and somebody has to come up with better designs. Capital doesn't just organize itself. Somebody has to figure out how to utilize the capital and somebody has to come up with more efficient ways to utilize capital.

If this were ancient Egypt, Krugman would have declared that the inventions of levers and pulleys meant the end of civilization. Imagine all those laborers being put out work! What would people do?

[johnyj]

Take an extreme case, if one person in a country own all the robot and these robot in turn make other robot to do all the work, then to whom could he sell his products? All the other people are jobless and without income, they live at social welfare level.

I think you are thinking too much as an economist, which tends to cloud common sense :-) (just look at Krugman).
In the extreme case: if robots can produce everything and do all the work, and you own all the robots, why on earth would you want to sell anything to anybody?
The only reason you sell things to others is so you can have goods or services from them in return (or promises for such things in the future).  If all your needs are being fulfilled, where is the need to sell stuff?

That is the problem, if you could not sell your stuff, the only thing you can do is reduce the production. Already since 100 years ago, social welfare system has been taken great steps in creating those consumptions to digest the excessive production power

Of course there will be jobs for software and robot design, but that kind of job is mostly outsmart majority of people's IQ, so it won't solve the whole problem

Just saw in the other post that most of the BTC developers and miners' IQ are well above average, that is the reason BTC won't go mainstream

[Spaceman_Spiff]

Take an extreme case, if one person in a country own all the robot and these robot in turn make other robot to do all the work, then to whom could he sell his products? All the other people are jobless and without income, they live at social welfare level.

In the extreme case: if robots can produce everything and do all the work, and you own all the robots, why on earth would you want to sell anything to anybody?
The only reason you sell things to others is so you can have goods or services from them in return (or promises for such things in the future).  If all your needs are being fulfilled, where is the need to sell stuff?

That is the problem, if you could not sell your stuff, the only thing you can do is reduce the production. Already since 100 years ago, social welfare system has been taken great steps in creating those consumptions to digest the excessive production power

I still don't see the problem.  Why do you insist on the need for people to buy your stuff in this hypothetical scenario?  Trading is a solution to satisfy your own needs (and do so more efficiently), it is not a goal in itself.

Just saw in the other post that most of the BTC developers and miners' IQ are well above average, that is the reason BTC won't go mainstream

Because personal computers only became mainstream since Bill Gates and Steve Jobs were retards?